THE RELATIONSHIPS AMONG SUPPLY CHAIN CHARACTERISTICS, LOGISTICS AND MANUFACTURING STRATEGIES, AND PERFORMANCE

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1346 Ann Arbor, MI 48106-1346 Copyright by Angelisa Elisabeth Gillyard 2003 ii ABSTRACT Supply Chain Management (SCM) offers the possibility of increased customer service while minimizing costs. Before choosing what type of supply chain strategy to pursue, a firm must first evaluate the type of supply chain(s) in which it participates. The type of functional strategies chosen should complement the type of supply chain(s) in which the firm is a member. Certain manufacturing and logistics strategies are more appropriate given the characteristics of the supply chain. This thesis explores the relationships among supply chain characteristics, logistics and manufacturing strategies, and firm performance. In addition, this study proposes an alternative logistics strategy framework using the competitive priorities of cost, quality, delivery and flexibility. Multivariate analysis of variance (MANOVA) was used to test the hypotheses. Results indicate limited support for the notion that successful firms participating in agile supply chains choose to emphasize different logistics and manufacturing strategies than less successful firms in agile supply chains. The same holds true for firms participating in lean supply chains. Results from the logistics strategy factor analysis demonstrated that the proposed framework is not only a feasible one, but one that is effective at describing the logistics strategy. iii Dedicated to my Mother and Father iv ACKNOWLEDGMENTS First and foremost, I would like to thank God for giving me the strength and courage to pursue this degree and to see it to completion. I thank my adviser, Martha Cooper, for her continued support and mentorship throughout my matriculation in the doctoral program. Her encouragement has been invaluable throughout this entire process. I am grateful to my committee, Glenn Milligan and John Current, for their continued support and cooperation. Their comments and suggestions have contributed much to the improvement of this document. I also wish to thank my family. Without their constant and unconditional love, support and encouragement, I would not be who and where I am today. Thanks are also extended to the other doctoral students who were by my side throughout this journey. Their intellectual discussions and words of encouragement made the doctoral program more enjoyable. This research was supported in part by a grant from The Ohio State University’s Alumni Grants for Graduate Research and Scholarship and the GE Faculty for the Future Fellowship. v VITA September 13, 1974 ………………………………Born - Atlanta, GA 1996 ………………………………………………B.S. Mathematics, Spelman College 1998 ………………………………………………M.S. Management, Georgia Institute of Technology 2002 ………………………………………………M.A. Business Administration, The Ohio State University 1998-2002 ………………………………………..Graduate Teaching and Research Associate, The Ohio State University PUBLICATIONS "Career Patterns of Women in Logistics: Emphasis on Mentoring," Martha C. Cooper, Cuneyt Eroglu, Angelisa Gillyard, Priyatabh P. Sharma, Council of Logistics Management Conference Proceedings (CD-ROM), 2002. Cited in several trade publications, including Inventory Management Report, New York, New York: IOMA, December 1, 2002. "Career Patterns of Women in Logistics," Martha C. Cooper, Angelisa Gillyard, and Antuza Sandu, Council of Logistics Management Conference Proceedings, 2001. Cited in several trade publications, including Inventory Reduction Report, New York, New York: IOMA, December 2001, p. 10, and Managing Logistics, Issue 12-01, p.12. vi "Career Patterns of Women in Logistics," Martha C. Cooper and Angelisa Gillyard, Council of Logistics Management Conference Proceedings, 2000, pp.75-97. Cited in several trade publications, including Inventory Reduction Report, New York, New York: IOMA, December 2000, pp.3, 5. FIELDS OF STUDY Major Field: Business Administration Studies in Supply Chain Management Minor: Logistics Management vii TABLE OF CONTENTS Page Abstract ………………………………………………………………… ii Dedication ……………………………………………………………… iii Acknowledgments ……………………………………………………… iv Vita ……………………………………………………………………... v List of Tables …………………………………………………………... ix List of Figures ………………………………………………………….. xi Chapters: 1 Introduction …………………………………… 1 2 Literature Review ……………………………... 10 Supply Chain Management …………………… 10 Hypotheses 1 – 4 ……………………… 19 Manufacturing Strategy ……………………….. 21 Hypotheses 5 – 8 ……………………… 24 Logistics Strategy …………………….……….. 25 Hypotheses 9 – 12 …………………….. 30 The Model …………………………………….. 34 Contributions ………………………………….. 36 3 Methodology ………………………………….. 38 Subjects ……………………………………….. 38 Instrumentation ……………………….……….. 39 Supply Chain Type……………………. 39 viii Manufacturing Strategy ……………….. 40 Logistics Strategy …….……………….. 43 Performance ………….……………….. 45 Procedures …………………………………….. 46 Data Analysis …………………………………. 46 4 Results ………………………………………… 51 Description of the Sample …………………….. 51 Preliminary Analysis ………………………….. 52 Logistics Strategy …….……………….. 52 Manufacturing Strategy ……………….. 57 Supply Chain Characteristics …………. 59 Review and Tests of the Hypotheses ….. 69 Summary of the Results ……….……. 77 5 Summary and Conclusions ……………………. 78 Conclusions Drawn from the Research ……….. 78 Implications for Logistics and Supply Chain Theory ………………………………… 79 Implications for Logistics and Supply Chain Managers ……………………………… 80 Limitations of the Research …………………… 81 Suggestions for Future Research ……………… 82 Concluding Note ……………………………… 83 References ……………………………………………………………… 85 Appendices ……………………………………………………………... 89 Appendix A Email Sent to Subjects ………………………… 90 Appendix B Instructions for Internet Survey ……………….. 93 Appendix C Internet Version of Survey ……………………. 98 Appendix D Microsoft Word Version of Survey …………… 117 ix LIST OF TABLES Table Page 2.1 Eight Supply Chain Processes Proposed by Lambert and Cooper (2000) ………………………………………………… 12 2.2 Definitions of Supply Chain Management …………………… 14 2.3 Characteristics of Lean and Agile Supply Chains …………….. 17 2.4 Description of Logistics Strategies …………………………… 27 2.5 Proposed Logistics Strategy Framework ……………………… 30 3.1 Scales for Supply Chain Type ………………………………… 39 3.2 Logistics Strategy Scales for the Cost Priority ………………... 43 3.3 Logistics Strategy Scales for the Quality Priority …………….. 44 3.4 Logistics Strategy Scales for the Delivery Priority …………… 44 3.5 Logistics Strategy Scales for the Flexibility Priority ………… 45 3.6 Sample MANOVA Table for Manufacturing Strategy ……….. 48 3.7 Sample MANOVA Table for Logistics Strategy ……………... 49 4.1 Industries Represented ………………………………………... 52 4.2 Logistics Strategy Factors and Factor Loadings ……………… 54 4.3 Logistics Factors and Cronbach Alphas ………………………. 56 4.4 Manufacturing Strategy Factors and Factor Loadings ………... 58 x 4.5 Manufacturing Factors and Cronbach Alphas ………………… 59 4.6 Significant Correlations Among Supply Chain Characteristics . 61 4.7 MANOVA Results – Emphasis on Manufacturing Cost Effectiveness as a Competitive Priority ………………………. 71 4.8 MANOVA Results – Emphasis on Logistics Cost Effectiveness as a Competitive Priority ………………………. 71 4.9 Average Emphasis on Competitive Priorities Across All Performance Levels …………………………………………… 72 4.10 MANOVA Results – Hypotheses 5-8 ………………………… 73 4.11 Average Emphasis on Manufacturing Priorities ……………… 74 4.12 MANOVA Results – Hypotheses 9-12 ……………………….. 76 4.13 Average Emphasis on Logistics Competitive Priorities ………. 76 xi LIST OF FIGURES Figure Page 1.1 Conceptual Model ………………………………………………… 8 1.2 Examples of Hypothesized Differences …………………………... 9 2.1 Strategy Formulation ……………………………………………… 22 2.2 Relationships Previously Tested in the Literature ………………… 32 2.3 Proposed Model …………………………………………………… 34 2.4 Components of Constructs in Model ……………………………… 35 2.5 Components of Performance Construct in Model ………………… 36 3.1 Expected Interaction Effects ……………………………………… 50 1 CHAPTER 1 INTRODUCTION Reduced prices, superior product quality, excellent customer service, expanded variety, and exceptional value are examples of the ever- increasing demands being placed on businesses by their customers. How will companies satisfy the increasing number of customer requirements? Many believe that the answer lies in supply chain management. Supply chain management (SCM) has become an important topic of discussion among managers and academicians alike. One definition for SCM is “the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders” (Lambert and Cooper 2000). Improved SCM can enhance customer service while maintaining low costs. Having recognized these benefits of SCM, many successful firms are implementing SCM principles to create and sustain their competitive advantage. What should companies do to maximize the benefits offered by SCM? One answer lies in choosing the appropriate supply chain strategy. The appropriate supply chain strategy should match the corporate strategy in order to “fit” within the company. In addition, the supply chain strategy should complement the logistics and manufacturing 2 strategies in order to achieve superior performance. A dissonance among these strategies could lead to building conflicting capabilities. As a result, companies will not realize the complete benefits of SCM. Strategic alignment between the corporate and supply chain strategies is essential for the success of a company. A survey conducted by Ernst and Young LLP and Stevens Institute of Technology revealed that only 13% of the respondents believed that their supply chain practices were fully aligned with their business unit strategy. Only 47% said that they were "somewhat" aligned with their business unit strategy (Tamas, 2000). There are many reasons as to why a company might fail. One important reason according Chopra and Meindl (2001) is: “A company may fail either because of a lack of strategic fit or because its processes and resources do not provide the capabilities to support the desired strategic fit.” What exactly is meant by strategic fit? Chopra and Meindl (2001) give the following definition: “Strategic fit means that both the competitive and supply chain strategies have the same goal. It refers to consistency between the customer priorities that competitive strategy is designed to satisfy and the supply chain capabilities that the supply chain strategy aims to build.” The above definition of strategic fit can be expanded to include the manufacturing and logistics strategies. The logistics and manufacturing strategies should be aligned with the supply chain strategy in order to build the necessary capabilities to address 3 customer priorities. Thus, a lack of strategic fit can mean that a company wastes time and valuable resources developing capabilities that will not satisfy current customers nor win new customers. Before choosing what type of supply chain strategy to pursue, a firm must first evaluate the type of supply chain(s) in which it participates. One paradigm that has evolved over the years consists of two types of supply chains: the lean and the agile. Naylor, Naim and Berry (1999) define agility as “using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place” (pg. 108). They define leanness as “developing a value stream to eliminate all waste, including time, and to ensure a level schedule” (pg. 108). Manufacturing strategy has been defined as the pattern of decisions that, over time, enables a business unit to achieve a desired manufacturing structure, infrastructure and set of specific capabilities. Typical manufacturing competitive priorities or strategies are low cost, delivery, flexibility and quality (Hayes and Wheelwright 1984). Unlike manufacturing strategy, logistics strategy literature has varying views on what constitutes the typical logistics strategies. Bowersox and Daugherty (1987) proposed a framework for logistics strategy classification. The three strategies they articulated were the process, market, and channel strategies. McGinnis and Kohn (1990) performed a factor analysis of logistics strategy where they identified four strategies: (1) intensive logistics strategy; (2) integrated logistics strategy; (3) low integration strategy; (4) low effectiveness logistics strategy. 4 The research presented in this dissertation suggests a logistics strategy framework that parallels that of manufacturing strategy – cost, quality, delivery and flexibility – and incorporates several of the scales previously developed by logistics researchers. This framework attempts to designate the competitive priorities and capabilities that a firm attempts to build through their logistics operations. Providing such a framework for logistics strategy is an expected contribution of this research. Research Design Given the previously mentioned functional strategies and supply chain characteristics, it follows that certain manufacturing and logistics strategies are more appropriately used within certain supply chains. For example, it can be hypothesized that given a lean supply chain, cost leadership manufacturing and logistics strategies are more appropriate. Aimed at minimizing costs, the cost leadership strategies result in the same efficiency capabilities that are valued in a lean supply chain. Firms exhibiting consistency among the logistics strategy, manufacturing strategy and the type of supply chain should experience higher levels of performance and competitive advantage than firms whose strategies are not consistent with supply chain type. Improved performance should result from the three entities guiding the firm’s actions toward the same objectives and goals instead of toward conflicting goals. Therefore, the following research questions are posed. 1. Are there distinct supply chain types? 2. What characteristics contribute most to supply chain type determination? 5 3. Among the supply chain types, do firms differ in the competitive priorities that they choose to emphasize in their logistics and manufacturing operations? 4. Given a specific supply chain type, do higher performing companies emphasize different competitive priorities than lower performing companies? A conceptual model is shown for illustrative purposes only in Figure 1. This diagram is not designed to imply causality but to conceptually link the areas of interest in this study. Figure 2 shows the hypothesized differences between supply chain types and their relative emphasis on two of the four competitive priorities for both logistics and manufacturing strategies. For example, it is hypothesized that successful firms participating in lean supply chains will emphasize the cost priority in their manufacturing and logistics functions more than firms in lean supply chains experiencing poorer performance. Similarly, successful firms in agile supply chains will emphasize flexibility more than less successful firms in agile supply chains. A web survey of logistics and supply chain executives who are members of the Council of Logistics Management (CLM) and employed manufacturing firms was used to gather the needed data. Because CLM is often considered to be the premier logistics organization, it is believed that members have sufficient working knowledge of supply chain, logistics and manufacturing issues within their organization to accurately complete the survey. In addition, executives (possessing the title manager or above) were chosen because their high-ranking position should afford them a fairly comprehensive view of 6 the firm and its functional priorities. The sampling frame includes manufacturing firms from multiple industries. Scales from previous studies and articles were used to compose the survey. The respondents were divided into two initial groups, those participating in lean supply chains and those participating in agile supply chains. Once the supply chain type was determined, members of each type of supply chain were divided into high and low performers. Multivariate analysis of variance (MANOVA) was performed to detect differences in relative emphasis for the competitive priorities among the groups. Contributions This study makes several contributions to the literature. First, the characteristics of lean and agile supply chains can be empirically supported to further the development of supply chain management theory. Much of the literature to date is conceptual with little empirical support. Secondly, an alternative framework for logistics strategy is presented. The framework parallels that of manufacturing strategy and encourages integrative research using the two strategies. In addition, the framework will enable advanced understanding of logistics strategy and priorities. Lastly, the relationships among the type of supply chain, logistics and manufacturing strategies and their relation to perceived performance can be empirically examined, thereby advancing supply chain theory development as well. This study imparts several managerial implications as well. First, the financial impact of choosing logistics and manufacturing priorities that complement their type of supply 7 chain is more clearly demonstrated. In addition, practitioners are able to better identify what types of priorities they possess, the type of supply chain in which they participate and the most complementary combinations of those priorities given their strategic intent and resources. 8 Figure 1.1: Conceptual Model Supply Chain Type Logistics Strategy Manufacturing Strategy Performance 9 Figure 1.2: Examples of Hypothesized Differences Manufacturing/Logistics Cost Performance Low High Lean Agile Average Cost Emphasis Manufacturing/Logistics Flexibility Performance Low High Agile Lean Average Flexibility Emphasis 10 CHAPTER 2 LITERATURE REVIEW The following chapter will discuss the relevant literature concerning supply chain management, manufacturing strategy and logistics strategy. Supply Chain Management Researchers and managers have debated for approximately the last 15 years about the definition of supply chain management. Some believe that SCM is just integrated logistics properly implemented. Others view SCM as the integration of more functions than just logistics (e.g. manufacturing with marketing and R&D, etc.). Cooper, et al. (1997) point out the need for “the integration of business operations in the supply chain that goes beyond logistics.” Discussion with members of the Global Supply Chain Forum (GSCF) resulted in the following definition of SCM: “Supply Chain Management is the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders” Lambert and Cooper (2000). 11 The eight key processes identified are shown in Table 2.1. Each process is customer- focused and aims to achieve superior product flows through the efficient use of information along the supply chain. 12 Process Description of Process Customer relationship management In the customer relationship management process, key customers are identified and worked with closely to establish product and service agreements that specify the levels of expected performance. Also, customer service teams work with customers to further identify and eliminate sources of demand variability. Customer service management A single source of customer information is provided in this process. A key point of contact for administering the product/service agreement is established. Demand management Point-of-sale and “key” customer data is used to reduce uncertainty and provide efficient flows throughout the supply chain. Order fulfillment Integration of the firm’s manufacturing, distribution and transportation plans is performed in this process in order to guarantee timely and accurately filled orders. Manufacturing flow management Ideally, orders are processed on a just-in-time (JIT) basis where required delivery dates drive production priorities. Furthermore, manufacturing processes must be flexible enough to respond quickly to market changes. Procurement Long-term strategic alliances with a small core group of suppliers are utilized in conjunction with rapid communication mechanisms (e.g. EDI, Internet, etc.). Product development and commercialization Customer Relationship Management is coordinated with this process to identify customer-articulated and –unarticulated needs. Procurement is involved in this process as well to select materials and suppliers. Coordination with Manufacturing Flow Management is needed to develop production technology and integrate into the best supply chain flow for the product/market combination. Returns The Returns process enables identification of productivity improvement opportunities. Table 2.1: Eight Supply Chain Processes Proposed by Lambert and Cooper (2000). 13 Taking a slightly different perspective, Ballou, et al. (2000) identifies three dimensions of supply chain management. They are intra- functional coordination, inter- functional coordination and inter-organizational coordination. Intra- functional coordination refers to the administration of the activities and processes within the logistics function of a firm. Inter-functional coordination refers to the coordination of activities among the functional areas of the firm while inter-organizational coordination refers to the coordination of supply chain activities that take place between legally separate firms within the product- flow channel. Hence, the following definition for supply chain management was proposed: “The supply chain refers to all those activities associated with the transformation and flow of goods and services, including their attendant information flows, from the sources of raw materials to end users. Management refers to the integration of all these activities, both internal and external to the firm.” Also emphasizing the importance of functional coordination and strategic congruence, Mentzer, DeWitt, Keebler, Min, Nix, Smith and Zacharia (2001) define supply chain management as: “The systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.” Other definitions of supply chain management are offered in Table 2.2. 14 Authors Definition Tan et al. (1998) SCM encompasses materials/supply management from the supply of basic raw materials to final product (and possible recycling and re-use). SCM focuses on how firms utilize their suppliers' processes, technology and capability to enhance competitive advantage. It is a management philosophy that extends traditional intra-enterprise activities by bringing trading partners together with the common goal of optimization and efficiency. Berry et al. (1994) SCM aims at building trust, exchanging information on market needs, developing new products, and reducing the supplier base to a particular OEM so as to release management resources for developing meaningful, long term relationships. Jones and Riley (1985) An integrative approach to dealing with the planning and control of the materials flow from suppliers to end-users. Saunders (1995) External Chain is the total chain of exchange from original source of raw material, through the various firms involved in extracting and processing raw materials, manufacturing, assembling, distributing and retailing to ultimate end customers. Ellram (1991) A network of firms interacting to deliver product or service to the end customer, linking flows from raw material supply to final delivery. Christopher (1992) Network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer. Lee and Billington (1992) Networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products, and distribute the finished products to customers. Kopczak (1997) The set of entities, including suppliers, logistics services providers, manufacturers, distributors and resellers, through which materials, products and information flow. Lee and Ng (1997) A network of entities that starts with the suppliers’ supplier and ends with the customers’ custom production and delivery of goods and services. Table 2.2: Definitions of Supply Chain Management. Reproduced from Croom, Simon, Pietro Romano and Mihalis Giannakis, “Supply Chain Management: An Analytical Framework for Critical Literature Review,” European Journal of Purchasing and Supply Management, Vol. 6, 2000, pp. 67-83. 15 Though these definitions differ slightly in wording, all communicate the importance of integration, communication and coordination between functions and organizations that will create value for the customer. Other researchers have attempted to develop math models to address coordination in the supply chain. Many of these models attempt to minimize inventory in the supply chain. However, these analyses are dyadic in nature, examining the interaction of only two supply chain members, a buyer and a supplier. Thus, the entire supply chain as given by the previous definitions is not modeled using these analytical methods. In addition, inventory is not the only consideration or motivation for supply chain coordination. Thomas and Griffin (1996) reviewed the literature that uses math models to address supply chain coordination issues. Several authors have proposed frameworks for the design and control of supply chains (Davis 1993; Beamon and Ware 1998; Bowman 1997; Sengupta and Turnbull 1996). However, much of this work is geared toward the manager and does not give theoretical insights as to how supply chain management relates to functional strategies. One of the goals of this study is to examine the relationship among the type of supply chain a firm participates in and two of the firm’s functional strategies, namely their manufacturing and logistics strategies. One of the seminal papers on supply chain management provides a framework for determining what type of supply chain is appropriate for a particular product. Fisher (1997) recommends first examining a product’s demand nature in order to determine what type of supply chain to use. Products fall into one of two categories according to 16 Fisher, primarily functional or primarily innovative products. Functional products have stable demand, low profit margins and long life cycles. Innovative products have unpredictable demand, short life cycles and higher profit margins. Functional products require an efficient supply chain that minimizes cost while innovative products require a responsive supply chain that maximizes speed and flexibility. Any other combination of product type and supply chain type will result in inferior performance. Akin to the efficient and responsive supply chains are the two supply chain archetypes that have evolved in the literature, the lean and the agile supply chain. Naylor et al. (1999) define agility as “using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place” (pg. 108). They define leanness as “developing a value stream to eliminate all waste, including time, and to ensure a level schedule” (pg. 108). Both types may be employed simultaneously in the supply chain. Though both archetypes use market knowledge and are concerned with waste elimination and lead-time compression, the two do have several differences. Smooth demand and level scheduling are essential to the lean supply chain whereas robustness and rapid reconfiguration capabilities are essential in the agile supply chain. Metrics also have differing importance levels in the lean and agile supply chains. Both paradigms share lead-time and quality as key metrics. However, service is a key metric for the agile supply chain while costs are a key metric for the lean supply chain (Naylor et al. 1999). Christopher and Towill (2000) go so far as to outline the market qualifiers and winners for the agile and lean supply chains. Market qualifiers are those characteristics 17 that enable a company to be considered by potential customers. Market winners are those characteristics that lead a customer to choose to purchase from a particular company. Quality, cost and short lead-time are the market qualifiers for the agile supply chain whereas service is the market winner. Cost, however, is the market winner for the lean supply chain and quality, service, and lead-time are market qualifiers. Christopher and Towill (2000) also outline._. the distinguishing attributes for the lean and agile supply chains. They are summarized in Table 2.3: Distinguishing Attributes Lean Supply Agile Supply Typical products Commodities Fashion goods Marketplace demand Predictable Volatile Product variety Low High Product life cycle Long Short Customer drivers Cost Availability Profit margin Low High Dominant costs Physical costs Marketability costs Stockout penalties Long term contractual Immediate and volatile Purchasing policy Buy goods Assign capacity Information enrichment Highly desirable Obligatory Forecasting mechanism Algorithmic Consultative Table 2.3: Characteristics of Lean and Agile Supply Chains. Reproduced from Christopher, Martin and Denis Towill “Supply chain migration from lean and functional to agile and customized” Supply Chain Management: An International Journal, Vol. 5, No. 4 (2000), pp. 206-213. In 2001, Harland, Lamming Zheng and Johnsen offer their own taxonomy of supply networks. Their taxonomy is very similar to the efficient/responsive and lean/agile 18 paradigms, however they also include the issue of power in the channel. The four network types established in their paper were the 1) dynamic/low degree of focal firm influence, 2) dynamic/high degree of focal firm influence, 3) routinized/low degree of focal firm influence and 4) routinized/high degree of focal firm influence. Both types of dynamic supply networks operate under dynamic conditions and tended to compete primarily on innovation rather than cost. Both types of routinized supply networks operated under stable conditions and competed on cost minimization and quality improvement. Thus, the routinized network can be likened to the lean or efficient supply chain type and the dynamic network can be likened to the agile or responsive supply chain type. Mason-Jones et al. (2000) also outline the market qualifiers and market winners for lean and agile supply chains. Quality, cost and lead time are market qualifiers for the agile supply chain while service level is the market winner for the agile supply chain. Quality, lead time, and service level are the market qualifiers for the lean supply chain and cost is the market winner for the lean supply chain. Christopher and Towill (2001) make the proposition that a company need not choose to be exclusively lean or exclusively agile in their supply chain operations. Rather the demand pattern for the product should determine the strategy. Firms may implement hybrid strategies in which lean methods are used for the higher volume product lines that have stable demand and agile methods are used for the slower moving product lines. A supply chain may be lean up to the de-coupling point and agile downstream from the decoupling point. Similarly, if a firm knows what the base level demand is for a product line, it can use lean methods to manage that forecastable element and use agile methods to manage the less predictable element. 19 Lamming et al. (2000) attempt to classify supply networks (or supply chains) using several case studies. The type of product was used as the differentiator between the network types. They found that the competitive priorities for supply networks of unique-innovative products differed from those for functional products. Supply networks for unique-innovative products focused on speed, flexibility, innovation and quality supremacy. Supply networks for functional products focused on cost reduction and quality sustainability. Thus, there is initial evidence suggesting the existence of different types of supply chains that require different sets of competitive priorities from its members. According to Fisher (1997) suppliers for efficient supply chains should be chosen based on cost and quality while suppliers in responsive supply chains should be chosen based on speed, flexibility and quality. Thus, the first set of hypotheses for this study are as follows: H1: Companies participating in lean supply chains will emphasize cost as a competitive priority in the manufacturing strategy more than companies participating in agile supply chains. H2: Companies participating in lean supply chains will emphasize cost as a competitive priority in the logistics strategy more than companies participating in agile supply chains. H3: Companies participating in agile supply chains will emphasize flexibility as a competitive priority in the manufacturing strategy more than companies participating in lean supply chains. 20 H4: Companies participating in agile supply chains will emphasize flexibility as a competitive priority in the logistics strategy more than companies participating in lean supply chains. Tan, Kannan, Handfield and Ghosh (1999) attempted to link certain supply chain management practices with firm performance. In particular, they examined the effects of quality management, supply base management and customer relations practices on firm financial performance. They found that some aspects of quality management – use of performance data in quality management, management commitment to quality, involvement of quality department, and social responsibility of management -- all were positively related to firm performance. Managing the supply base was found to have a significant impact on firm growth but not on overall performance. Customer relations was positively associated with firm performance, indicating the need for firms to have a customer orientation. Customer orientation is also highlighted in many of the supply chain management definitions presented earlier in this section. The significance of supply base management highlights the need for companies to actively manage their supply chain to maximize their performance. As Mentzer et al. (2001) said, a supply chain will exist whether a firm actively manages it or not. Fewer managers are letting the supply chains be controlled through external forces but are taking proactive roles in the supply chain management process. This proactive stance indicates the increased need for a greater understanding of supply chain management and how it affects a firm’s functions. 21 Cavinato (1999) attempted to link how logistics is viewed in a supply chain management context to the five stages of strategic management. He was attempting to show how different managerial skills and outlooks are required in the different stages of strategic management. Thus, firms need to match their management of logistics to their current strategic outlook. The advantage of acknowledging the current state of a firm is that it can also examine how to move to the next developmental level. The five stages are basic financial planning, forecast-based planning, externally oriented planning, strategic management and knowledge-based business. The Knowledge-based business has a process view and sees supply chain strategy as it affects the overall firm and each particular product. Thus, in order to move to becoming a knowledge-based firm, firms must recognize how their supply chain management activities affect each individual function as well as each individual product line. Logistics and manufacturing strategies, in particular, are significantly affected by supply chain management activities. The strategic orientation of the firm will determine how these functions are managed. Manufacturing Strategy Manufacturing strategy has been defined as the pattern of decisions that, over time, enable a business unit to achieve a desired manufacturing structure, infrastructure and set of specific capabilities (Hayes and Wheelwright 1984). As seen in Figure 2.1, manufacturing strategy and other functional strategies cannot be determined in isolation. Changing customer demands and competitive environments necessitate the careful 22 consideration of each decision since the wrong decision can have dire long-term consequences. The typical manufacturing competitive priorities are low cost, delivery, flexibility and quality. ENVIRONMENT CORPORATE STRATEGY STRATEGIC BUSINESS UNIT STRATEGIES FUNCTIONAL STRATEGY FORMULATION Manufacturing Other Functional Areas IMPLEMENTATION Manufacturing Other Functional Areas Figure 2.1: Strategy Formulation. Adapted from Leong, Snyder, and Ward, “Research in the Process and Content of Manufacturing Strategy” International Journal of Management Science, Vol. 18, No. 2, (1990), pp. 109-122. 23 Williams et al. (1995) examine manufacturing strategy, business strategy and firm performance in a mature industry (broadwoven fabric industry). Williams, et al. (1995) find a significant relationship between manufacturing and business strategy. They also find that businesses that choose higher levels of differentiation emphasized innovative manufacturing processes, product quality and variety of product offerings. Ward et al. (1995) examine manufacturing strategy, business environment and performance among Singaporean firms. They find that high performers emphasize different manufacturing competitive priorities than low performers. The typical business/competitive environment factors considered are munificence, dynamism and complexity (not included in their study). Munificence refers to the extent to which an environment supports growth of organizations within it. Dynamism refers to the unpredictable change in environmental conditions faced by firms. Complexity refers to the heterogeneity and range of an organization’s activities. Ward et al. (1995) find that higher environmental dynamism is associated with higher emphasis on delivery performance, flexibility and quality. In particular, low performers focus on flexibility, delivery, quality and cost reductions in the presence of high dynamism while high performing firms focused only on delivery, quality and flexibility. In addition, low performers focused on cost reduction and differentiation when in the face of increased competition while high performers emphasized only differentiation through delivery performance. Thus, there is not one particular strategy that is appropriate in all circumstances. The results from these previous studies lead to the next set of hypotheses: 24 H5: High performing companies in lean supply chains will emphasize cost as a competitive priority for the manufacturing strategy more than low performing companies in lean supply chains. H6: High performing companies in agile supply chains will emphasize cost as a competitive priority for the manufacturing strategy less than low performing companies in agile supply chains. H7: High performing companies in agile supply chains will emphasize flexibility as a competitive priority for the manufacturing strategy more than low performing companies in agile supply chains. H8: High performing companies in lean supply chains will emphasize flexibility as a competitive priority for the manufacturing strategy less than low performing companies in lean supply chains. 25 Logistics Strategy Though the manufacturing strategy literature has very well defined competitive priorities, the logistics strategy literature is not as conclusive to date. Bowersox and Daugherty (1989) proposed a framework for logistics strategy classification. The three strategies they articulated were the process, market and channel strategies. The process- based strategy is concerned with managing a broad group of logistics activities as a value-added chain. Emphasis is on achieving efficiency from managing purchasing, manufacturing, scheduling, and physical distribution as an integrated system. The market-based strategy is concerned with managing a limited group of logistics activities for a multidivisional single business unit or across multiple business units. The logistics organization seeks to make joint product shipments to common customers for different product groups and seeks to facilitate sales and logistical coordination by a single order- invoice. The channel-based strategy is concerned with managing logistics activities performed jointly with dealers and distributors. The strategic orientation places a great deal of attention on external control. Significant amounts of finished inventories are typically maintained forward or downstream in the distribution channel. These strategies, however, are very descriptive in nature and do not attempt to identify the competitive priorities or capabilities that a firm may attempt to exploit or develop through their logistics operations. 26 Clinton and Closs (1997) attempt to identify the underlying factors for the process/market/channel classification. They find that the framework is “promising.” However, significant overlap among the strategies was observed though the relative emphasis on activities (e.g. alliances, planning, control, etc.) differed slightly. Thus, a more illuminating framework is needed for logistics strategy. McGinnis and Kohn (1990) performed a factor analysis study of logistics strategy. Four strategies were identified: (1) intensive logistics strategy; (2) integrated logistics strategy; (3) low integration strategy; (4) low effectiveness logistics strategy. Definitions of these strategies can be found in Table 2.4. 27 Strategy Description Intensive Logistics Strategy Highest emphasis on customer service commitment, coordinated logistics, integrated customer service and logistics coordination effectiveness. Integrated Logistics Strategy Highest emphasis on integrated computer systems and also emphasized coordinated logistics, integrated customer service and logistics coordination effectiveness. Low Integration Strategy Low emphasis on integrated computer systems and logistics coordination effectiveness with moderate emphasis on customer service commitment, coordinated logistics and integrated customer service. Low Effectiveness Logistics Strategy Low emphasis on customer service commitment, coordinated logistics and logistics coordination effectiveness with moderate emphasis on computer system and customer service integration. Table 2.4: Descriptions of Logistics Strategies Determined by McGinnis and Kohn (1990), “A Factor Analytic Study of Logistics Strategy” Journal of Business Logistics, Vol. 11, No. 2, pp. 41-63. Similarly, these four strategies also are data driven and do not explain the logistics capabilities a firm may try to develop or exploit in order to enhance or maintain their competitive advantage. McGinnis and Kohn in 1993 examined the relationships between logistics strategy, organizational environment and time competitiveness. Using both the 28 Bowersox and Daugherty (1989) and the McGinnis and Kohn (1990) frameworks for logistics strategy, they found that competitive responsiveness, dynamism and hostility affect logistics strategy. They also found that high levels of dynamism, hostility and competitive responsiveness were associated with the Intensive Logistics Strategy. The Process and Market strategies are emphasized in the Intensive Logistics Strategy and customer service and logistics coordination are high priorities. Some authors attempted to identify the logistics capabilities a firm may possess and their relationship to other variables. Lynch, Keller and Ozment (2000) studied the effects of logistics capabilities and corporate strategy on firm performance. They examined process capabilities, value-added service capabilities, cost leadership strategy, and differentiation strategy. Their results indicated that process capabilities were positively linked to a cost leadership strategy while value-added service capabilities were positively linked to a differentiation strategy. Firms that exhibited a “match” between their capabilities and strategy had better performance than those who did not exhibit such a “match.” Their results support the notion that one strategy is not applicable in all competitive situations. Morash, Drửge and Vickery (1996) examined the relationship between logistics capabilities and performance. The capabilities were grouped into two areas, demand- oriented and supply-oriented capabilities. Demand-oriented capabilities included pre-sale and post-sale customer service, delivery speed, delivery reliability and responsiveness to target market(s). Supply-oriented capabilities included widespread and selective distribution coverage, and low total cost distribution. 29 Among the capabilities studied, the demand-oriented capabilities were ranked higher in importance and implementation than supply-oriented capabilities. Only four capabilities were linked to performance: delivery speed, delivery reliability, responsiveness and low cost distribution. These capabilities closely mirror the competitive priorities used in manufacturing strategy literature. Since Hayes and Wheelwright (1984) describe strategy as the pattern of decisions that, over time enable a business unit to achieve a desired manufacturing structure, infrastructure and set of specific capabilities, logistics strategy can similarly be viewed as the pattern of decisions that enable a business unit to achieve specific logistics capabilities. Therefore, based on this extension of the manufacturing strategy definition and the studies previously mentioned, logistics strategy can be possibly be classified using a framework that parallels manufacturing strategy, consisting of cost, quality, delivery and flexibility. Using the capabilities listed by Morash et al. (1996), the following categories of logistics strategy can be created: 30 Logistics Strategy Logistics Capabilities* Cost Low total cost distribution Quality Pre-sale customer service, Post-sale customer service Delivery Delivery speed, delivery reliability Flexibility Responsiveness to target market, widespread distribution, selective distribution Table 2.5: Proposed Logistics Strategy Framework * Logistics Capabilities taken from Morash, Droge and Vickery “Strategic Logistics Capabilities for Competitive Advantage and Firm Success” Journal of Business Logistics, Vol 17, No. 1 (1996), pp. 1-22. Given the studies previously discussed, it is reasonable to believe that the competitive priorities emphasized in logistics strategy are also related to the type of supply chain in which a firm participates and firm performance. Thus the following hypotheses are tested in this dissertation: H9: High performing companies in lean supply chains will emphasize cost as a competitive priority for the logistics strategy more than low performing companies in lean supply chains. 31 H10: High performing companies in agile supply chains will emphasize cost as a competitive priority for the logistics strategy less than low performing companies in agile supply chains. H11: High performing companies in agile supply chains will emphasize flexibility as a competitive priority for the logistics strategy more than low performing companies in agile supply chains. H12: High performing companies in lean supply chains will emphasize flexibility as a competitive priority for the logistics strategy less than low performing companies in lean supply chains. Figure 2.2 gives a comprehensive view of the relationships that have already been examined in the existing literature. By examining the figure, it is evident that there is a gap in the literature where the relationships among supply chain type, logistics and manufacturing strategies and firm performance have not been investigated. The intent of this study is to fill this gap and contribute empirical evidence to support the importance of these relationships. 32 Miller (1988) Morash, et al. (1996) Ward, et al. (1995) McGinnis and Kohn (1993) Williams, et al. (1995) Figure 2.2: Relationships Previously Tested in the Literature 33 Figure 2.2: Relationships Previously Tested in the Literature Environment Corporate Strategy Supply Chain Type Logistics Strategy Manufacturing Strategy Performance 34 Figures 2.3 to 2.5 illustrate the proposed model (diagram is for descriptive purposes only) with the components of each construct. Supply Chain Type Logistics Strategy Manufacturing Strategy Performance Figure 2.3: Proposed Model 35 Supply Chain Type Lea n Agile Logistics Strategy Quality Delivery Flexibility Cost Manufacturing Strategy Quality Delivery Flexibility Cost Figure 2.4: Components of Constructs in Model 36 Contributions This study aims to make several contributions to the literature. First, the characteristics of lean and agile supply chains can be empirically supported to further the development of supply chain management theory. Much of the literature to date is conceptual with little empirical support. Secondly, a concise framework for logistics priorities is presented. The intended framework parallels that of manufacturing strategy and encourages integrative research using the two strategies. In addition, the framework enables advanced understanding of logistics strategy and priorities. Lastly, the relationships among the type of supply chain, logistics and manufacturing priorities and firm performance (compared to competitors) are empirically examined, thereby advancing supply chain theory development as well. Performance ROI ROA ROS ROI Growth ROA Growth ROS Growth Figure 2.5: Components of Performance Construct in Model 37 This study imparts several manageria l implications as well. First, the financial impact of choosing logistics and manufacturing priorities that complement their type of supply chain is more clearly demonstrated. Practitioners will also be able to better identify what types of priorities they possess, the type of supply chain in which they participate and the most complementary combinations of those priorities given their strategic intent and resources. 38 CHAPTER 3 METHODOLOGY The results of a cross- industry survey of logistics and supply chain executives was used to analyze the relationships between supply chain, logistics and manufacturing strategies. A brief description of the targeted participants, definitions of each construct and the scales used to measure the construct are presented. A description of data analysis procedures follows. Subjects A convenience sample of subjects was taken using the mailing list provided by the Council of Logistics Management (CLM). The mailing list was purged of firms that were not manufacturing firms. The subjects targeted all possessed high-ranking management positions in logistics or supply chain management. A web page containing the survey was created where participants responded to the survey electronically. Appendix 1 contains a copy of the survey used. 39 Instrumentation The survey was developed largely using scales that have been used previously in the literature. Respondents answered all questions with respect to a particular product line in their company, which they were asked to identify. Respondents were asked to choose the product line that contributes the most sales volume for their company or division. Demographic information about the company or division and the respondent was also collected. Supply Chain Type The scales used for supply chain management characteristics were developed using the characteristics of lean and agile supply chains offered by Christopher and Towill (2000). Some scales for supply chain characteristics were measured using a five- point anchored scale. They include: 1 2 3 4 5 Marketplace Demand Predictable Volatile Product Variety Low High Product Life Cycle Long Short Profit Margin High Low Information Enrichment Obligatory Highly Desirable Table 3.1: Scales for Supply Chain Type 40 Other questions asked on a five-point Likert scale used strongly agree to strongly disagree as anchors. They include: 1. Our main product line is a commodity good. 2. Cost is an order winner for our product. 3. Availability is an order winner for our product. 4. Our dominant costs are physical costs. 5. Our dominant costs are marketability costs. 6. Our main purchasing policy from suppliers is to buy goods. 7. Our main purchasing policy from suppliers is to purchase capacity. 8. Our main forecasting mechanism is algorithmic. 9. Our main forecasting mechanism is consultative. Manufacturing Strategy The operational definition of manufacturing strategy that was used is the relative emphasis placed on a competitive priority (cost, quality, delivery and flexibility) by the manufacturing function in order to sell the company’s product line identified by the respondent. Scales from Ward et al. (1995) and Ward et al. (1998) were used to measure manufacturing priorities. The following priorities were assessed using a five-point Likert scale from no emphasis to extreme emphasis: (The Cronbach alphas listed are from Ward et al, 1998.) 41 Cost (Cronbach alpha = 0.80) 1. Production cost 2. Labor productivity 3. Capacity utilization 4. Reducing inventory 5. Cost 6. Productivity Quality (Cronbach alpha = 0.72) 1. High product performance 2. High durability (long life) of product 3. High product reliability 4. Ease (cost and time) to service product 5. Promptness in solving customer complaints 6. Conformance to final product design specification Delivery (Cronbach alpha = 0.79) 1. Short delivery time 2. Delivery on due date (ship on time) 3. Reduce production lead time 4. On-time delivery 5. Promptness in solving customer complaints 6. Production cycle time 42 Flexibility (Cronbach alpha = 0.70) 1. Large number of product features or options 2. Ability to introduce new products into production quickly 3. Ability to adjust capacity rapidly within a short time period 4. Ability to make design changes in the product after production has started There is additional evidence to support the use of the aforementioned scales to measure manufacturing strategy. Scannel, Vickery and Drửge (2000) measured flexibility, quality and cost using slightly different but similar scales that attempted to capture the same underlying dimensions of the flexibility, quality, and cost competitive priorities. Flexibility was captured using four items; mix flexibility, volume flexibility, changeover flexibility and modification flexibility. Mix flexibility was defined as “the ability to produce effectively a wide variety of different products at a point in time.” Mix flexibility is similar to having a large number of product features and options in Ward et al (1998). Volume flexibility was defined as “the ability to increase or decrease effectively aggregate production in response to customers,” which is similar to the ability to rapidly adjust capacity mention in Ward et al. (1998). Changeover flexibility was defined as “the ability of a manufacturing system to implement effectively and additions and subtractions to the product mix over time that result from new product introductions,” which is akin to introducing new products into production quickly by Ward et al. (1998). 43 Logistics Strategy The operational definition of logistics strategy used is the relative emphasis placed on a competitive priority (cost, quality, delivery and flexibility) by the logistics function in order to sell the company’s line of products identified by the respondent. Because logistics strategy scales have not been organized within this type of framework, Cronbach alphas were not applicable from past studies. Questions adapted from previous studies were asked in which respondents indicated the relative importance of each scale, similar to the manufacturing strategy measures. Scales from previous studies were used and questions asked using a five-point Likert scale ranging from no emphasis to extreme emphasis. The following tables indicate the scales that were used and their source from the pre-existing literature. Author (Year) Cost McGinnis and Kohn (1993) ã Achieving maximum efficiency from distribution. ã Gain control over activities that result in purchasing and distribution costs. Lambert and Burduroglu (2000) ã Competitiveness of price Self-generated ã Transportation cost ã Labor productivity ã Capacity utilization ã Inventory reduction Table 3.2: Logistics Strategy Scales for the Cost Priority 44 Author (Year) Quality Lambert and Burduroglu (2000) ã Accuracy of filling orders ã Supplier absorbs cost of freight and handling on returns due to shipping damages or product shipped in error ã Adequate advance notice of price changes ã Quality/durability of packaging ã Supplier’s adherence to your specific shipping instructions Table 3.3: Logistics Strategy Scales for the Quality Priority Author (Year) Delivery McGinnis and Kohn (1993) ã Achieving coordinated physical distribution to customers served by several business units Lambert and Burduroglu (2000) ã Length of promised lead times on ASAP or emergency orders ã Ability to expedite emergency orders ã High fill rate on ad promotional orders ã High fill rate on normal reorders ã Length of promised lead times on normal orders ã Length of promised lead times on ad/promotional orders Self-generated ã Short delivery/ transportation time ã Delivery on due date ã Wide geographic range of delivery Table 3.4: Logistics Str._.ngly Disagree Disagree No Opinion Agree Strongly Agree Our main purchasing policy from suppliers is to buy goods. Strongly Disagree Disagree No Opinion Agree Strongly Agree We rely primarily on mathematical models as our main forecasting mechanism. Strongly Disagree Disagree No Opinion Agree Strongly Agree We rely primarily on managerial experience as our main forecasting mechanism. Strongly Disagree Disagree No Opinion Agree Strongly Agree Maintaining a level production schedule is critical to maintaining profitability for this product line. Strongly Disagree Disagree No Opinion Agree Strongly Agree Using end customer consumption data is critical to maintaining profitability for this product line. Strongly Disagree Disagree No Opinion Agree Strongly Agree When choosing suppliers, they must be able to rapidly adjust their capacity to meet our needs. Strongly Disagree Disagree No Opinion Agree Strongly Agree Months Approximately how long is the average product life cycle for this product line? Years What is your contribution margin for this product line? (check one) less than 5% 106 less than 5% greater than 5% and less than or equal to 10% greater than 10% and less than or equal to 20% greater than 20% and less than or equal to 40% greater than 40% and less than or equal to 60% What is your contribution margin for this product line? (check one) greater than 60% Cost of materials or services Delivery speed Delivery reliability Flexibility of supplier to adjust rapidly to significant changes in our orders When choosing suppliers, rank in order from most important (1) to least important (5) the following characteristics: Quality of materials Our average stock-out rate is approximately % for this product line. Our average forecast error at the time production is committed is approximately % for this product line. The lead-time required for a made-to-order product is days for this product line. N/A The product variety for this product line is approximately variants. The average forced end-of-season or end-of-life markdown, as a percentage of full price is approximately % for this product line. N/A 107 E. The following questions are intended to assess your LOGISTICS competitive priorities. Please indicate the degree of emphasis that your company/division currently places on the following activities to remain competitive in the product category listed in Part A. Achieve maximum efficiency from distribution. No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Gain control over activities that result in purchasing and distribution costs. No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Improve competitiveness of price No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Minimize transportation cost No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Increase labor productivity No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Increase capacity utilization No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce inventory No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Improve accuracy of filling orders No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis We absorb the cost of freight and handling on returns due to shipping damages or products shipped in error. No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis We give adequate advance notice of price changes to our customers. No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis 108 Quality/durability of packaging No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Adherence to our customers' specific shipping instructions No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Achieve coordinated physical distribution to customers served by several business units No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce length of promised lead times on emergency/ASAP orders for our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Ability to expedite emergency/ASAP orders for our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis High fill rate on ad/promotional orders for our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis High fill rate on normal reorders No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce length of promised lead times on normal orders No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce length of promised lead times on ad/promotional orders to our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Short delivery/transportation time to our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis 109 Delivery on due date to our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Wide geographic range of delivery for our customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Logistics system responsiveness No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Quick and effective response to changing customer needs No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Quick and effective response to changing supplier needs No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Accommodating customers' special requests No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Developing or maintaining specific logistics strategies to deal with distinct customers No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis High fill rate on emergency/ASAP orders No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Our ability to handle defective product returns No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Our ability to rapidly adjust capacity No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Are any of your logistics activities outsourced? None Some All 110 F. The following questions explore the PERFORMANCE of your firm. Indicate your business's position on the following dimensions over the past three years compared to your key competitors with respect to the product line identified in Part A. Return on Investment (ROI) Significantly Lower Approximately Equal Significantly Higher Growth in ROI Significantly Lower Approximately Equal Significantly Higher Return on sales (ROS) Significantly Lower Approximately Equal Significantly Higher Growth in ROS Significantly Lower Approximately Equal Significantly Higher Return on Assets Significantly Lower Approximately Equal Significantly Higher Profits as a percent of sales Significantly Lower Approximately Equal Significantly Higher Sales growth Significantly Lower Approximately Equal Significantly Higher Market share Significantly Lower Approximately Equal Significantly Higher Market share growth Significantly Lower Approximately Equal Significantly Higher 111 Net income before taxes Significantly Lower Approximately Equal Significantly Higher Product performance Significantly Lower Approximately Equal Significantly Higher Product features Significantly Lower Approximately Equal Significantly Higher Product conformance to specifications Significantly Lower Approximately Equal Significantly Higher Product durability Significantly Lower Approximately Equal Significantly Higher Product serviceability Significantly Lower Approximately Equal Significantly Higher Product attractiveness as perceived by the customer Significantly Lower Approximately Equal Significantly Higher Overall product quality as perceived by the customer Significantly Lower Approximately Equal Significantly Higher G. This section is designed to collect demographic information about your company. Please answer the following questions with your best estimate if exact data are not available. In what industry does your company participate? (Check all that apply) Appliance 112 Appliance Automotive Building Materials Chemicals/Plastics Computer Hardware Electronics Food Related Metals/Metal Working Office Equipment Paper & Packaging Petroleum Pharmaceuticals Textiles/Clothing Wholesale/Retail Other (Please Specify): In what industry does your company participate? (Check all that apply) Manufacturing Merchandising Other (Please specify): What is the nature of your company's primary business? Less than 100 Employees What is the total number of employees in your company/ division? 101-500 Employees 113 501-2,500 Employees 2,501-10,000 Employees 10,001-30,000 Employees 30,001-50,000 Employees Over 50,001 Employees Less than 5 years old 5-15 years old 16-35 years old 36-70 years old How old is your company? over 70 years old Leanness (cost efficiency) Mostly leanness Equally leanness and agility Mostly agility Agility (flexibility and responsiveness) Our supply chain for this product line primarily emphasizes: (choose one) Don't know less than $1 Million (M) greater than $1M and less than or equal to $5M greater than $5M and less than or equal to $10M greater than $10M and less than or equal $50M What is your company's annual gross sales dollars? (check one) greater than $50M and less than or equal to $100M 114 greater than $100M and less than or equal to $500M greater than $500M and less than or equal to $1 Billion greater than $1 Billion and less than or equal to $5 Billion greater than $5 Billion and less than or equal to $10 Billion Over $10 Billion Market Leader Dominant Player (Top 5) What is your company’s overall position in the primary market targeted by the product line listed in Part A? Other One Two to five Six to ten Eleven to twenty More than twenty How many major competitors are there in the primary market targeted by the product line listed in Part A? No opinion Less than one year 1-3 years 4-6 years 7-15 years 16-25 years How long have you been with this company? over 25 years Please give your title and a brief description of your position responsibilities (e. g. manager of all North American manufacturing). 115 Less than one year 1-3 years 4-6 years 7-15 years 16-25 years How long have you held your current position? over 25 years Yes Would you like a copy of the study results? No If so, please provide your contact information below or send an email to mailto:gillyard.1@osu.edu?subject=Study Results Request Name Address 1 Address 2 Address 3 Address 4 City State Zip Email Address 116 Submit Thank you for your participation 117 Appendix D Microsoft Word/PDF Version of Survey 118 STRATEGY AND SUPPLY CHAIN CHARACTERISTICS This survey is intended to capture selected information about your manufacturing and logistics strategies as well as how your company operates within your supply chain. Understanding the relationships between these strategies and your supply chain can help determine better paths to profitability. In addition, completing this survey will enable you to condu ct a succinct audit of your own strategies without the intense data requirements and high costs of a lengthy audit. All responses to this questi onnaire will remain strictly confidential. Results will be reported on an aggregate level only. If you are not sure of an answer to a question, please provide your best estimate. Please answer all questions, since incomplete questionnaires create serious problems in data analysis. Please submit your responses via the website or you may also print the survey and return the completed questionnaire via mail or fax per the information given below. We would be happy to send you a copy of the results of the study if desired. Simply provide your contact information at the end of the survey or send an email to agillyard@rhsmith.umd.edu to submit your request. Your participation in this important research is greatly appre ciated! THANK YOU! You may direct questions and concerns to: Angelisa E. Gillyard, Assistant Professor Glenn Milligan, Professor Department o f Logistics, Business and Public Policy Department of Management Sciences Robert H. Smith School of Business Max M. Fisher College of Business University of Maryland The Ohio State University College Park, MD 20740 Columbus, OH 43210 Email: ag illyard@rhsmith.umd.edu Email: milligan.3@osu.edu Tel.: (301) 405-4105 / Fax: (301) 405-0146 Martha C. Cooper, Professor John Current, Professor Department of Marketing and Logistics Department of Management Sciences Max M. Fisher College of B usiness Max M. Fisher College of Business The Ohio State University The Ohio State University Columbus, OH 43210 Columbus, OH 43210 Email: cooper.7@osu.edu Email: current.1@osu.edu 119 STRATEGY AND SUPPLY CHAIN CHARACTERISTICS General Instructions and Information 1. Individual responses to this questionnaire will be kept strictly confidential. 2. If you are not sure of the answer to a question, please provide your best estimate. There are no right or wrong answers. 3. For questions which require an answer expressed in currency or percentages, please answer in whole dollars or percentages (e.g. $1000 or 25%). You may direct questions and concerns to: Angelisa E. Gillyard, Assistant Professor Glenn Milligan, Professor Department of Logistics, Business and Public Policy Department of Management Sciences Robert H. Smith School of Business Max M. Fisher College of Business University of Maryland The Ohio State University College Park, MD 20740 Columbus, OH 43210 Email: agillyard@rhsmith.umd.edu Email: milligan.3@osu.edu Tel.: (301) 405-4105 / Fax: (301) 405-0146 Martha C. Cooper, Professor John Current, Professor Department of Marketing and Logistics Department of Management Sciences Max M. Fisher College of Business Max M. Fisher College of Business The Ohio State University The Ohio State University Columbus, OH 43210 Columbus, OH 43210 Email: cooper.7@osu.edu Email: current.1@osu.edu 120 A. Please describe the product line category (e.g. pet food) that contributes most to the sales volume of your company/division. B. Please answer the following questions regarding the product category mentioned in the previous question. Approximately how many markets are targeted by this product line? _____ markets Is the product for the primary market an ___ industrial good or a ___ consumer good? Is the product for the primary market : ___ customized ___ mass customized ___ mass produced? Are there multiple brands within this product line? ___ Yes ___ No Is the primary brand in this product line a ___“name brand” or ___“generic?” Not familiar at all Somewhat familiar Fully aware How familiar are you with your company’s production priorities for this product line? (circle one) 1 2 3 4 5 How familiar are you with your company’s logistics priorities for this product line? (circle one) 1 2 3 4 5 Indicate the importance of the following priorities to the end customer for the product line mentioned above by assigning a percentage value to each priority. (100% = most important; Total = 100%) a. Customization ____ b. Delivery reliability ____ c. Delivery speed ____ d. Design/innovation ____ e. Price/cost ____ f. Product features ____ g. Quality ____ h. Service ____ i. Time to market ____ j. Other (Please specify) _________________ ____ Total 100% 121 C. The following questions are intended to assess your MANUFACTURING competitive priorities. Please indicate the degree of emphasis that your company/division currently places on the following activities to remain competitive in the product category listed in Part A (circle one for each). No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce unit costs 1 2 3 4 5 Reduce material costs 1 2 3 4 5 Reduce overhead costs 1 2 3 4 5 Reduce inventory level 1 2 3 4 5 Increase labor productivity 1 2 3 4 5 Increase capacity utilization 1 2 3 4 5 Reduce defective rates 1 2 3 4 5 Improve product performance 1 2 3 4 5 Improve vendor’s quality 1 2 3 4 5 Implement quality control circles 1 2 3 4 5 Obtain ISO certification 1 2 3 4 5 Improve product reliability 1 2 3 4 5 Improve product durability (long life) 1 2 3 4 5 Increase ease (cost and time) to service product 1 2 3 4 5 Improve conformance of final product to design specification 1 2 3 4 5 Reduce manufacturing lead time 1 2 3 4 5 Reduce procurement lead time 1 2 3 4 5 Reduce new product development cycle 1 2 3 4 5 122 No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme Emphasis Reduce setup/changeover time 1 2 3 4 5 Maintain a large number of product features or options 1 2 3 4 5 Improve ability to introduce new products into production quickly 1 2 3 4 5 Improve ability to adjust capacity rapidly within a short time period 1 2 3 4 5 Improve ability to make design changes in the product after production has started 1 2 3 4 5 Increase delivery reliability 1 2 3 4 5 Increase delivery speed 1 2 3 4 5 Improve pre-sales service and technical support 1 2 3 4 5 Improve after-sales service 1 2 3 4 5 Have short delivery time 1 2 3 4 5 Ensure delivery on due date 1 2 3 4 5 Please identify the most influential entities in your supply chain for the product line identified in Part A (check all that apply). _____ Second Tier Suppliers _____ First Tier Suppliers _____ Manufacturer (Us) _____ Distributor/Wholesaler _____ Retailer Who in your supply chain receives real-time or frequent updates of end customer point of sale data for this particular product line? (Check all that apply) _____ Second Tier Suppliers _____ First Tier Suppliers _____ Manufacturer (Us) _____ Distributor/Wholesaler _____ Retailer We use point of sale data primarily to: (check one) ____ Manage inventory ____ Determine production scheduling 123 D. Please indicate the response that most closely applies to the product category listed in Part A (circle one for each). Marketplace Demand Stable 1 2 3 4 5 Volatile Product Variety (# of distinct products in the product line) Low 1 2 3 4 5 High Product Life Cycle Long 1 2 3 4 5 Short Profit Margin High 1 2 3 4 5 Low Information Sharing Obligatory 1 2 3 4 5 Optional Strongly Disagree Disagree No Opinion Agree Strongly Agree This product line is a commodity good. 1 2 3 4 5 Price is an order winner for our product. 1 2 3 4 5 Availability is an order winner for our product. 1 2 3 4 5 Our dominant costs are production, distribution and storage costs. 1 2 3 4 5 Our dominant costs are obsolescence and stock out costs. 1 2 3 4 5 Our main purchasing policy from suppliers is to purchase capacity. 1 2 3 4 5 Our main purchasing policy from suppliers is to buy goods. 1 2 3 4 5 We rely primarily on mathematical models as our main forecasting mechanism. 1 2 3 4 5 We rely primarily on managerial experience as our main forecasting mechanism. 1 2 3 4 5 124 Strongly Disagree Disagree No Opinion Agree Strongly Agree Maintaining a level production schedule is critical to maintaining profitability for this product line. 1 2 3 4 5 Using end customer consumption data is critical to maintaining profitability for this product line. 1 2 3 4 5 When choosing suppliers, they must be able to rapidly adjust their capacity to meet our needs. 1 2 3 4 5 Approximately how long is the average product life cycle for this product line? ______ months ______ years What is your contribution margin for this product line? (check one) ___ less than 5% ___ greater than 5% and less than or equal to 10% ___ greater than 10% and less than or equal to 20% ___ greater than 20% and less than or equal to 40% ___ greater than 40% and less than or equal to 60% ___ greater than 60% When choosing suppliers, rank in order from most important (1) to least important (5) the following characteristics: ____ Cost of materials or services ____ Delivery speed ____ Delivery reliability ____ Flexibility of supplier to adjust rapidly to significant changes in our orders ____ Quality of materials Our average stock-out rate is approximately _______ % for this product line. Our average forecast error at the time production is committed is approximately _______ % for this product line. The lead-time required for a made-to-order product is _______ days for this product line. ___ N/A The product variety for this product line is approximately _________ variants. The average forced end-of-season or end-of-life markdown, as a percentage of full price is approximately ______ % for this product line. ____ N/A 125 E. The following questions are intended to assess your LOGISTICS competitive priorities. Please indicate the degree of emphasis that your company/division currently places on the following activities to remain competitive in the product category listed in Part A (circle one for each). No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme emphasis Achieve maximum efficiency from distribution. 1 2 3 4 5 Gain control over activities that result in purchasing and distribution costs. 1 2 3 4 5 Improve competitiveness of price 1 2 3 4 5 Minimize transportation cost 1 2 3 4 5 Increase labor productivity 1 2 3 4 5 Increase capacity utilization 1 2 3 4 5 Reduce inventory 1 2 3 4 5 Improve accuracy of filling orders 1 2 3 4 5 We absorb the cost of freight and handling on returns due to shipping damages or products shipped in error. 1 2 3 4 5 We give adequate advance notice of price changes to our customers. 1 2 3 4 5 Quality/durability of packaging 1 2 3 4 5 Adherence to our customers’ specific shipping instructions 1 2 3 4 5 Achieve coordinated physical distribution to customers served by several business units 1 2 3 4 5 Reduce length of promised lead times on emergency/ASAP orders for our customers 1 2 3 4 5 126 No Emphasis Very Little Emphasis Moderate Emphasis Strong Emphasis Extreme emphasis Ability to expedite emergency/ASAP orders for our customers 1 2 3 4 5 High fill rate on ad/promotional orders for our customers 1 2 3 4 5 High fill rate on normal reorders 1 2 3 4 5 Reduce length of promised lead times on normal orders 1 2 3 4 5 Reduce length of promised lead times on ad/promotional orders to our customers 1 2 3 4 5 Short delivery/transportation time to our customers 1 2 3 4 5 Delivery on due date to our customers 1 2 3 4 5 Wide geographic range of delivery for our customers 1 2 3 4 5 Logistics system responsiveness 1 2 3 4 5 Quick and effective response to changing customer needs 1 2 3 4 5 Quick and effective response to changing supplier needs 1 2 3 4 5 Accommodating customers’ special requests 1 2 3 4 5 Developing or maintaining specific logistics strategies to deal with distinct customers 1 2 3 4 5 High fill rate on emergency/ASAP orders 1 2 3 4 5 Our ability to handle defective product returns 1 2 3 4 5 Our ability to rapidly adjust capacity 1 2 3 4 5 Are any of your logistics activities outsourced? ___ None ___ Some ___ All 127 F. The following questions explore the PERFORMANCE of your firm. Indicate your business’s position on the following dimensions over the past three years compared to your key competitors with respect to the product line identified in Part A (circle one for each). Significantly Lower Approximately Equal Significantly Higher Return on investment (ROI) 1 2 3 4 5 Growth in ROI 1 2 3 4 5 Return on sales (ROS) 1 2 3 4 5 Growth in ROS 1 2 3 4 5 Return on Assets 1 2 3 4 5 Profits as a percent of sales 1 2 3 4 5 Sales growth 1 2 3 4 5 Market share growth 1 2 3 4 5 Market share 1 2 3 4 5 Net income before taxes 1 2 3 4 5 Product performance 1 2 3 4 5 Product features 1 2 3 4 5 Product conformance to specifications 1 2 3 4 5 Product durability 1 2 3 4 5 Product serviceability 1 2 3 4 5 Product attractiveness as perceived by the customer 1 2 3 4 5 Overall product quality as perceived by the customer 1 2 3 4 5 128 G. This section is designed to collect demographic information about your company. Please answer the following questions with your best estimate if exact data are not available. In what industry does your company participate? (Check all that apply) ___ Appliance ___ Electronics ___ Petroleum ___ Automotive ___ Food Related ___ Pharmaceuticals ___ Building Materials ___ Metals/Metal Working ___ Textiles/Clothing ___ Chemicals/Plastics ___ Office Equipment ___ Wholesale/Retail ___ Computer Hardware ___ Paper & Packaging ___ Other (Please specify): _______________ What is the nature of your company’s primary business? ___ Manufacturing ___ Merchandising ___ Other (Please specify): ________________ What is the total number of employees in your company/division? ___ Less than 100 Employees ___ 101-500 Employees ___ 501-2,500 Employees ___ 2,501-10,000 Employees ___ 10,001-30,000 Employees ___ 30,001-50,000 Employees ___ Over 50,001 Employees How old is your company? ___ Less than 5 years old ___ 5-15 years old ___ 16-35 years old ___ 36-70 years old ___ over 70 years old 129 Our supply chain for this product line primarily emphasizes: (choose one) _____ Leanness (cost efficiency) _____ Mostly leanness _____ Equally leanness and agility _____ Agility (flexibility and responsiveness) _____ Mostly agility _____ Don’t Know What is your company’s annual gross sales dollars? (check one) ___ less than $1 Million (M) ___ greater than $1M and less than or equal to $5M ___ greater than $5M and less than or equal to $10M ___ greater than $10M and less than or equal $50M ___ greater than $50M and less than or equal to $100M ___ greater than $100M and less than or equal to $500M ___ greater than $500M and less than or equal to $1 Billion ___ greater than $1 Billion and less than or equal to $5 Billion ___ greater than $5 Billion and less than or equal to $10 Billion ___ Over $10 Billion What is your company’s overall position in the primary market targeted by the product line listed in Part A? ___ Market Leader ___ Dominant Player (Top 5) ___ Other How many major competitors are there in the primary market targeted by the product line listed in Part A? ___ One ___ Two to five ___ Six to ten ___ Eleven to twenty ___ More than twenty ___ No opinion 130 How long have you been with this company? ___ Less than one year ___ 1-3 years ___ 4-6 years ___ 7-15 years ___ 16-25 years ___ over 25 years Please give your title and a brief description of your position responsibilities (e.g. manager of all North American manufacturing). ______________________________________________________________________________ ______________________________________________________________________________ How long have you held your current position? ___ Less than one year ___ 1-3 years ___ 4-6 years ___ 7-15 years ___ 16-25 years ___ over 25 years Would you like a copy of the study results? ___ Yes ___ No If so, please provide your contact information below or send an email to agillyard@rhsmith.umd.edu. Name __________________________________________________________ Address 1 _______________________________________________________ Address 2 _______________________________________________________ Address 3 _______________________________________________________ Address 4 _______________________________________________________ City ___________________ State ________________ Zip ________ Email Address ____________________________________________________ THANK YOU FOR YOUR PARTICIPATION!!! ._.

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