Michèle Routley manages the Manufacturing Support Group at TWI and co-ordinates an advanced design centre to support one of TWI's member companies. She started at TWI in 2001 in the Microtechnology Group focusing on reliability and life extension. She also had responsibility for the EPPIC Faraday Partnership marketing, training and seminars work packages. Prior to TWI, Michèle researched Germanium implantation as a method of fabrication for SiGe Heterojunction Bipolar Transistors in the silicon processing clean rooms of the University of Southampton.
TWI activity within Member Company supply chains is increasing as these networks themselves increase in complexity and global range. Michèle Routley recently undertook an elective module of an MBA in Technology Management in Supply Chain strategy, innovation and management. The work undertaken can be applied across all industry sectors and is therefore of great benefit to the Industrial Membership of TWI.
This is the first in a series of three features reviewing recent work on supply chain management and strategy. Part one focuses on the use of a systems approach within supply networks, and the two sequels will consider inter-organisational relationships and the challenges for smaller enterprises within total product systems.
What is meant by a systems approach in a supply chain context?
A system is an integrated collection of components that have an ultimate common purpose, and the system is affected if one of these components is removed.
Taking a systems approach in a supply chain context means that the boundaries, environment and perspective of the system observer are taken into account. In any supply chain, each organisation must be regarded as a sub-system. This approach takes a more holistic perspective than the simplistic view of a supply chain as a linear series of events or processes and allows analysis of a complex situation, including evaluation of components and sub-systems.
Supply chains have multiple points of entry and exit with numerous actors involved even in relatively simple products. Even within a single supply chain a company may be both a customer of, and a supplier to, the same organisation, allowing for iteration and significant interaction.
What are the advantages and disadvantages of taking a systems approach to the management of supply chains?
One advantage of a systems approach is that it can help to clarify a complex situation by identifying the purposes of various activities within the system and the interactions of the sub-systems, thereby allowing investigation of the consequences of change in one area on all of the others. For example, in this way it takes into account the cradle-to-grave aspects required by environmental legislation on production, aftermarket and end of life. This applies to several markets, including the automotive, electrical and energy-using products industries (see the End-of-Life Vehicles Directive, Waste Electrical and Electronic Equipment Directive, Eco-Design of Energy using Products Directive).
As environmental legislation is implemented, products need to be designed with end of life disposal in mind, taking into account the difference this means for manufacture and delivery
Using a holistic approach to the supply chain can optimise its performance as a whole rather than optimising individual sub-system or dyadic (one-to-one) partnerships, which individually might gain from pushing inefficiencies into other areas. The overall gain for a whole supply chain viewed as a complete system is likely to be greater than the cumulative gain from optimisation of individual sub-systems. This is often shown by larger firms, or OEMs, that sponsor their own supplier improvement network to get cost-out and improve delivery to customers.
The traditional view of supply chains is that of material and product flow, whereas the systems approach allows the capability to look at the value added by service activities which increasingly form part of an improved 'product offer', resulting in competitive advantage. This is seen in several different industry sectors, especially aerospace and automotive where the provision of aftermarket services and through-life care offer market differentiation.
However, the systems approach may not reflect the dynamic nature of supply chain management - some companies are involved only sporadically, while others are integral to a business. The different levels of participation and dependency are not shown within a typical systems map nor does it address the organisational cultures involved. The aspect of culture, and differences between organisational procedures is increasingly important in global networks where outsourcing is increasing and company boundaries can become more blurred through joint ventures and partnerships. One disadvantage of using a systems approach is that it could be difficult to identify exactly what to include or at what level one should be working.
The systems approach is subjective and this can be a disadvantage as it depends on the perspective of the system observer. As such, although the system boundary helps to identify what is the most important aspect of a complex situation, the boundary will be set in a different place for different organisations and even different personnel within a system will have alternative perspectives. This in itself can be turned into an advantage though, as if a systems map of a situation is used as a communication tool, then those viewing the map can clearly understand the presenter's perspective. In a global economy, these visual tools can significantly improve complex interactions.
The use of systems thinking is a novel procedure for some organisations and, especially where there is a focus on fire-fighting or managing the micro-organisation, there can be a reluctance to take a wider perspective and become more involved with areas outside an organisation's direct control. This is particularly applicable for smaller organisations. The systems approach brings in a much wider range of factors than traditionally considered within a business,some of which are described below, and there can be a lack of enthusiasm to accept social, political and environmental factors as relevant, as this takes additional time and effort. In today's economy though, these are areas, which, if not addressed proactively, companies will be forced to address through legislation, lobbyists or consumer power.
What are the ways in which large, lead companies exercise control over the supply chain? And what governance factors affect these supply systems?
In general, governance may be separated under three headings - legislative, judicial and executive, and each of these may be internal or external. Large, lead companies of an integrated supply chain are able to decide what core activities they wish to retain and those they wish to outsource. In this way they hope to retain both competitive advantage and flexibility. There is a range of methods whereby they exercise control. Those with sufficient buying power can require cost downs, enforce codes of practice (legislative action), requesting that these be cascaded down into the supply chain (for example through use of ICT, quality standards and delivery schedules). They may provide training and other support for this (executive action) and monitor the enforcement (judicial action). Where a single lead company pursues an aggressive control policy then others in the industry follow to maintain their competitiveness. Large,lead companies may however themselves be subject to control from specialist niche suppliers, if these suppliers have limited or no competition.
Total product systems deal with products from raw materials, through manufacture, delivery, use and end of life processing
Externally there are globally reaching political, regulatory and consumer pressures. Just as commercial activities are undergoing globalisation, national and international bodies have increasing reach with environmental andoperational regulations (legislative). Also non-governmental organisations such as trade unions and pressure groups are holding companies to account for sustainable production and corporate social responsibility (judicial), and thesecases gain much media attention. Support from Regional Development Agencies or a consultant to help industry meet required standards is executive external governance. Public sector organisations have greater government and legislativegovernance than private sector companies, which can significantly affect their activities, especially in the area of innovation. For example, while most companies can introduce new product offers that are not specified as against thelaw, local government organisations are not able to introduce new products that are not specifically included within the law.
Hybrid forms of governance are becoming more frequent - combining the hierarchical, vertically integrated governance and the market governance seen with the trend to outsource. Recently partnerships and joint ventures are increasingas suppliers are now more involved in product development and a range of other activities, including through-life servicing.
What is the difference between product systems and supply chains?
A supply chain describes the stages to produce goods (or a service), from raw materials (or data) generation through processing to customer delivery. A product system goes beyond the supply chain concept to take into accountacquisition of raw materials, to beyond delivery and purchase. It includes aftermarket and end of life processing, (re-cycling, re-use or disposal). It considers a product's lifecycle footprint within the three axes of sustainability -environmental, social and economic.
What is the pattern of overall control within product systems?
Control can be exercised by external actors, such as legislative drivers (including the environmental legislation described above); or within certain safety critical industries, by safety rules and compliance regulations; or bypowerful large lead companies.
Overall control could be described as 'information'. Product systems are moving towards being demand-led rather than producer-driven. Increasingly customers direct where businesses are going as consumer power grows. The leadorganisations are then able to direct how this vision is achieved as they have the power and authority to do so, while regulatory requirements exercise some control. It is the organisations with knowledge about their customers who arebest able to direct the product system, and this is seen in the joint ventures that companies enter into when setting up overseas so that they can access this local information. In the same way, small companies with intellectualproperty can exert control because of their information. Companies such as Toyota, with ideas and knowledge about lean production, were able to control JIT operations amongst their supply chain. Several world-class product systems areas a result of information sharing about the in-depth knowledge of production so that the whole system works.
Might supply chains best be viewed as loose networks of buyers and suppliers?
In every situation there are always several levels of interaction, even if there is not a completely integrated 'total product system'. Therefore it is unrealistic to view supply chains as loose networks of suppliers and buyers.The levels of trust involved in evolving partnerships, are anything but 'loose networks'. One of the reasons why product systems can now stretch globally and interact 'instantly' is the vast advances in ICT. This again goes against thegrain of 'loose networks'.
What factors may influence the functioning of product systems?
The factors involved in information being used to control product systems are the level of information sharing and what information is being shared. These are in general controlled by lead organisations, niche service providersor regulatory bodies. In the servicing of aerospace engines, information is used to satisfy regulatory requirements, generate a higher level of trust within joint ventures and provide online services to customers. Therefore there arecomplex interactions upstream and downstream within the aerospace industry that make the relationships much greater than just buyer and supplier. Even within the retail sector, information provision allows for stock replenishment andinternet sales opportunities. The development of these various options will depend on system's structure (partnership or outsourcing) and an organisation's own culture and history.
Within the automotive industry, they felt as a whole that they did not have enough information about the reprocessing of End-of-Life Vehicles Directive, so they formed associations to gather information and tried to adopt the beststrategy to deal with impending legislation at the end of vehicle life, an aspect not traditionally part of a supply chain.
External to a product system, information can be used by interested lobby groups to take action, seen recently for human rights issues, concerns about the environment and for unions. In these cases, media attention and coverage canbe a powerful tool.
Knowledge management and the use of information also impacts on the success, or otherwise, of the supply chain as the case of optimal use of ICT for e-retail.
A product system will function best when information is freely available to those who need it. Information though, is power, and so can be used to provide benefit for the whole product system, or for one particular organisation orsub-system. The owner of the information will have organisations of different sizes, cultures, objectives, perspectives, capabilities and histories with which to interact. This means that they will need to be flexible in their approachand not all participants in a product system need to be treated in the same way for the optimal result.
The next feature in this series will look at the various types of inter-organisational relationships available throughout total product systems.
