Herwig WINKLER^*

Georg SOBERNIG^*

Helmut BLIEM^*

Bernd KALUZA^*

A FRAMEWORK FOR ASSESSING
SUPPLY CHAIN FLEXIBILITY

Nowadays companies are forced to streamline their efforts to guarantee a high performance. In order to maintain this performance the whole supply chain (SC) has to respond quickly and cost effectively to disruptions/changes in the environment. Therefore, improvements of the flexibility of the entire supply chain are necessary. We call the flexibility of supply chains, supply chain flexibility (SCF). In this contribution we will present the basics SCF and provide a conceptual framework to assess the contribution of supply chain management (SCM) measures to SCF. Therefore, we define coherent parameters enabling an indication of SCF. Furthermore, exemplary measures and their effects on those parameters will be presented.

Supply chain flexibility, flexibility management, flexibility parameters

1. PROBLEM DESCRIPTION

Complexity, dynamic and discontinuity are dramatically increasing in the actual business environment. In this context flexibility is mentioned as one of the coming challenges to the international business world. A large body of literature has been addressing various issues of flexibility in the last two decades. However, the discussions have mainly been from the viewpoint of a manufacturing company as a single entity in a supply chain. With the advent of the SCM concepts, it became evident that the partly flexibilization of separated organisations is insufficient and limits the entire performance. Thus, flexibility concepts have to be broadened from the perspective of a production system into a supply chain system. Although the demand for SCF is recognized and described as vital for the firms' competitiveness the inherent managing problem is still unsolved. In our contribution we assume that assessing flexibility of different SCF-measures is the basic prerequisite for any attempt to manage the SCF. To assess SCM-measures to improve SCF we define a number of key parameters like transparency, simplicity, responsiveness and reliability.

2. BASICS OF THE MANAGEMENT OF
   SUPPLY CHAIN FLEXIBILITY

SCF is defined very general to encompass flexibility dimensions that directly impact firms' customers and are the shared responsibility of two or more functions along the SC, whether internal or external to the company. [1, p. 16] Duclos et al. define SCF more precisely as the flexibility within and between all of the partners in the chain, including departments within and between an organisation, and the external partners, including suppliers, carriers, third-party companies, and information system providers. These authors underline that SCF includes the flexibility to gather information on market demands and the exchange of information between organisations. [2, p. 450; 3, pp. 1] We agree with this definition but emphasise that we regard SCF based on the embedded resources and on the designed structure of the SC. [4, p. 6] Further, we think that SCF can only be achieved by integrating the management of SCF into SCM. SCM provides a wide variety of measures for the optimisation of SC's. Up to now, these measures were undertaken mainly from a cost, quality, time and service perspective and consequently led to suboptimal SCF. Adding the perspective of SCF to SCM will be the key to eliminate this deficit. To be able to undertake this necessary integration of a management of SCF into SCM, it is important to understand the coherence between the resources of the SC, the flexibility objects and parameters of SCF that can be influenced by measures of SCM.

The resources of the SC offer potentials for the improvement of SCF. We differentiate between structural potentials, potentials of manufacturing/logistics technologies, potentials of information technologies and human potentials. [4, pp. 1] These resources act on certain flexibility objects. Hereunder we understand that those objects of the SC that have to be modified to increase SCF. Flexibility objects in the SC are the processes, the products or services and the information. As a consequence of the modification of the flexibility objects by the already mentioned resources, flexibility parameters will be optimised. Important flexibility parameters are transparency, simplicity, responsiveness/agility and security/reliability. [5, pp. 929; 4, pp. 1] Flexibility parameters generally determine the level of achievable SCF in the SC. The flexibility parameters are connected in a multiplicative manner. That connotes if one parameter goes to zero, the SCF also tends to shift to zero. Generally an improvement of SCF results in a superior financial performance of each partner of the SC. [6, pp. 275; 7, pp. 71; 8, pp. 1034] Either higher revenues are generated at same costs, or existing revenues can be achieved with lower costs. [9, pp. 681] The following figure depicts this well.

Fig. 1. Resources, objects and parameters of supply chain flexibility

3. DEVELOPMENT OF A FRAMEWORK FOR ASSESSING SUPPLY CHAIN FLEXIBILITY

The embedded resources in a SC offer great potentials for the improvement of SCF. To utilize existing and new potentials in structure, manufacturing/logistics technologies, information technologies and human resources different measures have to be implemented through SCM. However this general recommendation implies an essential problem. Decision makers have no indication which measures would drive SCF. This existing information lag regarding flexibilizing effects of SCM measures need to be solved. Therefore, to improve SCF, a framework has to be developed which assesses alternate SC measures concerning their effects on SCF.

The initial point for that aspired framework which enables an indication of SCF is a system of flexibility relevant parameters. These parameters are influenced by the existing system elements of a SC. As already mentioned and displayed in figure 1 a part of those elements are the SC objects. That means processes, products/services and information. Additional also resources and partners are elements of a SC system. To ensure that only relevant and influenceable elements are considered, the research range has to be clearly delimited. To exemplify, such a limitation of the research range is shown in figure 2 by dint of the virtual supply chain organisation (VISCO) concept. In our contribution we define four parameters which are based on these SC elements in the delimited research range. Through identifying and displaying occurrences, correlations and behaviours of and between the elements, those parameters enable conclusions to SCF. The relevant parameters for SCF are, transparency, simplicity, responsiveness/agility and security/reliability.

The transparency (T) of a system is determined by the degree of acknowledgement of the system elements. A high level of opacity hampers SCF. Therefore, to achieve a higher level of transparency and higher SCF it is of utmost importance that process owners resort back to a distinctive knowledge of the elements in the SC. The assessment parameter transparency is defined through the comparison of known system elements and the entirety of elements.

(1)

Additionally it is necessary to mention that a high level of transparency can only be reached if elements in all the categories information, products/services, processes, resources and partners are well known. If the degree of acknowledgement in one of those categories is delimited the whole system opacity rises. Thus, a balanced knowledge across the entire categories generates the best results on transparency and SCF.

Simplicity (S) is the opposite of complexity. Complexity is results from the numerousness of the elements and their behaviour in a certain system. In a system with less elements and traceable behaviour simplicity is high where complexity is low. A complex SC hampers fast alignments of the embedded system elements due to potential environmental changes. To improve SCF it is useful to diminish the relevant system elements in a SC.

(2)

The parameter responsiveness/agility (RA) enables an inference to the ability of a SC to adjust its output in order to response to changed market requirement. The prerequisite for a high responsiveness/agility of a SC is the standardisation of the SC elements and their exactly definition. Thus, the responsiveness/agility is composed through the comparison of defined elements to the whole entirety of elements.

(3)

Security/reliability (SR) is based on the quality of the system elements. Therefore we have to consider the special criteria of the processes, products/services, necessary information and required resources/partners. Processes are of high quality if occurring changes do not disrupt material- and information flows. Regarding Products/Services a high quality is reached through diminishing technical failures. High information quality is the basis for efficient and effective planning and steering. A high quality of all those system elements enables maintaining a high performance of a supply chain in changing conditions. Therefore security/reliability is a fundamental prerequisite for a high degree of SCF.

(4)

4. ASSESSEMENT OF SUPPLY CHAIN MEASURES TO IMPROVE SUPPLY CHAIN FLEXIBILITY

Following Lambert and Cooper, we recommend constructing a network of supply chain companies to improve transparency in a supply chain. [10, p. 75] We call this network a Virtual Supply Chain Organisation (VISCO). [11, pp. 40] The VISCO is a heterogeneous system that results from the systematic combination of selected enterprises that participate in a supply chain. The single enterprise is no longer in the centre of considerations, because an integrated viewpoint of the value chain is applied.

Fig. 2. Structure of a Virtual Supply Chain Organisation (VISCO)

Simplicity is reached by a strong integration of all companies in the VISCO. All of the enterprises involved have to concentrate on their core competencies, and they have to incorporate them in a cooperative manner with the network participants. For this purpose, every single enterprise must be willing to open its boundaries to its partners. Furthermore, the co-operation is not automatically based on long term contracts; however trusting agreements are very important. The measures for reaching simplicity are dealing with the design of interorganisational planning and controlling systems, the product design process, the stock management, the cooperative design of packages, the integration of common logistics service providers, as well as the synchronisation of transports. [2, pp. 1034]

Responsiveness/agility is affected by complexity in the VISCO. Complexity of business processes is increasing as companies attempt to respond to their customers' needs with an increasing number of highly customised products. Complexity can be reduced by designing and managing the structures and business relations in the VISCO. Therefore standardisation of processes, products/services and information is a useful way. The necessary standardisation of all important elements has to be considered in the designing and managing process of the VISCO. The whole value added process has to be planned and realised in common by all of the companies in the supply chain and has to be directly deducted from the customers' requirements

Security/reliability depends on the targets, systems and partners in the VISCO. Security/reliability is especially improved by planning, controlling and the co-ordination of the value added processes and the service activities in the VISCO. For the purpose of achieving the common targets specific interorganisational planning, controlling and co-ordination systems are required. In this context we propose to resort to advanced planning systems (APS), which enable the planning and controlling of production and logistics processes. The emphasis of the advanced planning systems is the improvement of cycle times, stocks and capacities. These goals are reached through the higher quality of the available information. It is essential for building up a VISCO to find eligible partners that fit into the scope of the strategic concept. [13, pp. 1] These partners must have complementary competence profiles along with the ability and intent to co-operate intensively with other companies. Selected managers of the OEM, and the partner companies, form the leading committee of the VISCO. This committee assigns the management team for the VISCO.

5. CONCLUSION

The term flexibility is not defined uniformly. There are some contributions in the scientific literature that address the special problems of the management of flexibility in SCs. In our contribution we defined SCF as the ability of the supply chain to react to internal and external effects within a short time. To improve supply chain flexibility a combination of different flexibility parameters such as transparency, simplicity, responsiveness/agility and security/reliability all have to be managed. The VISCO-concept with its managed potentials and resources makes it possible to improve all of the flexibility parameters simultaneously. Future research in this area must focus on the practical implementation of the VISCO-concept and its advantages/barriers for modern leadership.

REFERENCES

1. Vickery S., Canlantone R., Dröge C., Supply chain flexibility. An empirical study. The Journal of Supply Chain Management, Vol. 35 No. 1, pp. 16-24; 1999.

2. Duclos L.K., Vokura R.J., Lummu, R.R., A conceptual model of supply chain flexibility. Industrial Management & Data Systems, Vol. 106 No. 6, pp. 446-456; 2003.

3. Lummus R., Duclos L. K., Vokurka R. J., Supply Chain Flexibility: Building a New Model. Global Journal of Flexible Systems Management, Vol. 4 No. 4, pp. 1-13, 2003.

4. Winkler H., Bliem H.,/Kaluza B., (2006): The contribution of a Virtual Supply Chain Organisation (VISCO) to supply chain flexibility, in: Croom, S. (Ed.): Creating and Managing Value in Supply Networks, Proceedings of the 15th International Annual IPSERA Conference, San Diego, pp. 1 - 16, 2006.

5. Prater E., Biehl M., Smith M., International supply chain agility: tradeoffs between flexibility and uncertainty. International Journal of Operations and Production Management, Vol. 22 No. 8, pp. 929-947, 2001.

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8. Tan K.C., A framework of supply chain management literature. European Journal of Purchasing & Supply Management, No. 7, pp. 39-48, 2001.

9. Martínez A.M., Pérez M., Supply chain flexibility and firm performance. A conceptual model and empirical study in the automotive industry. International Journal of Operations & Production Management, Vol. 25 No. 7, pp. 681-700, 2005.

10. Lambert D.M., Cooper M.C., Issues in Supply Chain Management. International Marketing Management, Vol. 29 No. 1, pp. 65-83, 2000.

11. Winkler H., Konzept und Einsatzmöglichkeiten des Supply Chain Controlling. Am Beispiel einer Virtuellen Supply Chain Organisation (VISCO), Wiesbaden 2005.

12. Tan K.-C., Kannan V.R., Handfield R.B., Ghosh S., Supply chain management: an empirical study of its impact on performance. International Journal of Operations & Production Management, Vol. 19 No. 10, pp. 1034-1052, 1999.

13. Lambert D.M., Emmelhainz M.A., Gardner J.T., Developing and Implementing Supply Chain Partnerships. The International Journal of Logistics Management, Vol. 7 No. 2, pp. 1-17, 1996.

^* Department of Production/Operations Management, Business Logistics and[Author ID1: at Thu Sep 28 17:38:00 2006 ] Environmental Management[Author ID1: at Thu Sep 28 17:38:00 2006 ], Alpen-Adria-Universität Klagenfurt, Austria. [Author ID1: at Thu Sep 28 17:38:00 2006 ]

8 Herwig Winkler, Georg Sobernig, Helmut Bliem, Bernd Kaluza

A framework for assessing supply chain flexibility 7

Logistyka 1/2007

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