Supply Chain Frontiers issue #35. Read all articles in this issue.
In order to stay competitive in more volatile markets, companies have to react quickly to shifts in demand. Many organizations have become nimbler through flexible operations that they reconfigure in response to market changes. Another route to flexibility is to prepare organizations and their supply chain partners for rapid decision making before markets take an unexpected turn.
By being prepared for the worst, enterprises can avoid situations where they are scrambling for solutions in the midst of a crisis. “It is better to know in advance how your supply chain partners are going to react and how you could react in a holistic context, instead of trying to find answers when the problem has happened,” says Dr. María Jesús Sáenz, a professor at the MIT Zaragoza International Logistics Program, Zaragoza, Spain, and director of the scmLAB. How can supply chain managers become primed for change in this way? By making sure that their organizations are aligned with strategic suppliers, advises Sáenz.
The value of this approach is reflected in how firms such as Zara, Toyota, and Dell have used their supply chains as competitive weapons to gain advantage over their peers. As part of its supplier certification process, for example, Dell teaches engineers from supply organizations about the language, processes, and metrics used by the computer maker. Suppliers that know how to think like Dell can facilitate better coordination between production processes. In addition, it is difficult to imitate or transfer this alignment, making relational innovation unique to Dell and its trading partners. “It belongs to their common DNA,” says Sáenz.
As part of the research into supply chain relationships under way at the scmLAB, Sáenz and her team have developed guidelines and key performance indicators for helping companies to proactively develop a culture of change management in the supply chain. The guidelines are described in the “Flexible Supply Chains: A Boost for Risk Mitigation?” chapter of a new book titled, Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles, by Ed S. Ponis, published by IGI Global and forthcoming in March 2010.
“By aligning their strategies, trading partners in a supply chain are already set up to make the rapid decisions that are needed when a crisis occurs,” Sáenz says. Six strategies are particularly important to such alignments:
Supply Chain Partners. Coordinate with suppliers and/or customers on the level of flexible capacity they can offer and how committed they are to continuous improvement.
- Organization. Look at the flexibility that can be derived from restructuring organizations and changing workforce culture and business practices.
- Logistics. Assess your trading partners’ ability to cost-effectively receive, produce, and deliver when supply sources and customers change.
- Market. Ascertain how responsive your partners are to changes in market conditions and customer needs. For example, what is their capacity for customizing products to meet specific buyer demands?
- Production. When change occurs, to what extent can trading partners reconfigure production processes in line with end-to-end supply chain planning?
- Innovation. Confirm that supply chain partners are always on the lookout for opportunities to improve processes through innovation. Having a common vision for innovation must be an inherent part of the supply chain relationship.
Recent conceptual research studies have pointed out that firms without a strong binding culture across supply chain members are not likely to achieve significant enhancements in supply chain performance. Such firms should focus attention on developing shared beliefs and values across their supply chains. This culture should be sensitive to current and potential competitive threats as well as the proactive and reactive mechanisms that the enterprises adopt to increase supply chain flexibility.
Supply chain partners can reinforce interorganizational culture in a number of ways, explains Sáenz, such as working toward an “alignment of norms” where they share goals and develop common corporate cultures. A “problem-solving orientation” refers to the alignment of operational behavior, and a “culture of competitiveness” is the degree to which supply chains are predisposed to detecting and fixing shortfalls between what the market desires and what is currently on offer.
Sáenz and a group of professors are using data gathered from 153 suppliers in a retail supply chain to statistically analyze and quantify the association between building a culture of relational orientation among trading partners and supply chain performance. The preliminary results appear to empirically confirm this association, she says.
“If you want to build flexibility from an interorganizational point of view with your partners, then you need to invest time and effort in aligning part of your organizational culture with your strategic supply chain partners,” says Sáenz. Moreover, your knowledge about trading partners has to encompass the extended supply chain to include suppliers’ suppliers and customers’ customers. “If you want to react quickly, you need to understand in advance how the end-to-end supply chain will react,” notes Sáenz.
For more information on the scmLAB research into supply chain flexibility and interorganizational culture, contact Prof. María Jesús Sáenz, mjsaenz@mit.edu .