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World Review of Intermodal Transportation Research, Vol. 1, No. 1, 2006

Integration of Supply Chain Management systems Uche Okongwu


CERMAS Research Centre and Department of Logistics and Organisation, Toulouse Business School, 20 boulevard Lascrosses, BP 7010, 31068 Toulouse cedex 7, France E-mail: u.okongwu@esc-toulouse.fr
Abstract: This paper proposes a new model (termed SCM Function Deployment) that would enable managers to design their SCM system more effectively. The outcome of the model helps to: determine the degree of collaboration and integration assess the required level of interconnectivity between SC partners identify areas of development and improvement make decisions related to transport integration.

Applying the model to an aerospace company to assess the degree of collaboration and integration shows that only few of the suppliers should be fully integrated at the highest level where strategic information is shared. Keywords: Supply Chain Management; SCM; Supply Chain Management Function Deployment; SCMFD; aerospace; SCM integration; transport integration. Reference to this paper should be made as follows: Okongwu, U. (2006) Integration of Supply Chain Management systems, World Review of Intermodal Transportation Research, Vol. 1, No. 1, pp.2444. Biographical notes: Uche Okongwu is currently a Professor of Supply Chain Management at Toulouse Business School, France. He holds an MSc Degree in Mechanical Engineering and a PhD in Industrial Management. At Toulouse Business School, he has held many faculty positions such as Director of an MBA program in Aerospace Management and Director of a graduate program in Supply Chain Management (SCM). His current research work is focused on development and performance measurement of SCM systems. He is also an independent consultant on SCM issues and industrial organisation.

Introduction

Globalisation and changing economic environments have forced organisations to constantly search for new ways of designing their SCs in order to improve competitiveness and profitability. Although the aim of investing in this area is very clear, Supply Chain Management (SCM) as a concept is defined and implemented in many different ways both in theory and practice. In theory, its definition and design depend on the subject area of educators and researchers: purchasing and supply, logistics and
Copyright 2006 Inderscience Enterprises Ltd.

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transportation, marketing, strategic management, management of information systems and operations management (Chen and Paulraj, 2004). In practice, its implementation depends on many parameters: type of products (Fisher, 1997), market characteristics in terms of volume, variety and predictability (Christopher, 2000), strategic and tactical goals of companies in the SC (Narayanan and Raman, 2004), structure of distribution channels (Payne and Peters, 2004), nature and degree of relationship between companies that constitute the SC (Harland, 1996) and characteristics of the business sector (Cullen and Hickman, 2001). It follows that one size does not fit all (Schewchuk, 1998; Towill et al., 2002). SCs must be designed to best satisfy their ultimate customer requirements (Fisher, 1997). The values imbedded in the processes of a SC are not of equal importance and the companies that comprise the SC do not contribute equally to the processes. There is therefore need for the focal firm of the SC to choose companies who carry out value-adding activities (primary members to differentiate from supporting members) as they affect directly the final value delivered to a specific customer or market (Davenport, 1993; Carbone and de Martino, 2003). After deciding which suppliers and customers to integrate in the SC, managers would also want to decide the level of integration required. Generally, we can talk about three levels of integration: simple communication, coordination using computer-based or web-based systems or collaboration on a long-term basis. This decision-making exercise on SC integration can be carried out effectively by adapting and applying the Quality Function Deployment (QFD) tool. QFD is a method used in Quality Management for translating customer requirements into functional design. Generally, authors describe it as a customer-driven product management system used to incorporate the voice of the customer into appropriate company requirements at each stage of the product development process (Chan and Wu, 2002). QFD has been widely and successfully applied to other fields such as budget planning (Nogueira, 2003), integration of environmental issues in product design (Zhang et al., 1999), manufacturing strategic planning (Crowe and Cheng, 1996), and curriculum and course design (Denton et al., 2005). Since SCM entails incorporating the voice of the customer in the business processes, we propose in this paper to adapt and use the QFD approach to design the SCM system. This gives rise to a new concept that we can call Supply Chain Management Function Deployment (SCMFD). We can define SCMFD as a customer-driven SCM model, which is used to incorporate the voice of the customer into appropriate business processes (or activities) at each level of the SC, from ultimate suppliers to ultimate customers, in order to create higher customer satisfaction, at optimum costs. In order to use the SCMFD concept effectively, SCM needs to be defined from a broad perspective, such that all key business processes and customer requirements would be identified and taken into consideration in the design of the system. So, in this paper, we start by discussing different terms that help to clarify what is meant by SCM. Then, we present the QFD concept and its application to SCM; this gives birth to the SCMFD concept. We also discuss how the outcome could be used to make decisions related to transport integration and the choice of information systems to support inter-organisational relationships. Finally, we discuss the application of the SCMFD concept to an aerospace company.

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Supply Chain Management (SCM)

In defining a SCM system, Mentzer et al. (2001) suggested that a company could include just its immediate suppliers and customers (Direct SC), suppliers of the immediate suppliers and customers of the immediate customers (Extended SC) or all the organisations involved in the SC, from the ultimate suppliers to the ultimate customers (Ultimate SC). Fawcett and Magnan (2002) presented the SCM concept differently by looking at the part of the linkages that are integrated: only within the company (internal or cross-functional process integration), including only the supplier side (backward or upstream integration) including only the customer side (forward or downstream integration) or including both supplier and customer sides (complete downstream and upstream integration). However, they pointed out that total integration beyond second-tier suppliers and customers is perceived by managers as very rare more of a theoretical ideal than a reality. Christopher defined a SC as
the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services delivered to the ultimate consumer. (Christopher, 1992)

This definition emphasises the key elements, which should be used to design a SC: number of organisations in the SC nature and part of the linkages (upstream, downstream or both) type of flows (products, services, information, and/or finance) type of activities (marketing, design, manufacturing, distribution, delivery, etc.) value created by the different processes ultimate consumers and their requirements.

For products (such as cars and aircraft) that have a relatively long lifespan after sales, aftermarket activities (such as spare parts inventory and logistics management, and Maintenance/Repairs/Overhaul (MRO)) can be included in the SC structure. In this case, the SC can be divided into two major parts: the before-market SC, which includes all activities that take place before and up to the point of selling the product: market surveys, research and development, product design, process design, purchasing, procurement, production, distribution, sales, and delivery the aftermarket SC, which includes all activities that take place after selling the product: return of unsold or defective products, MRO, spare parts logistics and inventory management, customer support, and recycling of used products.

The before-market SC can be divided further into two parts: before-market upstream SC and before-market downstream SC. Although there is a consensus on what constitutes a SC, authors nevertheless do diverge when defining SCM. This implies that the divergence may stem from the word

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Management. Whoever wants to manage a SC must first define the goals and objectives. Walker (1988) states that strategic management focuses on a firms goal to establish and maintain a competitive advantage in its product markets. We can therefore say that the goals of a SC are threefold: maximise the satisfaction of the ultimate customer, minimise operational cost by eliminating non value-added activities and maintain a competitive advantage for all the actors of the SC. Managers would always want to identify and manage the processes (or activities) that contribute to satisfying these ultimate customers. Looking at the literature, the discussion can be grouped into two schools of thought: those who see the activities of a SC limited to logistics activities (Tan et al., 1998) those who define a SC very broadly by including all the business activities1 or functions, from research and development to sales, through purchasing and production (Lambert et al., 1998).

In this broad approach, The Global SC Forum identified eight processes ranging from Product Development to Product Returns which should be managed in a SC (Rogers et al., 2004). In order to achieve higher performance in terms of cost savings and customer satisfaction, all or some of the SC partners (suppliers, manufacturers, distributors, carriers, and third-party service providers) should be closely involved in managing the various SC activities. SCM has to do with efforts made by managers to align objectives and integrate resources across company boundaries (Ballou et al., 2000). It follows that an appropriate definition of SCM should be broad enough to include all the business processes (or activities) and SC partners that add value to the products and services delivered to the ultimate customer, both before- and after-market of the products. We therefore propose and adopt the following definition:
Supply Chain Management is the coordination and integration of all or part of the business processes, within and across company boundaries, to generate cost savings and/or better customer service over part or all of the before-market and/or aftermarket chain of organizations involved in the development, supply, production, delivery and maintenance of products, services and information that add value (satisfaction) for the ultimate customers.

Applying the QFD concept to SCM system design

3.1 Quality Function Deployment (QFD)


There are sometimes gaps between the functionalities of a product designed by engineers and the needs initially expressed by the customers, and this could contribute to market failure. To reduce these gaps, companies need to pay particular attention to how customer requirements are translated into functional product design. QFD is a method used for this purpose. Initially developed by Akao (1990), QFD was used by engineers to consider quality early in the design process. It entails identifying critical customer attributes and creating a specific link between these attributes and design (technical) parameters. Basically, it provides a formal linkage between objectives (WHATs) and responses (HOWs) and constitutes a systematic method for developing or deploying the HOWs from the WHATs and for setting priorities (Cohen, 1995; Chan and Wu, 2002). As QFD

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techniques were improved upon, the Japanese automobile industry adopted the process to reduce development time, before it was adopted and used by many different firms to reduce time to market, decrease costs of design and manufacture, increase overall product quality, promote teamwork, improve communication between functional departments and provide documentation (zgener, 2003; Hauser and Clausing, 1988; Griffin and Hauser, 1993). Also referred to as the House of Quality (HOQ), a typical QFD used for product design consists of the following six steps as shown in Figure 1: Step 1: Make a list of the customer requirements for the product concerned. Step 2: Record the relative degree of importance for each customer requirement in a column vector, which constitutes the importance weighting of the requirements. This is based on the fact that all customer requirements are not of equal importance to the customer. Step 3: Make a list of technical parameters required to meet the customer requirements. Step 4: Establish the central relationship matrix, which is used to determine the relationship between the customer requirements and the technical design parameters. This matrix expresses the degree by which each technical parameter contributes to satisfying each customer requirement. Step 5: Compute and record in a row vector the relative degree of importance of the technical parameters. The relative importance weight of each technical parameter represents the degree by which it contributes to satisfying the overall requirements of the customers. It is computed from the weighted column sum of the importance weighting of each customer requirement multiplied by the relationship value of the corresponding technical parameter in the central relationship matrix. Step 6: Identify the positive or negative correlations between the technical parameters. This enables to manage the tradeoffs between technical design parameters. Negative correlations are traded off to find the best compromise while positive correlations are studied to coordinate investment efforts and maximise customer satisfaction.
Figure 1 Structure of the QFD model

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The successful implementation of the QFD tool depends on three key issues: how to collect data, how to score items and who does the scoring? These issues are briefly discussed below. How should data be collected? The method for determining customer requirements depends on the type of customers (enterprises or individuals). Generally, methods include surveys, interviews (one-on-one or focus groups), listening and observing, sales meetings and trade shows, sales records, feedback from employees, customer complaints, warranty data, and publications (Bicknell and Bicknell, 1995; Chan and Wu, 2002). However, face-to-face interview is often the most suitable method for collecting qualitative data since they enable to control the scope of responses (Griffin and Hauser, 1993). How should items be scored (or weighted) and prioritised? In the literature, items are scored on a 5-, 7- or 9-point scale, with the highest number assigned to the most important item. Citing the work done by Saaty (1977) and Chan et al. (1999) noted that the determination of the number of points in a scale is rather intuitive too few points provide little information and too many points may make the scale too complex to be practical. Bagozzi (1994) indicated that at least five points should be used in order to gain assurance that distributional properties of responses will be satisfactory. An increase from 5 to 7 or 9 points does not necessarily improve the reliability of the ratings (Sekaran, 1992; Chan et al., 1999). Therefore, for many items such as the relative importance of customer requirements, a 5-point scale (where 1 = very unimportant, 2 = unimportant, 3 = moderately important, 4 = important, and 5 = very important) is often used. Whatever the scale used, there is always some degree of subjectivity when numerical values are used to measure qualitative information. The aim of most QFD projects is therefore not necessarily to have a strictly ordered list of items, but rather to group items into two or three main categories: strategically important, medium, and less important. So, numbers can be repeated. When the order of the items is very important, the level of subjectivity could be significantly reduced by using more robust techniques, such as the fuzzy method (Chan et al., 1999) or the analytical hierarchical approach (Chan and Chan, 2004), to prioritise items. In order to further reduce the imprecision and vagueness of human judgement, Kwong and Bai (2003) combined the fuzzy and AHP methods to determine importance weights for the customer requirements. Regarding the relationship matrix, using numerical values to measure the degree of correlation between two qualitative data (or between quantitative and qualitative data) could be highly subjective. The common practice is therefore to simply identify four relationship levels, that is, no relationship, weak relationship, moderate relationship, and strong relationship. Two sets of scoring scales may be used to quantify the said relationships: (0, 1, 3 and 5) and (0, 1, 3 and 9). Chan and Wu (2002) noted that the latter scale is more frequently used and seems more suitable since it assigns a much higher weight to the strong relationship, thereby clearly identifying the most strategic relationships. In this four-score-system, 3 is three times more correlated than 1 and 9 is three times more correlated than 3 and nine times more correlated than 1. For the same reason, a five-score (9, 3, 0, 3 and 9) system is used to quantify the positive or negative correlations between the technical parameters in step 6 of the QFD process: 9 means strong positive correlation,

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U. Okongwu 3 means positive correlation, 0 means no correlation, 3 means negative correlation, and 9 means strong negative correlation.

Who should do the scoring? The level of subjectivity is also reduced by using focus groups or cross-functional teams which try to reach consensus through open discussions. Moreover, the creation of an multifunctional QFD team, composed of members from various departments (engineering, production, production planning and control, purchasing, quality, marketing, and sales) enables to take into consideration all product and business attributes when establishing relationships between the WHATs and the HOWs.

Today, there are two dominant QFD models: the Akaos Matrix of Matrices model and the Four-Phase model which links four houses in order to convey the customers voice through to manufacturing (Sullivan, 1986; Chan and Wu, 2002; Hauser and Clausing, 1988). In this case, the HOWs of one house become the WHATs of the next house and the computed relative importance weights are normalised (to sum up to 1 or 100) and used as weights in the next stage. In as much as customer satisfaction through enhanced product and service quality is a core focus for business success, profit and business growth need to be realised in order to ensure future customer satisfaction; business priorities (such as design cost, design time, competence, and strategic goals) should therefore be incorporated into QFD (Chuan and Raghavan, 2004). Relative weights are also attributed to these business priorities and used to multiply the major item in order to obtain relative comprehensive importance weighting and prioritisation.

3.2 The Supply Chain Management Function Deployment (SCMFD) model


We have argued that the main issue in the design of a SCM system is identifying: key customers and their requirements key business processes that add value and contribute to meeting these requirements the key organisations (suppliers, manufacturers, distributors, carriers, and third party service providers) that are involved in the various processes and with whom to collaborate in order to achieve the desired goals.

This would help to formulate an integration strategy and to decide the most appropriate information technology needed to implement it. Just as customer requirements drive product design, customer requirements should also drive the integration of processes and SC partners. The QFD approach can therefore be adapted and applied to SCM system design and this gives rise to our new model termed SCMFD. The SCMFD model comprises eleven parts that are grouped into two major interlinked stages (see Figure 2). In stage I, customer requirements correlation, process-customer requirements relationship and process integration are explored, and in stage II, company-process relationship and company integration are explored.

Integration of Supply Chain Management systems


Figure 2 Structure of the SCM Function Deployment (SCMFD) model

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3.2.1 Stage I: customer requirements and process integration


Part 1: Here, we identify the ultimate customers. Then, we make a list of their requirements (WHATs). Let Ri be the ith requirement, i = 1, 2, , m. As indicated in Section 3.1, short-listing of these requirements can be done through focus groups or individual interviews of the customers. By analysing responses obtained from 30 potential customers of portable food-carrying and storing devices, Griffin and Hauser (1993) hypothesised that 2030 interviews are necessary to capture 9095% of the customer requirements. Part 2: The Customer Requirements Weighting box contains three elements: The Requirement Relative Importance RRIi, which is the relative importance of each of the m requirements. Customers should be asked to score their requirements on a continuous scale of five points. We note that the same score may be attributed to many requirements since the aim is not to obtain a detailed ranking, but rather to identify the most important requirements, which must be satisfied in order to guarantee business success. The Requirement Strategic Goal RSGi, which represents the strategic goal determined by top management for each of the m requirements, depending on how much the company wants it to constitute a competitive advantage for the SC actors. Based on the argument developed in Section 3.1, we also recommend that a 5-point scale be used for this rating. The Requirement Strategic Weight RSWi, which is a comprehensive relative normalised weight of each of the m requirements, computed from RRIi and RSGi as follows:
RSWi = ( RRI i RSGi ) 100. ( RRI RSG )
i i i =1 m

(1)

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Part 3: The Customer Requirements Correlation Matrix explores the interrelationship between pairs of customer requirements. Again, based on our argument in Section 3.1, a five-score (9, 3, 0, 3 and 9) system is used: 9 means strong positive correlation, 3 means positive correlation, 0 means no correlation, 3 means negative correlation, and 9 means strong negative correlation. This should be done by the cross-functional QFD team. Part 4: In this part, we identify all the business processes (HOWs) that contribute to meeting the requirements enumerated in part 1. Let Pj be the jth process, j = 1, 2, , n. Part 5: In the Process-Requirement Relationship Matrix we demonstrate the relationship between customer requirements and processes by assigning scores in the intersecting cells. Here again, these scores should be assigned and discussed by the cross-functional QFD team, using the four-score (0, 1, 3, and 9) system as discussed in Section 3.1 and where 0 means no relationship, 1 means weakly associated, 3 means moderately associated, and 9 means strongly associated (that is, the process contributes heavily to meeting the customer requirement). Let Aij be the score assigned to the relationship between the ith customer requirement and the jth process. Part 6: The Process Weighting box contains three elements which help to assess the strategic importance of each process: the Process Relative Importance PRIj, which is the sum of the products of the relationship between customer requirements and processes and the relative strategic weight of the customer requirements, that is,
PRI j = ( Aij RSWi ),
j =1 m

j = 1, 2,K, n

(2)

the Process Value Importance PVIj, is the added-value factor which expresses (on a 5-point scale) how much value each of the processes adds to the SC and the potential cost savings that it encompasses the Process Strategic Weight PSWj, which is a comprehensive relative normalised weight of each of the n processes, computed from PRIj and PVIj as follows:
PSW j = ( PRI j PVI j )

( PRI
j =1

PVI j ) 100.

(3)

Part 7: The Process Integration Matrix is an assessment of how much the processes are interrelated. The degree of interrelationship is a function of the amount of information shared between any two given processes. Here we use 9 for high amount of information, 3 for moderate amount of information, 1 for low amount of information and 0 for no information shared. This Process Integration Index, assigned to each pair of processes, helps to determine the degree of process integration.

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3.2.2 Stage II: company integration


Part 8: This part comprises all the major companies (WHOs) that are involved in the processes identified in part 4. This could include third party service providers. Let Ck be the kth company, k = 1, 2, , s. Part 9: The Company-Process Relationship Matrix explores the relationship between companies and processes by assigning a score of 0, 1, 3 or 9 in the intersecting cells, A high score signifies that a company is a major contributor to a given process. Let Bkj be the score assigned to the relationship between the kth company and the jth process. Here, the scoring is done first by the internal QFD cross-functional team before being discussed by inter-organisational teams on a pairwise basis. Part 10: The Company Weighting box contains three elements, which help to assess the strategic importance of each company: the Company Relative Importance CRIk, which is the sum of the products of the relationship between companies and processes and the relative strategic weight of the processes, that is,
CRI k = ( Bkj PSW j ), k = 1, 2, K , s
j =1 n

(4)

the Company Strategic Importance CSIk, which expresses (on a 5-point scale) the strategic importance attached by top management to the various companies (this is a measure of the degree of collaboration on a long term basis) the Company Strategic Weight CSWk, which is a comprehensive relative normalised weight of each of the s companies, computed from CRIk and CSIk as follows:
CSWk = (CRI k CSI k )

(CRI
k =1

CSI k ) 100.

(5)

Part 11: The Company Integration Matrix is an assessment of how much the companies are interrelated. The degree of interrelationship is a function of the amount and strategic importance of information shared between any two given companies. Information shared could include data on product design, production capacity, production planning, customer order management, forecasting, inventory, warehousing, transportation, cost structure, performance metrics, product returns and after-sales activities. Here we use the same scores as in part 7, that is, 0, 1, 3 and 9. Since information flow between two companies could be bidirectional, each cell contains a double score (referred to as the Company Integration Index (CII)) that indicates the intensity of information flow in each direction. For example, if the number 91 is entered in the intersecting cell of companies C1 and C2, the first digit (9) signifies that there is a high amount of information flowing from C1 to C2 while the second digit (1) signifies that the amount of information flowing from C2 to C1 is low. Blank or 00 means that there is no information flow in both directions. The CII helps to determine the degree of company integration. The goal of SC integration is to link up the marketplace, the distribution network, the manufacturing process, and the procurement activity in such a way that customers are better serviced at a lower total cost; information systems make this integration to be

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successful since they link customers directly to suppliers and enable the suppliers to react in real time to changes in the marketplace, thereby enabling supply and demand to be quickly matched (Chopra and Meindl, 2001; Siau and Tian, 2004). We will therefore, in this paper, assimilate SC (company) integration to sharing of information between the SC partners. Though integration includes joint coordination of the various SC activities (forecasting, production planning, inventory management ), coordination becomes real success when information on these activities is exchanged and shared among members of the SC.

3.3 Transport integration


In many business sectors, transportation is a crucial component of the SC since manufactured goods have to be moved to the customer quickly, safely, cost-effectively and on time. Given also that customers ask more and more for an integrated just-in-time and efficient all-inclusive door-to-door service at a predetermined price, contemporary carriers are expected to play a major role in supply chain integration and dissemination of information (Wagner and Frankel, 2000). Panayides defined intermodal transport as
the transport of unitised loads by the coordinated use of more than one transport mode so that the comparative advantages of the modes are maximised and the transport chain is guided as one unity. (Panayides, 2002)

In our SCM Function Deployment model, carriers are considered as SC partners and as such are included in part 8 which comprises all the major companies (WHOs) that are involved in the processes identified in part 4. If a SC uses carriers with different modes of transport, we can use the CII, determined in part 11, to assess the amount of information shared between them. This would help to determine the nature and level of coordination and integration required between the carriers, before finally choosing the appropriate information technology that would enable better planning and interconnectivity of modes, facilities and services.

3.4 Integration and information support system


If process integration has been relatively well accomplished with the introduction of Enterprise Resource Planning (ERP) systems, which enable to integrate the transaction processing activities of the entire company, company (inter-organisational) integration still remains a difficult and complex task. Information Technologies (ranging from simple Electronic Data Interchange (EDI) systems to more sophisticated internet and web-based systems) exist for various degrees of integration, but for managers, it is often difficult to decide the most appropriate IT to manage relationships with their SC partners. We propose a template that would help to make such decisions. With advances in technology, there has been a considerable evolution in the nature of Inter-Organisational Systems (IOS). Clark et al. (2001) enumerated seven levels of Organisational Interconnectivity (OIC), ranging from physical data transfer using paper to web-based virtual integration where information, cost and risk are shared based on mutual trust. From our preceding analysis in this paper, these seven levels can be grouped and reduced to three: communication, coordination and collaboration. We use the word communication to represent the simplest level of OIC where there is a unidirectional electronic transfer of messages (data) from one organisation to another. Coordination is

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the second level and refers to cases where there is bidirectional transfer of data, which are integrated with the internal information system of the organisations in order to efficiently coordinate activities between them. Collaboration is the third and highest level where, in addition to total integration and exchange of data, organisations share proprietary and very sensitive information on a long-term basis. The level of interconnectivity between two organisations will depend not only on their respective strategic importance (which corresponds to the Company Strategic Weight in our SCMFD model), but also on the amount and importance of information that they exchange (which corresponds to the CII in our SCMFD model). A cross-tabulation of these two variables provides a template (see Table 1) for deciding the level of interconnectivity. In rows we have the CII grouped into six categories and in columns we have pairs of Company Strategic Weights (for example, High-High means that the CSW is high for both firms, High-Medium means that the CSW is high for one firm and medium for the other, High-Low means that the CSW is high for one firm and low for the other, etc.). In Table 1 collaboration is highly suggested when the CSW couple is High-High and the intensity of information flow is high or medium in both directions (CII = 99, 93 or 39). On the other extreme, communication (or nothing) is suggested when the CSW couple is High-Low, Medium-Low or Low-Low and the CII is 10 or 01.
Table 1 Deciding the level of interconnectivity between firms Company strategic weight High-low /medium-low/low-low 99, 93, 39 Company Integration Index (CII) 91, 19, 33 Collaborate if cost effective and data are strategic Coordinate High-medium/ medium-medium Collaborate if data are strategic Collaborate if cost effective and data are strategic Coordinate Communicate Communicate if data are important High-high Collaborate Cooperate if data are strategic Collaborate if cost effective and data are strategic Communicate Communicate

31, 13, 11

Coordinate if cost effective Communicate if data are important Communicate if cost effective and data are important No linkage

90, 09, 30, 03 10, 01

00

The use of this template will help to group a firms SC partners into three categories depending on the level of interconnectivity required communication, coordination and collaboration before deciding the appropriate Information Technology to be implemented for each category. Generally, EDI or simple internet connections are enough for the first level (communication) while coordination and collaboration require more advanced technologies such as proprietary application software, web-based systems, XML, or a combination of these (Premkumar, 2000). One of the information system initiatives that have helped to move towards real collaboration is Collaborative Planning, Forecasting and Replenishment (CPFR).

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Generally, the failure or success of an IOS depends on various factors: effective communication, trust, operational uncertainty, different objectives, changes in business processes, power relations and politics, cross-cultural issues, resistance to change, disparate expectation levels, use involvement and participation, training of users, relationship management, and information, data standards and protocol (Allen et al., 2000; Grossman, 2004). It follows that, in a very dynamic business environment, the ISO should be designed to allow for partnering flexibility, which refers to the ease of changing SC partners, in response to changes in the business environment (Gosain et al., 2004). The system should also be designed such as to increase the involvement of all actors, more so when suppliers do not benefit equally from IT used in SC relationships (Subramani, 2004). In summary, the SCMFD helps us not only to identify key processes that contribute to meeting the requirements of ultimate customers, but also to determine those processes that should be integrated and the degree of integration necessary. It also enables to identify key members (companies) in the SC that should be integrated, as well as the degree of integration and collaboration amongst them.

Applying the SCMFD

High Tech Electronics (HTE)2 is a big aerospace company that manufactures key electronics components for commercial transport, business jets, military helicopters and aircraft. It supplies products and services to a dozen manufacturers, some 250 airlines and 50 armed forces around the world. It generates an annual turnover of about 12 billion euros and employs more than 60,000 people in 58 different countries. Up till the year 2002, HTE was faced with problems of high operational logistics costs (inventory, packaging, shipping, transport, containerisation, freight forwarding/brokerage, and paperwork/documentation) and late deliveries to their customers (aircraft manufacturers and airlines). It therefore felt the need to re-design and integrate its SCM systems, with the aim to: increase the percentage of items delivered on time from 75% to 98% reduce overall operational logistics costs by 20% reduce delivery lead time by 30% deliver 100% error-free products.

At the preliminary stage of re-designing the SCM system, HTE asked questions such as: Which internal functions should be grouped together under the SCM umbrella? Should one SCM system be responsible for the three main business operations: supply of original equipment to aircraft makers, supply and distribution of spare parts to airlines, and maintenance and repair of its products? Or, should a different SCM system be designed for each of these operations? In the case of spare parts, what should the distribution network look like and, how much inventory should be kept and where?

Integration of Supply Chain Management systems Which of the SC partners should be closely involved and to what extent? What information support systems should be used to run the system? What should be the missions of the SCM department?

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To address these issues, HTE created a pilot committee that included staff from different departments logistics, purchasing, procurement, engineering, marketing and sales. This pilot team constituted the QFD team that interviewed (during several face-to-face meetings) inter-functional groups of the customer companies in order to identify their requirements. The team was also responsible for scoring the different items and relationship matrices in our SCMFD model, as well as prioritising them.

4.1 The SCM systems of the aerospace company HTE


Generally, in the aerospace sector both before- and after-market SC activities are significant. The degree of product complexity is high due to engineering complexity, tough product certification requirements (for safety and reliability) and configuration management associated with the technological evolution of aircraft components. Figure 3 shows the SCs for commercial aircraft. It can be seen that HTE belongs to two distinct SCs in that it is a tier-1 supplier of original equipment to aircraft manufacturers (mainly Airbus and Boeing) and a direct supplier of spare parts and provider of engineering and MRO services to airlines and operators. It therefore has two direct customers: aircraft manufacturers and airlines.
Figure 3 Supply Chains for commercial aircraft

Apart from internal coordination and integration of manufacturing functions, it follows that there are two main areas where collaboration and integration are needed.

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U. Okongwu The Before-market Upstream SC where there is more and more collaboration between the aircraft manufacturers and their tier-1 suppliers in the design of key subsystems. HTE, being almost as big as its customers, is totally independent in terms of research and fully responsible for the development of its products. Here, the main objective of its SCM system is to maximise operational efficiency by assuring an uninterrupted direct flow of components to the aircraft assembly plants. The Aftermarket SC where inventory of costly spare parts is needed for efficient MRO activities, to enable airlines to reduce turnaround time. In this case, OEMs have to provide customer support throughout the lifespan of the aircraft.

Moreover, HTE is very active in the SC where close collaboration between airlines, OEMs and part suppliers is needed in order to reduce the Life Cycle Cost3 of the aircraft and to manage traceability and technological evolution of parts throughout the lifespan of the aircraft. After extensive consultations of the key SC actors, this pilot committee set up by HTE came up with three different scenarios that were assessed using a multi-criteria weighted average method. The main points in the option adopted are: Two distinct SCM departments the first one being responsible for on-time direct delivery of error-free components to the aircraft assembly plants (flow 1 in Figure 3); and the second one being responsible for the aftermarket MRO activities. This second SCM system consists of two subsystems: the SC of spare parts (flow 2a in Figure 3) and the management of Line Replaceable Units (flow 2b in Figure 3). The latter entails maintaining an inventory of components (or subassemblies) that are used to replace failed LRUs almost instantly in order to minimise the Aircraft-On-Ground downtime The SCM systems included only the following functions: forecasting, logistics, procurement and delivery, and excluded purchasing and engineering The missions of the SCM systems were clearly defined: have a real-time global knowledge of spare parts and LRU inventory around the world, optimise inventory levels, optimise the distribution network, optimise physical and information flows, guarantee the availability of reliable information at every level of the SCs, guarantee an efficient and responsive MRO system, satisfy both the aircraft makers and the airlines in terms of quality, punctuality and service levels, minimise transportation cost and, coordinate and integrate the key actors of the two SCs.

4.2 The SCMFD model applied to the aerospace company HTE


Figure 4 shows a concrete application of this model to the case of HTE Company. Here, some of the customer (airlines) requirements are maximum safety (R1), on-time delivery (R2), low operating cost (R3) and passenger comfort (R4). And some of the processes are product design (P1), manufacturing process management (P2), spare parts supply management (P3), order fulfilment (P4) and procurement of raw materials (P5).

Integration of Supply Chain Management systems


Figure 4 Example of SCMFD (as applied to the HTE case)

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We refer to the companies involved in the SC as C1, C2, C3 and C4. Some of the conclusions that we can draw from this figure are: In terms of gaining competitive advantage and satisfying key customer requirements, HTE should invest more on requirement R1, which has a strategic weight of 43 rather than on R4, which has a weight of 10 (see column RSW). Looking at the Customer Requirements Correlation Matrix, we can see that there is a strong negative correlation between R1 and R3. This means that an excessive search for low operating cost would have an adverse effect on safety. Therefore, top management has to be conscious of the trade-off between these two requirements. With a strategic weight of 48 (see row PSW), P1 is a strategically value-adding process and should be totally integrated with P2 (PII = 9 in the process integration matrix), whereas P3 (with a strategic weight of 6) is of less importance. With a strategic weight of 60 (see column CSW), C1 is a strong strategic partner of HTE, whereas C3 could be regarded as a division 3 partner. Concerning the level of interconnectivity, HTE should consider long-term collaboration with C1 and C2 (with which it has a CII of 93 and 99 respectively).

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Generally, most of the objectives set out by HTE have been achieved. By the end of 2004, the percentage of items delivered on time had reached 99%, the overall operational logistics costs was cut down by 15%, the delivery lead time was shortened by 40%, and 99.5% of their products were delivered error-free. Note that these achievements were made by implementing some SCM concepts and techniques such as Vendor-Managed-Inventory, Direct Store Delivery, Lean Manufacturing, CPFR, Integrated Logistic Support, EDI and web-based systems. The SCMFD model was used mainly as a decision-making tool to identify development and improvement areas, as well as the major SC partners with whom to collaborate for the effective implementation of the above concepts and techniques.

Discussion and conclusion

In this paper, we demonstrated that it is normal to have many configurations of SCs both in theory and practice, due to diverse situations on one hand and the diverse nature and characteristics of products and industrial sectors on the other hand. We defined SCM from a broad perspective and presented a semi-qualitative model that we named SCMFD, adapted from the QFD method. QFD has been used by some authors to link manufacturing processes to customer requirements (for example, Crowe and Cheng, 1996) and by others to select suppliers (for example, Onesime et al., 2004). This is the first time that the two business management issues (the identification of key processes and the selection of key suppliers) are tackled in one single model, by linking the three key components of a SCM system: customer requirements, business processes, and SC partners. In practice, relationship with customers is most often managed by marketing, sales and outbound logistics departments while relationship with suppliers is management by procurement and inbound logistics departments. As a result, there are inefficiencies between the upstream and downstream parts of the SC. Our SCMFD model is a powerful tool which managers can use to link customer relationship management and supplier relationship management, making the entire SC to be oriented towards the satisfaction of the ultimate customers while removing wastes from the processes that link the upstream and downstream parts. This brings efficiency to the company, as well as to its SC partners. Applying QFD to SCM also enables to identify improvement areas that, if addressed, would lead to shorter lead times, increased communication, increased multifunctional and inter-organisational teamwork, better understanding of the ultimate customers needs by the major SC partners, better conciliation of customer satisfaction and business priorities, easy identification of improvement areas, effective integration of processes, improved connectivity between SC partners, and better choice of information support systems. The most sensitive issue in the application of QFD to any real-world problem is the choice of the scoring system. Burke et al. (2002) developed a set of rules to act as guidelines for building and scoring QFD matrices: ensure the importance scores are on a ratio scale normalise the scores so they sum to one (or 100) and can be used as weights ensure the relationship scoring is on a ratio scale, if possible, to ensure an interval scale column score

Integration of Supply Chain Management systems

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the scores from one HOQ should not be used as weights for another HOQ since the method for producing the scores cannot guarantee ratio scale scores remember that final scores are only a recommendation. Our SCMFD model respects all the above rules except rule number 4.

This did not significantly impact the meaningfulness of the results obtained by our case study company (HTE) since the aim was not to obtain a strictly ordered list of processes and SC partners, but simply to identify key processes that need utmost attention and major SC partners with whom to share risk and important business information on a long term basis, in order to better meet the key requirements of the ultimate customers. However, if the aim is to rank and prioritise the different items, then a more robust scoring system such as the Analytic Hierarchy Process (AHP) approach should be used. Capable of handling both qualitative and quantitative attributes, AHP is a multi-criteria decision-making method that enables to structure items into different hierarchical levels before they are compared on a pairwise basis in order to determine their relative importance. Using the AHP method, the 5-point scale (5, 4, 3, 2 and 1) is transformed into priority weights of 0.416, 0.262, 0.161, 0.099 and 0.062. With these weights, the risk of explosion, that could result from the weighted sum of the scores, would be reduced significantly since the ratio between adjacent scores is constant (approximately 1.6), compared to the increasing ratio (1.25, 1.33, 1.5 and 2) between adjacent scores in the 5-point scale. Readers who are interested in the details of how the AHP weights are computed should consult Onesime et al. (2004) or Chan and Chan (2004) for an illustrative example of an AHP model used for supplier selection. Also, in our SCMFD model, the Relative Company Importance was determined based on mainly strategic business priorities such as cost, innovation, quality, delivery speed and reliability, flexibility and responsiveness. Using the AHP method would enable to take into consideration other relationship factors such as trust, operational uncertainty, divergent objectives, power relations and politics, cross-cultural issues, and resistance to change. From the above discussion, it is clear that one of the topics for further research will focus on the incorporation of the AHP approach into our model. Four of the major SCs in the civil aerospace industry are: the production of original equipment for aircraft assembly the production of parts for aircraft maintenance aircraft maintenance service operations the transportation of passengers by the airlines.

This paper addressed mainly the first two SCs which are manufacturing-oriented operations. The last two are more of service-oriented operations. Applying our model to the service industry requires further research for two main reasons: services are intangible products and as noted by Sampson (2000) intangibles are in most cases produced and consumed simultaneously, they are difficult to store and it could be difficult to identify their suppliers as also noted by Sampson (2000), there is a customer-supplier duality in service operations, that is, some services have customers as primary suppliers of inputs.

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For example, in the aircraft maintenance service sector, an airline supplies (delivers) its aircraft to the maintenance operator. This implies a bidirectional flow of products, whereas in the traditional SCM concept as it is applied to the manufacturing industry, there is mainly a unidirectional flow of products from suppliers to customers.

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Notes
1

Note that activities, functions and processes are sometimes used interchangeably both in the literature and in this paper, but generally a process encompasses activities that are executed by the different functions of a company. 2 Fictional name. 3 Life Cycle Cost, LCC = Total cost of Acquisition + Maintenance + Energy + Replacement + Recycling + Disposal Salvage.