Building Relationships for Better Supply Chain Management

A critique of F. Ian Stuart and David McCutcheon's “The Manager’s Guide to Supply Chain Management”

by Joao M. Simoes and Stephen M. Singam

Introduction

If your goal is a quick 101 on Supply Chain Management (SCM), F. Ian Stuart and David McCutcheon’s paper, “The Manager’s Guide to Supply Chain Management,” might not be for you. Nevertheless, it is without a doubt the perfect paper to understand how valuable are the relationships you can establish with your suppliers for managing your supply chain. It is a very clear, easy reading paper, focusing on the essential points. The authors cover what needs to be done, where it can be done, and how it can be done. Very importantly, the authors provide a nice table that links supply chain objectives (like cost reduction and value-added benefits) with the type of relationship along with supporting practices (enablers). Three types of relationships are presented (one being a middle position between the other two): competitive tension, cooperative partnership, and strategic alliance.

In our opinion, Stuart and McCutcheon should have tried to go a bit further when introducing and expanding on SCM. One can look into the supply chain using different frames. With such an understanding, it perhaps becomes easier to correctly evaluate all possible types of relationships with the Chain. Stephen M. Singam collected a set of definitions from various authors that gives us clear, straightforward images of what SCM is:

“Supply Chain is a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing and distribution activities associated with one or more families of related products" (Jayashanker et al.).

“A Supply Chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and sound finished products, and the distribution of these finished [products] to the customer" (Ganeshan and Harrison).

"A Supply Chain is a network of facilities that procures raw materials, transforms them into intermediate goods and then final products, and delivers the products to customers through a distribution system" (Lee and Billington).

In short, the supply chain encompasses all of those activities associated with offering the RIGHT services/products to the RIGHT customers at the RIGHT price and at the RIGHT time.

SCM is critical for the survival of most companies. Supply chain optimization has gone a long way in reducing costs and improving performance. The goal is truly to offer the RIGHT services/products to the RIGHT customers at the RIGHT price and at the RIGHT time.

SCM is not something static but extremely dynamic. We need to continue pushing for better practices, which are rapidly changing how companies consider different forms of supplier relationships.

As mentioned by authors Stuart and McCutcheon, there are two somewhat opposing views when considering new forms of supplier relationships—those in favor of stronger, more open relations, and those opposing them. Some people advise managers to be cautious in forming supplier partnerships and alliances and to continue relying on competitive markets for their outsourcing needs. Others, those in favor, have touted alliances and partnerships as being universally applicable, even with government encouragement.

The authors then proceed with a quick guide on how valuable Supply Management can be to your company. Let’s focus on the important points.

Competitiveness in a global economy requires companies to:

1. Focus on core competencies.

2. Reduce the number of suppliers.

3. Develop strong partnerships built on shared information and trust.

However, as the authors mention, practice shows that we should not follow these three steps blindly. It trivializes the whole issue. Managers need clear guidelines for their outsourcing strategies, especially for choosing the right type of relationship with each supplier. Before we proceed further, however, it is important that key principles of SCM "best" practices, or goals, be defined. Supply Chain Management Review magazine did an excellent job of this:

Principle 1: Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.

Principle 2: Customize the logistics network to the service requirements and profitability of customer segments.

Principle 3: Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.

Principle 4: Differentiate products closer to the customer and speed conversion across the supply chain.

Principle 5: Manage sources of supplies strategically to reduce the total cost of owning materials and services.

Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.

Principle 7: Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.

Figure 1 – Breaking apart the Supply Chain, Ó Stephen M. Singam, 2004.

Supply Chain Objectives in the Global Economy:

1. Reduce product costs

2. Add value-added benefits (as perceived by customers)

Value-added benefits might include improved delivery speed, additional design features, or the ability to be customized. The greatest opportunities to reduce cost and add this extra value lie with sourced materials, services, components, and technologies. Page 2