Abstract
In this review of Saa’da et al's 2022 paper “The impact of supply chain management practices on supply chain agility – Empirical study in medical sector”, we define the fundamental concepts used in their paper. Next, we examine some of the ways supply chain management theory is relevant to this topic, focusing on the concepts of postponement and make-to-order production. After that, the managerial applications of that paper are examined. The hypotheses that the authors use to validate their conceptual model are listed, and their most interesting finding is stated. Finally, a problem in their conceptual model is indicated.
Summary of the Paper
Saa’da et al (2022) examines the impact that five supply chain management practices – supplier integration, internal integration, customer integration, information sharing, and postponement - have on a company’s competitive capability, and how that capability influences supply chain agility. Their research is done by analyzing survey responses from 315 employees in Jordan’s medical sector.
The authors investigate the relationship between certain supply chain management (SCM) practices, competitive capability, and supply chain agility. They attempt to demonstrate that the SCM practices being investigated significantly benefit supply chain performance. They show that three types of supply chain integration (supplier, internal, and consumer) is moderated by competitive strength. Supply chain efficiency (or “effectiveness efficiency” as they call it) is caused by internal integration, customer integration, and postponement, but supplier integration and information sharing do not positively impact supply chain effectiveness. Finally, information sharing, customer integration, and supply chain efficiency is moderated by competitive capability.
In order to do all this, they evaluate and confirm the following hypotheses:
H1 Supply Chain Management Practices are positively related to Competitive Capability.
H1a Supplier Integration is positively related to Competitive Capability.
H1b Internal Integration is positively related to Competitive Capability.
H1c Customer Integration is positively related to Competitive Capability.
H1d Information Sharing is positively related to Competitive Capability.
H1e Postponement is positively related to Competitive Capability.
H2 Competitive Capability is positively related to Supply Chain Agility.
H3 Environmental Uncertainty mediates the relationship between Competitive Capability and Supply Chain Agility. (Saa’da et al, 2002, pp. 6-7)
From this, they validate a conceptual model where the five SCM practices positively impact competitive capability, where competitive capability positively impacts supply chain agility, and where environmental uncertainty mediates the relationship between competitive capability and supply chain agility.
Figure 1 from Saa’da et al, 2022. - maybe needs correction?
There are several interesting findings, the most important being that consumer integration and knowledge exchange have an outsized benefit to competitive capability. (Saa’da et al, 2022, p. 12). As such, visibility into supply chain integration results not only in increased competitive capability but also improved supply chain agility.
Background
To understand this paper, it is necessary to define the terms being used: supplier integration, internal integration, customer integration, information sharing, postponement, supply chain agility, competitive capability, and environmental uncertainty.
Supplier integration is an SCM strategy that involves a company collaborating with its suppliers to improve the flow of data and communication between them. This gives the company visibility into the ability of the supplier to fulfill orders, and it gives the supplier insight into the company’s expected demands.
Internal integration, also called horizontal integration, is the process of connecting different departments within a company. This allows for collaboration and results in the elimination of duplicative efforts and “silos.”
Customer integration is the process of involving customers into the supply chain for purposes of gathering quality information, helping the company to better understand customer preferences.
Information sharing is the “comprehensive incorporation of all business procedures within and outside the organization so as to enable the exchange of information, as well as movement of products, money, and services” (Saa’da et al, 2022, p. 4). This allows stakeholders to view the entire business, not just the supply chain.
Postponement is a "deliberate action through which the final manufacturing or distribution of products or services are delayed until the receipt of customer’s order" (Saa’da et al, 2022, p. 4). This reduces risk by preventing wrong manufacturing or incorrect inventory deployment (Saa’da et al, 2022, pp. 4-5). Postponement, if not already in place, can involve significant reconfiguration of the supply chain, but can be considered valuable in some circumstances (Van Hoek et al, 1998, pp. 33-35).
Supply chain agility is the capability of a company to effectively respond rapidly to changes in consumer demand as well as market changes.
Competitive capability is a company’s ability to satisfy customer expectations relative to its competitors.
Environmental uncertainty is the degree of unpredictability of a company’s external environment relevant to that company’s operations. The causes of environmental uncertainties include unpredictable actions by competitors, changing customer preferences, and technological advancements.
Application of Relevant Supply Chain Management Theory
The authors discuss postponement as a supply chain management principle and present it as an unlimited good. Postponement is a strategy where certain final decisions are made as late as possible. In terms of manufacturing, this means delaying final assembly or customization of a product until the last possible moment. The obvious benefit is that companies are responsive to changing customer demands. According to Quigg (2022, p. 122), "risk is minimized because customized packaging is not performed in anticipation of customer orders or to accommodate a forecast." A second benefit described by Quigg (2022, p. 122) is that "total inventory can be reduced by using inventory of the base product to aggregate demand across multiple customers’ requirements." This second benefit is both debatable as well as ambiguous.
Quigg is assuming the company in question purely performs final inventory or customization. In this idealized model, the company maintains absolutely no inventory of component parts to assemble or generic items to customize. Are there any companies that operate in this manner?
There is an ambiguity in the statement that total inventory is reduced: reduced for whom? Even if a company exclusively performs final inventory or customization, stock must be maintained by suppliers and distributors must also keep some level of stock. In that situation, inventory and the associated costs are merely shuffled around.
Postponement is somewhat similar to make-to-order (MTO): both are production strategies that are highly responsive to customer demand. MTO is triggered only in response to customer orders and allows for extreme levels of customization (Quigg, 2022, p. 60). Postponement requires that products be kept generic until the last possible moment. All of this contrasts with make-to-stock (MTS) production, where levels of production are determined by estimated customer demands (Quigg, 2022, pp. 60-63).
While storage costs may not be minimized, obsolescence costs can be reduced. An inventory incurs obsolescence costs when the products in that inventory lose value over time – a good example of that being the change in asking price of a car for this year’s model vs last year’s model. (Mellal, 2020, p. 1-2). By delaying final customization, the risk of dealerships holding undesirable stock is thus reduced.
Even in an idealized world where a company can be devoted exclusively to customization or final assembly, there are disadvantages to postponement. For example, unforeseen logistical bottlenecks caused by strikes, shipping delays, problems in port operations, etc. are more disruptive because there is reduced buffer stock. This results in price increases, delivery delays, or both.
Managerial Implications
Supplier integration, internal integration, customer integration, information sharing, and postponement (in an idealized form) are shown to improve overall supply chain efficiency. This is especially crucial in the medical industry - the context for this study - where the timely supply of goods and services translates into the health and well-being of patients.
As indicated by the authors, organizations and companies no longer operate as isolated entities, but rather fulfill customer demands through supply chains that require multiple organizations working in cooperation. As such, “the core competencies of organizations lie in their ability to design and as well as manage their supply chain process.” (Saa’da et al, 2022, p. 2). Various qualities ascribed to supply chains (resilience, efficiency, reliability, etc.) are thus as important for the survival of a company as is the quality of the products they make or the services they deliver.
In terms of healthcare, supply chain efficiency translates primarily into cost savings, and supply chain resilience translates into ongoing availability of medical services in the event of natural or manmade disasters, radical market changes, pandemics, etc. Thus, a successful company in the healthcare industry must not only be able to produce high-quality goods and services, but it must also be able to deliver them in a way that is made possible through well-operating supply chains.
While postponement does not necessarily minimize inventory, reducing inventory build-up is certainly desirable. In the context of the healthcare industry, large inventories are problematic for products or medications that have an expiration date (such as hemostatic dressings and epinephrine pens) as well as vaccines that are reformulated on an annual basis.
The benefits conferred by well-run supply chains are by no means unique to the healthcare industry: any company can benefit from efficient, reliable, and resilient supply chains. Efficient supply chains streamline operations by eliminating excess inventory, reducing transportation costs, minimizing delivery times, and so on. Reliable supply chains minimize interruptions and “smooth out” cost variations by ensuring that multiple competing suppliers are used. Finally, resilient supply chains ensure continuity of company operations (and continuity of product delivery) against serious disruptions that can happen through any number of causes.
Conclusion
This paper reinforces the importance of good SCM practices to the competitive capability of a company as well as that company’s supply chain agility. As the authors note, “[c]ompetition among firms is no longer considered an issue in the contemporary world but rivalry between supply chains.” (Saa’da et al, 2022, p. 5). It is interesting to note, however, that the authors may have reversed the causal relationship between competitive capability and supply chain agility: their conceptual model implies that competitive capability benefits supply chain agility and not the other way around.
Based on Figure 1 from Saa’da et al, 2022.
References
Mellal, M. (2020). “Obsolescence – A review of the literature.” Technology in Society 63, 1-6. https://doi.org/10.1016/j.techsoc.2020.101347
Quigg, B. (2022). Supply Chain Management (1st ed). McGraw-Hill Create. https://bookshelf.vitalsource.com/books/9781307866025
Saa'da, R.J., Al-Nsour, M., Altarawneh, A., Suifan, T.S., Sweis, R., Akhorshaideh, A., & Al-Lozi, K. (2021). "The impact of supply chain management practices on supply chain agility - Empirical study in medical sector." Academy of Strategic Management Journal, 21(1), 1-15. Retrieved 22 September 2024 from https://www.abacademies.org/articles/The-impact-of-supply-chain-management-practices-on-supply-chain-agility-empirical-study-in-medical-sector-1939-6104-21-1-111.pdf
Van Hoek, R., Commandeur, H., & Vos, B. (1998). “Reconfiguring logistics systems through postponement strategies.” Journal of Business Logistics 19(1), 33-54. Retrieved 22 September 2024 from https://togarsim.tripod.com/post/vanhoek_com.pdf
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