Abstract
In this review of “Supply chain management: Some reflections to improve its influence in business strategy” (Arrendondo & Alfaro Tanco, 2021) we briefly recount the history of operations management and supply chain management provided therein. We then examine some ways supply chain management (specifically, outsourcing and quality control) are relevant. Next, the qualifications Arrendondo and Alfaro Tanco list as the job requirements of supply chain managers are examined. Finally the organizational structure they recommend is criticized.
Article Summary
In “Supply chain management: Some reflections to improve its influence in business strategy”, Arredondo and Alfaro Tanco trace the evolution of the discipline of supply chain management (SCM) starting from its beginnings in operations management (OM) all the way to SCM as a business management philosophy. In recounting this history, the authors attempt to isolate when SCM became independent of OM.
In doing this they briefly examine the relationship between logistics and SCM, and propose four perspectives for looking at this relationship: traditionalist (SCM is part of logistics), re-labeling (SCM replaces logistics), unionist (logistics is part of SCM), and intersectional (SCM and logistics are related and share certain aspects). They assert that the intersectional perspective is the correct way of viewing this relationship and leads to SCM being of strategic importance to a business. They claim that SCM strategy is a crucial part of business strategy or that they may even be identical.
Because of the importance of SCM to a business, supply chain managers play a particularly vital role in the business. The authors describe what SC managers should do in order to make multi-partner supply chains work. The paper concludes with a description of the personality SC managers should have in order to make this happen, and the business organization that best allows SCM to provide value to a company.
Authors’ Purpose
Arredondo and Alfaro Tanco claim that supply chain management (SCM) plays a pivotal and underappreciated role in business operations. To prove this, they cover the history of operations management (OM) starting from before the industrial revolution up to today, focusing on how SCM emerged as an independent field from OM. Unlike Bayraktar et al (2007), they approach this from a pure business perspective. They also discuss how SCM differentiated itself as an academic discipline from logistics, and caution that equating SCM with logistics weakens the strategic advantages that good SCM can bring to a company. They conclude with a discussion of the characteristics that supply chain managers should possess as well as the ideal organization a company should have in order to benefit the most from good SCM.
Historical Background
From Arredondo & Alfaro Tanco (2021)
The authors begin their history of operations management (OM) by claiming that prior to the middle of the 1500s, production was limited to mining, agriculture, and livestock. This changed in 1556 with Georgius Agricola’s “De re metallica” which detailed the processes of mining, refining, and smelting metals. The authors consider this to be the first OM textbook. Fast forward to the industrial revolution, where factory management was the primary concern of business owners.
This changed with Frederick Taylor’s publication of “The Principles of Scientific Management,” where attention shifted from machinery to work and began the phase of industrial management – as well as worker micromanagement. This period included Henry Ford’s moving assembly line.
With the start of World War II, industrial management was replaced by production management. Production management continued to be the predominant theory of business management until it was replaced by operations management and operations research, which was initiated in the late 1950s by a series of academic papers by Holt, Modigliani, Muth, and Simon (HMMS). These papers focused on production planning and forecasting (Singhal & Singhai, 2006) and involved what is today called discrete mathematics.
Operations research gave operations management a theoretical bent, and industrial engineers moved from engineering schools to business schools. OM theorists produced system-wide studies. Material resource planning (MRP) and enterprise resource planning (ERP) became important. Innovative approaches to OM came from Japan where MRP (a push system) was replaced by JIT, which used a pull system. (Arredondo & Alfaro Tanco, 2021, p. 10).
By the 1990s, theoretical OR started to be replaced by empirical studies involving direct observations of business processes. Operations management was still the predominant business management philosophy. The authors end their discussion of OM history there.
When and how did SCM emerge from OM? The authors trace the start of SCM to the HMMS works, noting how they studied integrated systems of managing production. The emergence of SCM was triggered sometime between 1980 and 1990 by the recognition of the importance of the extended supply chain, and that a holistic approach to various management systems – including organizational structure, planning, management control, communications and information, and evaluations and rewards – was needed. Logistics was also extended to issues such as inventories, supply, and distribution.
SCM thus grew to include OM as well as other business concerns (Arredondo & Alfaro Tanco, 2021, p. 13) including finance, marketing, purchasing, research and development, and IT. All this is codified in the 1994 definition of supply chain management supplied by the International Center for Competitive Excellence: “Supply chain management is the integration of business processes from end user through original suppliers that provides products, services and information that add value for customers.”
The strategic importance of SCM doesn’t lie in business operation or in logistics. SCM is really about value chains or value networks, the authors claim.
Application of Relevant SCM Theory
Producing quality goods and services is certainly desirable and becomes particularly important with businesses using the extended supply chain because of the tight integration of customers into SCM. The extended supply chain can both increase and threaten quality (especially product and design quality). Because a business outsources the production of component parts, the quality of those parts is no longer in control of the business. Compensating for this is the possibility of outsourcing the production of component parts to multiple suppliers – if one supplier delivers substandard components, another supplier can be used. This also allows for competition amongst the suppliers.
The production of quality goods is crucial for maintaining customer satisfaction, customer loyalty, and brand reputation. When faulty or substandard products reach the customer, the business incurs external failure costs from product returns, complaint settlements, repairs. (Quigg, 2022, p. 306, 337-338)
Even before reaching the customer, though, the business bears costs related to quality control. Internal failure costs (Quigg, 2022, p. 337) result from having to scrap, salvage, or rework products found to be defective. Determining whether a product is indeed defective entails appraisal costs. Prevention costs (Quigg, 2022, p. 337) are incurred when low quality parts require finding another supplier or even redesigning the product to compensate for the low-quality component parts. (Quigg, 2022, p. 306 – 307).
The ultimate solution to quality control problems is total quality management (TQM). TQM requires a cultural change not only within a business but extends to suppliers and other supply chain partners (Quigg, 2022, p. 340). By the end of this change, businesses should be involved in continuous improvement (Quigg, 2022, p. 340 – 341) as well as statistical analysis of defects (Quigg, 2022, p. 342 – 346).
Managerial Implications
The paper is quite explicit about the characteristics a good supply chain manager should have and the role he or she should play within a company. It also makes some specific recommendations about company organization.
Given the central role that SCM should play in business strategy, SC managers should be given significant roles in business operations. The SC manager is described as the nexus between the business and the stakeholders, and the authors describe the SC manager’s role as akin to the conductor of an orchestra. Overall, the SC manager is “the enabler that makes things happen.” (Arredondo & Alfaro Tanco, 2021, p. 16)
As such, SC managers should hold a staff position within the organization and should have "soft skills instead of hard ones." (Arredondo & Alfaro Tanco, 2021, p. 15). According to this paper, an SC manager should have human management skills plus a holistic view of the entire business, in other words a “systems” view. Technical skills are made secondary. These soft skills should include multicultural knowledge, change management, conflict resolution, interpersonal and communication skills, and ethical awareness. (Arredondo & Alfaro Tanco, 2021, p. 15)
SC managers should be cross-functional, process-oriented, and be included in managing interactions with customers and suppliers. Again, hard skills are not required.
Specific notes are also made about the ideal organization of the company: instead of a functional organization, a matrix-like structure that allows specific skills to flow between teams, thus eliminating “silos.” Not mentioned, however, is that employees in matrix-like structures have more than one manager. The overall business organization should focus on meeting customers’ requirements. The authors recommend “mandatory coordination” (Arredondo & Alfaro Tanco, 2021, p. 16) to make all this happen. This has implications for compensations and incentives as well.
The authors do not specify how the SC manager should fit within this matrix organization. Given the emphasis placed on soft skills, multicultural knowledge, conflict resolution, etc., it is not clear how much responsibility and accountability should be expected from SC managers.
Working across multiple companies – as is stipulated by modern SCM practices – entails a “power differential”: one company would have more “power” over another. This requires not only cooperation and a certain level of trust. The authors believe that a fundamental sense of partnership should be in place. This is the authors’ primary motivation for requiring all the above-listed soft skills.
Conclusion
The authors’ purpose is to highlight the strategic importance of supply chain management in contemporary businesses. They do this by explaining the history of operations management and how SCM evolved from that. They claim that SCM is not about logistics but rater value chains. The argument for the strategic importance of SCM is weakened, however, by the overly-broad conception of that they use: according to them, SCM should encompass all operational aspects of business operation.
References
Arredondo, C. & Alfaro Tanco, J. (2021). “Supply chain management: Some reflections to improve its influence in business strategy.” Innovar 31(81), 7-20. https://doi.org/10.15446/innovar.v31n81.95568
Bayraktar, E., Jothishankar, M., Tatoglu, E. & We, T. (2007). “Evolution of operations management: past, present and future.” Management Research News, ISSN: 0140-9174
Quigg, B. (2022). Supply Chain Management (1st ed). McGraw-Hill Create. https://bookshelf.vitalsource.com/books/9781307866025
Singhal, J. & Singhai, K. (2006). “Holt, Modigliani, Muth, and Simon's work and its role in the renaissance and evolution of operations management.” Journal of Operations Management 25(2), 300-309. https://doi.org/10.1016/j.jom.2006.06.003
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