A critical review of Logistics Partnership, Innovation, Green, Value-add, Electricity, and Integration in supply chain

一個評論性的探討之物流夥伴關係，創新，綠色，增值，電子及整合在供應鍊

Author: Chen Der-FU

Candidate of Doctor of Business Administration

International Graduate School of Management

University of South Australia

Email: teacher2001@ms52.url.com.tw

Abstract

The study review logistics partnerships in supply chain and discuss innovation, green, value-added and e-supply chain, finally, develop an integrated supply chain model for industries.

To provide corporation to maintain sustained competitive advantage in Internet and www era; Exploring out a more complete conceptual model structure make corporation more fit fast changing environment and increase business competitiveness and reduce cost of business process. More important, the integration of supply chain can maintain partnership and long term cooperative relationship among all supply chain members.

Keywords: Logistics partnerships, Innovation, Green, Value-added, e-supply chain, Integrated supply chain

1. Introduction

Background and Motivation

Into the 21^st century, almost have not any corporation can survive only by oneself, therefore corporation must regard ”logistics partnership” in their supply chain, and in advance, they need innovation, green, value-added and “e” supply chain.

Considering the environment protection issues is the trend of modern corporation, therefore corporation as well as earning money need do their best to create green supply chain, at the same time, they can add value for themselves and consumers even whole environment, it’s a social responsibility.

Finally, facing the Internet era, if any corporation want successful and maintain their competitive advantage they must electronically their business process and extending to all supply chain. To form a e-supply chain, then they just can catch up the internet and www trend, and utilize its character: conveniences, speed, low-cost, generalization, globalization and so on, To increase corporation competitiveness and maintain long-term cooperation relationship with all supply chain members.

Objective of the study

To explore some important management theories, practice and issues regarding logistics partnership, innovation, green, value-added supply chain and e-supply chain, finally, integrated as: 1.Partial integration 2.full integration or 3.cross-flow synergies. To provide corporation to maintain sustained competitive advantage in Internet and www era; Exploring out a more complete conceptual model structure make corporation more fit fast changing environment and increase business competitiveness and reduce cost of business process. More important, the integration of supply chain can maintain partnership and long term cooperative relationship among all supply chain members.

Range of the study

Including logistics partnership, innovation supply chain, green supply chain, value-added supply chain, e-supply chain and integrated supply chain. And through the newest literature critical review and re-arrangement, try to explore some proposition and form a research model, conceptual structure. Individual describe as following:

1.1 Logistics partnership: Barriers to partnerships and Logistics partnership

1.2 Innovation

1.3 Green supply chain

1.4 Value added supply chain

1.5 E-supply chain

1.6 Integrated supply chain

Methodology

The study is an exploratory study, it use data-collection, content analysis, and Literature-based critical to construct some propositions and a conceptual model. To produce some conclusions and recommendations for enterprises operation in Logistics Partnership, Innovation supply chain, Greening supply chain, Value-add supply chain, e-supply chain, and Integration in supply chain. To increase enterprises sustained competitive advantage.

Process of the study

Process of the study is from relative literature collection, content analysis, literature critique and overseas case study to explore a research conceptual model and proposition induction. Finally, to produce conclusions and recommendations.

1.1 Logistics partnership

Barriers to partnerships

Bernard Burnes and Ron Coram, 1999 in "Barriers to partnerships in the public sector: the case of the UK construction industry" This article examines the changes in the relationship between government departments and the UK construction industry brought about by the privatization of the Property Services Agency (PSA). In particular, it shows that while there has been some encouragement for closer, and more long-term, collaboration, in reality government departments seem to be stuck in a short-term, win-lose orientation. The article concludes by arguing that this is a product of four factors: the lack of experience among both purchasers and providers of long-term partnership arrangements; the risk-aversive nature of the Civil Service; the pressure on departments from ministers to minimize risk; and government guidelines on competitive tendering which make it difficult to enter into long-term agreements.</SMALL>

Logistics partnership

Much of the material written about logistics partnerships presents the perspectives of partners shortly after the partnership has commenced. This paper focuses on the evaluation of a logistics partnership between a large retailer and a provider of international logistical service based on five years of operating experience. The authors believe that the insights gained from this partnership have wide applicability and merit discussion. Following a brief discussion of the nature of the partnership, the problem areas are identified. Next, the key lessons learned are summarized and recommendations for other logistics partnerships are made.

1.2 Innovation

It is getting harder and harder to satisfy consumers in mature markets like Europe, Japan and North America. UK manufacturing margins are being squeezed and competition on price is no longer a valid strategy. Increasingly, across many markets, the driving purchase criterion is the consumer’s expectation of the overall experience a product will deliver. Those that do not offer a clearly differentiated experience risk being valued as commodities. A more effective strategy for manufacturers is to not only benchmark on price, or even command a small premium, but differentiate on the basis of consumer experience. In other words, behave like a successful service company. For example, BA invests massively in managing every stage of the consumer experience - from ticket booking to the standard of seating.

This focus on consumer experiences represents the ultimate challenge for manufacturers. New products are delivered into the economy by teams of professionals from different disciplines. In some of these - marketing and sales, for example - the knowledge focus is clearly on the consumer. In other disciplines - technical and creative in particular - the knowledge focus tends to be inward, that is, towards the specification of the product.

In the debate, poor knowledge flow, and entrenched uni-disciplinary attitudes emerge as the main barriers to the creation of better - higher margin - products brought to market in the shortest possible time.

Shared goals, leading to collaborative effort and planning, seem to be the key to achieving reliable products with good functionality at a realistic price. However, to achieve the goal of a well-managed consumer experience a much higher level of knowledge transfer is needed, between consumer-facing disciplines such as marketing and design towards delivery disciplines such as engineering and manufacturing.

To achieve this higher level of integration, the innovation process needs to be seen as a knowledge supply chain - whose efficiency is measured by the extent to which a vision of the target experiences reaches each link in the chain.

In parallel, other factors, such as intense price competition, are working to make integration even harder. To achieve maximum efficiency, professionals in different disciplines tend more and more to work for different companies, often in different countries or on different continents. Commercial and cultural barriers abound.

Information technology is helping information flow and is a parallel catalyst for change in the innovation process. However, to achieve any effective change, current underlying attitudes need to be understood and altered if they present an obstacle to progress.

By examining attitudes along the innovation supply chain, we can see what needs to change and how each discipline helps the collective to deliver better consumer experiences.

Suppliers and collaborating partners can assist the innovation process through access to technologies, skills or information (Dodgson, 1993; de Meyer, 1991; Hayes and Abernathy, 1980) and through providing complementary expertise improve the speed to market of new product developments (Child and Faulkner, 1998).

1.3 Green supply chain

If a supply chain is to really assume responsibility over its ecologic footprint it is to be evaluated on these grounds. The supply chain footprint has to be measured against different indicators than the original footprint measure. In that respect, a set of performance measures relevant for these activities is identified and listed in the final row of Table I. Materials can be selected against emission rate and energy consumption standards. Re-use of materials can be measured against the percentage of virgin or new materials used in parts production. Ideally, this percentage should be as low as possible. Dis-assembly and shredding can be measured as volume of goods handled per time unit. Transportation can be assessed in terms of loads against capacity of transport equipment. A high degree of utilization is an indicator of the efficiency of transportation. Driving empty trucks around creates emissions without economic value. Packaging cannot only be evaluated based on packaging material used but also by the amount of air or useless space in the package. Returns handling can be measured in terms of volumes handled to indicate the size of the operation. More important is the volume selected for recycling/entering the re-use supply chain, as this provides an indication of the effectiveness of the return flow of goods and the value of products returned.

1.4 Value added supply chain

Value or supply chain management has traditionally focused on maximizing the opportunities to add value while minimizing total cost. Net added value is increased by compressing the times when no value is being added and costs continue to rise. t1 is reduced to t2 and net value added has been substantially increased because it has been possible to cut the times and hence the costs involved in testing, storing, counting, processing and controlling materials and products. The costs of capacity and of waste have usually also been reduced.

1.5 E-supply chain

It is often claimed that information and communication technologies (ICT) will be for the economy what steam and machine power were to the industrial revolution. Riding this wave, e-business is coming to the forefront of international markets. Various new players have driven existing players to respond with their own Web sites and the development of electronic marketing channels. Such is the momentum for this revolution that Harvard Business School is experiencing a larger number of drop outs in its MBA program because of all the students launching Web companies, and US companies are experiencing difficulty in keeping their chief executives as they aspire to join “dot com” companies. Even though it sometimes looks like the sky is the limit to the (investment) opportunity in e-business, it sometimes looks as if we are e-mailing with Peterus@knocking on heaven's door.

1.6 Integrated supply chain

Within the systems integration supply chain, sustainable profitability appears to be predicated on the ability to utilize effective leverage over end customers through the possession of information asymmetries and to have the capability to use these opportunistically to satisfice customers.

It is clear, therefore, that unless the end customer has a coherent blueprint for the technical solution that responds to its current and future business needs, then they will be at a permanent disadvantage vis-à-vis their suppliers. This is made highly unlikely, however, because the supply industry is, itself, involved in fundamental and rapid technological change. Having an understanding of how this change affects IT processing systems and capabilities becomes a key supply chain resource for systems integrators. Using this knowledge, systems integrators, consultancies and software suppliers are in a position to leverage the ignorance of end customers and, thereby, further increase their own margins. This knowledge can also be a major factor in the creation of dependencies and high switching costs that lock-in the end customer. This approach appears to be the basic strategy for all of the systems integrators analyzed in our research so far.

2. Literature review

2.1 Barry to partnerships

Short- and long-term relationships

Most of the government officials we interviewed favored short-term relationships with suppliers because they believed they provided greater flexibility in a constantly-changing environment. However, whether or not this is true, government rules on competitive tendering and market testing make it difficult for departments to enter into long-term arrangements (Erridge, 1998). Nevertheless, there are those in the public sector who recognize the downside of short-term contracts.

One might assume that the benefits of customer-supplier partnerships, as developed in many parts of the private sector (Burnes and New, 1996; Kearney, 1994), would have appealed to successive UK governments committed to reducing public expenditure and increasing value for money.

There are four key factors which appear to discourage Civil Servants from establishing longer-term partnerships with the construction industry. First, there is a lack of experience of operating such relationships, both in the public sector and in the private sector. Indeed, given the conflict-ridden nature of the UK construction industry, it is not surprising that government departments shy away from entering into new and untried arrangements with it.

Second, despite attempts to introduce a more entrepreneurial, private sector style of management into the Civil Service, there appears to be an embedded risk-aversive culture in the public sector (Ferlie et al., 1996; Flynn, 1993; Flynn and Williams, 1997). In part, as far as construction contracts are concerned, this appears to be a trait carried over from the days when the PSA ruled the roost.

Third, according to a number of the senior Civil Servants we spoke to, government ministers indicated that they believed that the private sector should bear a major proportion of any risk associated with construction contracts. In this situation, regardless of the inclination of individuals or departments, Civil Servants would need a strong argument to enter into arrangements which might lead to the public sector sharing a greater portion of any risk.

Finally, as Erridge (1998) commented, the rules which now regulate public sector purchasing make it very difficult, though by no means impossible, for departments to enter into long-term partnership-style agreements. It should be pointed out that though these rules are drafted by the UK Government, in some crucial respects, especially in relation to competitive tendering, they also reflect European Union regulations with regard to public sector purchasing.

Logistics partnership

Robert G. House and Theodore P. Stank, 2001 in "Insights from a logistics partnership" this article mentioned, several factors led Melville to seek the services of a consolidated international logistics service provider. First, Melville recognized the need for international logistics expertise in individual divisions that had not developed those capabilities, as well as to supplement the capabilities of other divisions. Second, consolidation of services with one provider would enable Melville to leverage the combined power of multiple divisions to secure superior services at competitive prices. Third, Melville desired the ability to rapidly expand international sourcing without having to develop logistics infrastructure to support such sources. Finally, consolidating services with one provider would facilitate a world class control system to ensure full visibility of the international supply chain from point of order to the point of delivery to the domestic DC. Mercantile was selected because its strategy, management, and capabilities closely aligned with these goals. The vision of the potential of the relationship between the two firms was shared at both the executive and operational level.

Under the terms of the relationship Mercantile Logistics managed all aspects of Melville’s import process from vendors located in the Far East. Mercantile Logistics was responsible for coordinating vendor shipments, consolidating freight, booking ocean and air transportation, coordinating US Customs brokerage activities, and scheduling delivery of shipments to a variety of distribution centers located throughout the USA. Melville’s divisions provided electronic copies of purchase orders and purchase order changes to Mercantile Logistics daily. Mercantile Logistics managed the activities necessary to ensure that shipments were delivered in accordance with the instruction on the purchase orders and reported status information via daily electronic updates to the information systems of Melville’s various divisions.

The partnership was structured to achieve four major operational objectives:

(1) reduce total logistics cost;

(2) reduce transit time;

(3) improve information; and

(4) improve pipeline reliability.

Each of these major objectives was achieved, and in some instances year by year accomplishments widely exceeded expectations. Overall cost was reduced by 12 percent, despite absorbing 2-4 percent per annum increases in ocean freight rates, and reliability was improved to better than 96 percent (measured in terms of purchase orders delivered ± two days of planned due date). Transit times were reduced by more than ten days through the use of an information system that tied purchase order due dates to realistic pipeline planning schedules. The information system also provided event tracking on 20 separate stages of the order cycle as purchase orders moved from buyer to vendor to distribution center.

During its existence the Melville/Mercantile Logistics partnership was responsible for the movement of approximately $5 billion of goods at retail. Product flowed from nearly 40 origin points to as many US-based destinations. The partnership accounted for the movement of nearly 70,000 40ft equivalent (FFE) containers during this time period. The volume of activity made this third-party logistics contract one of the largest of its kind to date. However, the partnership was dissolved after five years when Melville announced a strategic realignment that created three new operating companies, including a drug chain holding company, a footwear company and a toy company. Some business units were sold to other corporations. Two of the remaining companies were primarily domestic in their operations, thus reducing the volume of international logistics to the point where many of the shared economies of scale were no longer available. Thus, the relationship between Mercantile and the resulting businesses was restructured to reflect the more individualized needs and requirements of those operations.

2.2 E-supply chains: virtually non-existing

While Shapiro and Varian (1999) explained that the old rules of economics still apply. Because man (as an economic actor) has not fundamentally changed his behavior so far, What should be noted is that what is called e-business is still largely, in reality, e-commerce and sales and marketing driven only rather than an integral business model.

Amazon, for example had to admit that it charges customers logistics costs which may off-set the price advantage to the customer. More importantly, it had to admit that frequently it does not know what the "true" logistics costs are. Perhaps, one might reason, this contributes to the continued losses the company is experiencing. Losses have increased in line with a growth in turnover last year, and it has been stated that the growth of the company lead to an increase in inventory, especially with product diversity increasing. This implies poor management of logistics and supply processes in this e-business.

Consider these findings from an Arthur Andersen survey of customers purchasing products on-line in the USA, fourth quarter of 1999. In the top ten problems experienced by end-consumers, some are in the category of technology, some are marketing related, but the top two factors are logistical factors, related to supply chain performance. Products not delivered on time or out of stock means receiving Christmas presents mid-February. Experts reflect upon this by pointing out that the dot coms had underestimated the complexities of trading in volatile markets. Nor did they have the systems in place to report emerging stock shortfalls, manage vendors and complaints. Clearly, building a customer-facing Web environment is not all that difficult, but managing it with an underlying business model that includes an e-supply chain is something else. Experts (Andersen and others) suggest:

Supply chain failures are compounded by a lack of rapid reporting structures to identify emerging stock shortfalls, order processing systems to manage the needed repeats, and vendor quality management programs to ensure minimal complaints and returns.

These companies have dressed the shop window with slick Web sites, but there is no technology behind it to fulfil the order. Systems are already inadequate for big volumes, before adding new developments using mobile phones to access the Web. Companies are creating a demand they simply cannot fulfil.

Additionally, we are currently in the midst of what might be called the second wave of e-business. The first wave was that of the start up dot coms, some of which have already gone bankrupt – others are now more carefully monitored at the stockmarket, and hardly any have yet fully delivered on their promises. Thus, the second wave may become more important as it centers around existing companies with a heritage in the brick-and-mortar world who are now penetrating the e-business environment. Companies with existing and well-established processes and performance are now adding e-business to their portfolio and many are investing deeply. Their experience may help enhance performance of e-business concepts, but their heritage may also hinder drastic adjustments to their business model.

The second wave indicates how e-business is seen as a general and massive e-business opportunity in many sectors of the economy, and how expected revenues are high (judging upon the size of initial investments). The main argument, however, is that, in order to earn back investments and realize the promise of e-business, the creation of e-supply chains is needed, especially now that more experienced companies are becoming involved and investments in e-business are rising. The e-supply chain is the physical dimension of e-business with the role of achieving base level operational performance in the physical sphere (fulfillment, etc.). Additionally, it provides a backbone to help realize more advanced e-business applications that companies will obviously be unable to achieve if base level performance is not even up to market requirements, as indicated in Table I.

In order to introduce the relevance of e-business from a supply chain perspective, the next section will explain how e-business applications can support the realization of supply chain objectives. Supply chain approaches to e-business will then be developed. In these approaches the creation of an e-supply chain is considered of central importance. This is aimed at moving beyond the poor supply chain organizations underlying current e-business applications. In order to further support the realization of e-business objectives through the e-supply chain, relevant innovative practices are then developed. These are aimed at furthering the contribution of the e-supply chain, making it a backbone of revenue creation that can help earn back the amount of investment and effort currently going into e-business.

The relevance of e-business to the supply chain

Theoretically, there are multiple benefits from using information and electronic business concepts in the supply chain. Various authors have reflected on the specific potential of ICT for individual functional areas such as marketing (McKenna, 1997), purchasing (Ellinger and Daugherty, 1998) and logistics. In particular, ICT is expected to make the flow of goods transparent (Bowersox and Daugherty, 1995), allow for the integrated management of a physically des-integrated unit (LaLonde and Powers, 1993), and decentralization and centralization within one operating system (Bowersox et al., 1992). More specifically, Lee et al. (1997) point to the relevance of information exchange in avoiding one of the best known problems in the supply chain, that of Forrester's bullwhip effect.

The theory says that irregularities and unpredictability in order quantities increase with the number of layers in the chain. Because a supplier faces uncertainty about the order quantities of a direct customer, he will anticipate demand with inventory, speculative production, etc. Because the supplier of the supplier faces the same uncertainty in his relation with the supplier of the customer, the supplier’s supplier will face considerable volatility and further anticipate orders, leading to even greater speculation at this point in the supply chain. Specifically, orders to suppliers tend to have larger variance than sales to the e-buyer and the distortion propagates upstream in an amplified form. This is a result of information transferred in the form of sequential orders (with tight time windows for delivery) being distorted and misguiding upstream supply chain members in their production and inventory decisions. In addition to the upstream cumulative volatility in inventory, waste and possible chaotic behavior which result from the Forrester effect, the effect can be experienced not only upstream in the chain but also downstream, as displayed schematically by the volatility in the supply chain moving upstream and downstream from the original equipment manufacturer in Figure 1 Traditional supply chains are suffering from poor information exchange .

Figure 1: Traditional supply chain

In traditional supply chain arrangements where the manufacturer or original equipment manufacturer (hereafter: OEM) is often the focal company, supply chain optimization may be driven by the considerations of that company, rather than from a supply chain optimization perspective, so creating Forrester effects up- and downstream throughout the chain. According to Lee et al. (1997) information and management can provide an important remedy for these effects. In the sphere of information and technology, visibility of demand throughout the supply chain and electronic linkages to create transparency of orders and operations are among the remedies studied.

If the information flow is such an important element of the supply chain, why do information-based companies such as Amazon achieve such poor supply chain performance? The answer probably has more to do with management solutions than technology. In that respect, the next section will introduce management approaches relevant to realizing the virtual supply chain.

2.3 The innovation supply chain

The use of outside supply may enhance an organization’s ability, this focus on consumer experiences represents the ultimate challenge for manufacturers. New products are delivered into the economy by teams of professionals from different disciplines. In some of these - marketing and sales, for example - the knowledge focus is clearly on the consumer. In other disciplines - technical and creative in particular - the knowledge focus tends to be inward, that is, towards the specification of the product.

By examining attitudes along the innovation supply chain, we can see what needs to change and how each discipline helps the collective to deliver better consumer experiences.

The use of outside supply may enhance an organization's ability to provide a wider product range and to diversify. Focusing on a narrower range of activities may allow core activities to be more easily levered to achieve a wider product range (Quinn et al., 1990); the amount of investment required to enter a new business area can be reduced and there can be easier achievement of optimum performance (Snow et al., 1992). Suppliers and collaborating partners can assist the innovation process through access to technologies, skills or information (Dodgson, 1993; de Meyer, 1991; Hayes and Abernathy, 1980) and through providing complementary expertise improve the speed to market of new product developments (Child and Faulkner, 1998).

Technology

In large part the company's in-house manufacture of core products can be seen as a result of the specific nature of the manufacturing technology required (Ellram, 1990). While most of the equipment was available through outside purchase, the use of a considerable group of in-house technologists had developed an efficient system that achieved the particular product characteristics. For the in-house manufacturer-retailer the wide spread of technologies may result in particular areas being at times neglected, restricting the effectiveness of the total system in responding to market conditions. On a number of occasions difficulty in matching supply to retail demand had resulted in costly write-offs when new product initiatives failed to develop sales. Under investment in retail technology may reflect the difficulties in sustaining the full range of technologies required by the vertically integrated company.

2.4 Collaborative planning: supporting automatic replenishment programs

In an ideal world, supply chain partners would work together to rethink and restructure business practices, as necessary, to provide consumers with products and services better/faster/cheaper than ever before. System success would be predicated on a free exchange of critical information and commitment to reaching shared goals. While this may sound somewhat removed from reality, such a scenario is fairly close to what many leading edge companies are doing today (Davis, 1998). Automatic replenishment systems have been implemented in a great number of firms in recent years. With automatic replenishment programs (ARP), inventory restocking is triggered by actual needs rather than relying on long-range forecasts and layers of safety stock “just in case” (Andel, 1996; Cottrill, 1997; Keh and Park, 1997).

Some firms that have instituted ARP are now taking supply chain co-operation to another level through involvement in collaborative planning/forecasting/replenishment (CPFR). CPFR attempts to lessen the problems associated with traditional anticipatory demand forecasts by co-operating with trading partners to better match supply and demand. Thus, it makes firms better prepared and ready to respond to market signals.

ARPs provide day-to-day guidance for inventory replenishment. In contrast, CPFR relates to long-term planning. CPFR involves collaborating and jointly planning to make long-term projections, which are constantly updated based on actual demand and market changes (competitive efforts, new promotional plans, etc.). CPFR has been described as a step beyond efficient consumer response, i.e. automatic replenishment programs, because of the high level of co-operation and collaboration needed (Tosh, 1998).

Traditionally, separate and disjointed operating units across companies have independently made plans. This has often resulted in “uncoordinated store, procurement, and logistics planning for the retailer while manufacturers see sales, distribution, and production planning being out of synch” (Koloszyc, 1998, p. 28). CPFR attempts to eliminate such problems through detailed exchange of point-of-sale and other information on a real-time basis (Wolfe 1998). Internal co-ordination is also needed. As Joseph Andraski, vice president of customer marketing operations at Nabisco has noted, many companies develop forecasts in disparate areas including marketing, finance, purchasing, and logistics. There is no assurance that these plans will ever “come together” or be reconciled. Instead, someone within the organization makes a decision as to which forecast to use. Valuable input from the individual areas is lost. Co-ordination is needed to bring the separate forecasts together into a single plan (Tosh, 1998).

Industry-level planning has provided the major impetus for CPFR. Five companies - consultant Benchmarking Partners, manufacturer Warner-Lambert, retailer Wal-Mart, and two software firms, SAP and Manugistics - initiated the CPFR project in October of 1995 (Cooke, 1998). A business model was developed and tested with Wal-Mart and Warner-Lambert. The initial pilot involving Listerine products was deemed a success. Since that time, VICS (Voluntary Inter-industry Commerce Standards) Committee, long known for their involvement in developing industry-wide standards for EDI, has become involved in efforts focused on improving supply chain management through collaborative partnerships between retailers, distributors, suppliers, carriers, third party providers, and any other relevant trading partners. In order to better understand key dimensions of collaboration, VICS set up the Dynamic Information Sharing Business Collaboration subcommittee (Staff, 1998). Twenty-six leading companies participated in the subcommittee (Voluntary Interindustry Commerce Standards, 1998). The focus of the subcommittee has been to develop voluntary guidelines for CPFR involvement.

CPFR is a collaborative initiative aimed at "making inventory management more efficient and cost-effective, while improving customer service, and leveraging technology to significantly improve profitability". Efficiency measures how well resources expended are utilized while effectiveness involves the extent to which goals are accomplished (Mentzer and Konrad, 1991). Thus, performance is a function of both efficiency (inputs) and effectiveness (goals/outputs).

CPFR represents a new management philosophy. Perhaps the best way to capture the breadth of CPFR is to provide an illustration. Utilizing principles of CPFR, a retailer and consumer goods firm would work together to jointly create a single, combined promotion calendar in advance of the selling period which could subsequently be up-dated on a real-time basis over the Internet. The retailer would also provide point-of-sale (POS) data, longer-term promotional plans, prescribed inventory levels, etc. for the consumer goods trading partner. Both firms would create sales and order forecasts. The retailer would then electronically transmit the retail forecast to the consumer goods firm (manufacturer). A collaborative system would be used to compare that forecast to the consumer goods firm’s own forecast. Discrepancies or exceptions would be identified and appropriate managers advised. Working together, the "team" would decide on one, i.e. collaborative, forecast extending across the supply chain.

The above example attempts to capture the essence of CPFR - utilizing technology/information capabilities to support trading partner interaction and joint decision making. While the above scenario is generic, it should be noted that in actuality CPFR agreements are very specific in nature. A great deal of time and effort is needed up-front to negotiate specific items such as goals and objectives, frequency of up-dates to the plan, exception criteria, and key measures. The result is a published document defining relevant issues that has been jointly developed and agreed to. A nine-step business model for CPFR (Robins, 1998) has been developed which provides an indication of the scope of effort involved:

Develop front-end agreement.

Create joint business plan.

Create sales forecast.

Identify exceptions for sales forecast.

Resolve/collaborate on exception items.

Create order forecast.

Identify exceptions for order forecast.

Resolve/collaborate on exception items.

Order generation.

The following quote concisely summarizes the CPFR philosophy and how it "focuses on the process of forecasting supply and demand [through] efforts to bring various plans and projections from both the retailer and supplier end of the supply chain into synch" (Tosh, 1998, p. 113). The spirit of such collaboration is consistent with Bowersox's definition of supply chain management:

Supply-chain management is a collaborative-based strategy to link cross-enterprise business operations to achieve a shared vision of marketing opportunity (Quinn, 1998, p. 38).

Impact of CPFR

A number of pilot programs testing CPFR concepts have been instituted in the last few years. The goals of the pilot programs are to validate and refine the VICS-developed CPFR business process and technology recommendations. Pilot results have been very positive. The firms involved reported they improved their in-stock positions while achieving significant reductions in inventory levels (Robins, 1998). For example, a pilot program established between Nabisco and Wegmans Food Markets reported sales increases of up to 50 per cent in the pilot categories. Forecast accuracy improved to the 90 per cent range (Zimmermann, 1998). Improvements in overall channel efficiency through better asset utilization, reduced risk through co-management of inventory, and better day-to-day management because of prenotification of fill-rate issues are other anticipated benefits. Manufacturers benefit in that CPFR means fewer expedited shipments and more accurate production; however, it also means greater accountability for manufacturers (Koloszyc, 1998).

Pilot programs have centered on forecast collaboration as well as promotional aspects of joint planning. CPFR is designed to predict sales based on information provided relating to promotions or planned discounts. Out-of-stock situations often occur when consumer demand - sparked by retail promotions that may not have been communicated to the manufacturer - outstrips the supply chain’s ability to replenish. Conversely, unsalable inventory may result from non-existent or ineffective promotion of products that have been stocked based on anticipated demand forecasts that never materialize. This is particularly true for new products. By taking promotional plans into account when forecasting, many promotion-related product availability problems are avoided. CPFR utilizes promotion information in conjunction with historical consumption patterns, market intelligence, manufacturing constraints, and raw material availability. Data are made available to trading partners over the Internet. “Live sales data” allow for constant updating and management of inventory on a real-time basis (Frook, 1998).

It is anticipated that collaborative efforts will be extended to incorporate a wide range of new joint business processes between retailers and suppliers as the CPFR initiatives mature. However, CPFR is not for every business organization. The business must have sufficient volume, i.e. enough trading partners interested to make it economically feasible. For example, the investment required generally cannot be justified if only one or two retailer trading partners are to be included. Trading partners must also overcome reservations about sharing proprietary information (Staff, 1998).

Collaborative planning will also require extensive support in the form of Internet-based products and will necessitate major process changes within the businesses (Moad, 1997). Success of Internet-based operations relies on instantaneous movement of information from the customer to order planning and fulfillment and then back to customers with tracking and confirmation numbers. This entails total supply chain integration with real-time information sharing among supply chain entities. Achieving this level of secure information and process integration will require increased information technology sophistication all along the supply chain (Ruriani, 1998). The resource commitment and synchronization of systems to ensure data security and compatibility will continually present a challenge for implementation (Doherty, 1998; Saccomano, 1998). Typically, applications supporting operational processes belong to either the manufacturer or the retailer. Even though information may be passed between the two, the processes remain disjointed. The technology needed to link operating systems and to analyse and share data forecasts has either not existed or has been too costly to deploy. Recently, however, new software solutions, such as Syncra St, have been developed that enable multiple trading partners to collaborate by creating a common link through which different applications may communicate (Doherty, 1998).

Research areas

The preceding discussion of the literature led to the development of four research areas. The first area concerns the current levels of involvement in cross-organizational collaboration and program-related success to date among manufacturers and retailers engaged in automatic inventory replenishment programs. Research area two is related to performance inputs, exploring the association between high levels of CPFR and implementation of changes to operating processes. Research area three explores performance outcomes. It seeks to determine the association between CPFR and operational performance goals. The fourth research area pertains to the linkage between CPFR and information system capabilities. The research seeks to determine whether an association exists between high levels of CPFR implementation and heightened information system capabilities.

2.5 Cooperation or coercion ? Supplier networks and relationships

Tesco is considered a leader in fostering positive inter-organizational relationships with suppliers. In the fresh produce sector, for example, minimum prices are offered to suppliers in exchange for guaranteed supply levels and quality levels. Should the market price rise above the minimum price, farmers are apparently rewarded (Financial Times, 1995). The balance of power in these relationships, however, falls strongly into the hands of the retailers as one commentator has observed: "The power brokers in the modern food economy are the distributors. It isn't a market economy any more, it is a hyper-market economy" (Financial Times, 1995).

Although it is assumed from these comments that the supermarkets are leading the way in developing vertical relations in the food industry, it is still the case that these partnerships have not fully developed. As Fernie (1994) points out: "Despite much of the rhetoric about partnershipping, the practice of working closer together still has a long way to go”. This is clearly a key feature of the food industry that suggests that there is potential for unequal business relations to occur. As a senior retail manager states", We all want partnership so long as it is on our own terms (Ogbonna and Wilkinson 1996). This article is set within the context of these relationships and seeks to elicit ethical perspectives from the managers who are responsible for developing partnership initiatives, for managing within the legal and regulatory framework and, just as crucially, for filling an important gap in the supply chain which links raw materials, products and services with the general public.

Wong (1999), states that "Business partnering occurs through a pooling of resources in a trusting atmosphere focused on continuous, mutual improvement". Little evidence of this ideal was found in the transcripted data.

Thorntons: the vertically integrated retailer, questioning the strategy

A firm's ability to achieve and sustain competitive advantage can be seen as dependent on the development of the organization’s value chain and linkages with other parts of the value system (Porter, 1985, 1996). To what extent value creating activities need be retained in-house is increasingly open to question. The development of supply chains toward outsourcing and lean supply, has provided a revolution in the configuration of organizations and challenging the historically established practice of vertical integration (Quinn et al., 1990). With the result that competition may be better seen as a phenomena that occurs between supply chains rather than individual companies (Christopher, 1998; Hines and Rich, 1998).

Numerous competitive benefits have been proposed for the use of outside supply arrangements. These include: the conversion of fixed costs to variable costs; access to world-class quality, productivity and cost. For resource development the strategy has been seen as providing a means of redressing resource inadequacies and imbalances; improved access to functional expertise, increased resource leverage of the organization’s resources through the use of supplier's and partner's assets and the avoidance of seasonal and cyclical excesses in capacity and inventory. For the management of the organization the reduction in functional areas may provide simpler and less bureaucratic organizational forms with increased focus for strategy, investment and development. The organization's ability to respond to a changing environment may also be enhanced by facilitating changes in volume and type of output, and through providing enhanced opportunities for learning through interactions with supply partners, and lower risk through reduced investment. (Blumberg, 1998; Lonsdale and Cox, 1998; Nishiguchi and Brookfield, 1997; Lamming, 1993; Snow et al., 1992; Venkatesan, 1992; Quinn et al., 1990).

This paper examines the implications for competitiveness and strategic development of an in-house approach to operations that combines manufacturing and retailing. A model is developed for the make-or-buy decision and through the use of case material used to discuss the experience of a particular company, Thorntons, a vertically integrated confectionery retailer.

Questioning the dominant paradigm

While the use of outside supply presents the potential for achieving a wide range of strategically significant benefits, survey evidence suggests that the majority of managers are dissatisfied with the outcome of their outsourcing decisions (Lonsdale, 1999).

The leakage of core knowledge may lead to the emergence of new competitors (McIvor et al., 1997; Preece, 1995; Welch and Nayak, 1992; Hamel et al., 1989). Dependence on suppliers may lead to opportunism (Lonsdale, 1999; Ford et al., 1998). Critical activities may become inadvertently outsourced through an over focus upon cost and quality aspects of the outsourcing decision leading incrementally to a loss of the firm's capability (Bettis et al., 1992). A process that may be facilitated by a lack of senior management guidance for make-or-buy decisions (Ford et al., 1993). Care needs to be taken when outsourcing to avoid contracting-out elements of the business that differentiate the firm in the market place (Bruck, 1995). However, in large part, such dangers can be seen as a consequence of how the outsourcing decision is evaluated rather than intrinsic to the use of outside supply.

Cox (1999a) points to the emergence of a dominant paradigm in current writing about supply chain management, based upon lean thinking and the attempt to replicate for a variety of product and service supply chains Toyota's lean approach to resource management. While this model has been appropriate for a number of industry situations its applicability for all companies is questioned. There is a need to recognize "the key strategic decision within the company's the make-buy decision" (Cox, 1999a, p. 169).

Different conclusions can be expected from that decision both between industries (van Hoek, 1999) and for firms within an industry (Blumberg, 1998). Cox (1999b) emphasizes that supply chain decisions need to be seen as contingent on specific market circumstances. Similarly Fisher (1997) indicates the need to recognize choice in devising a supply chain strategy based upon the differing requirements posed by product characteristics.

UK retailing provides a number of examples of companies, which to a varying degree, employ an in-house supply strategy, often the strategy is seen as contributing towards product differentiation. For Boots Contract Manufacturing 60 per cent of its sales are to customers within the Boots group, accounting for 3 per cent of sales for Boots the Chemists. The in-house operation is justified by its providing "innovative, market-focused and differentiated products" (1999 Company Report). A similar justification is presented by W.H. Smith where the acquisition of Hodder Headline is explained as part of responding to the “need to differentiate ourselves” through the use of Hodder's existing back catalogue and the development of materials for W.H. Smith’s stores (1999 Company Report). The fantasy game retailer Games Workshop demonstrates a greater reliance on in-house operations. The company's in-house design, in-house manufacture of all metal miniatures (50 per cent of sales) and ownership of own stores (40 per cent of sales) provide numerous opportunities to develop and differentiate their product/service.

The in-house strategy may need to be reconsidered as circumstances change. The Body Shop developed through in-house manufacture together with a retail network based on franchising and sub-franchising, with control of ingredients and manufacturing processes helping to differentiate the company’s products in addressing the environmentally orientated consumer (Campbell, 1998). By 1999, faced with deteriorating commercial performance, the company attempted to focus more effectively on its priorities as a retail organization, combining a move to company-owned shops with the use of outsourcing. The anticipated benefits of outside manufacture included access to greater external expertise and speed in product development. The outsourced UK manufacturing facilities had produced approximately 50 per cent of the products sold but on occasion had come to operate at only 25 per cent of capacity.

2.6 The make-or-buy decision: a contextual model

A wide literature is available concerning factors influencing the decision to provide an activity in-house or through outside supply. The model provided in Figure 2 The make-or-buy decision presents the make-or-buy decision as a complex, strategically orientated decision that focuses on the decisions consequences for competitive advantage, with competitive advantage being based on a matching of capability to competitive environment (Kay, 1993; Hofer and Schendel, 1978).

Figure 2: The make-or-buy decision

Competitive environment

An organization's sourcing strategy needs to be consistent with competitive conditions and the development of competitive advantage (Quinn and Hilmer, 1994; Harrigan, 1986). Sourcing decisions must support the business strategy and may have to be revised as competitive condition's change. Competitive developments may bring into question the relevance of capabilities and assets that have been seen as core for the organization. Through industry evolution the processes of buyer learning, diffusion of proprietary knowledge, process and market innovation and experience, all serve to change the competitive emphasis and the potential for particular value chain activities to contribute to profitability.

The level of environmental uncertainty may also affect the sourcing decision. Uncertainty may provide a motive for vertical integration by limiting the ability to define contracts (Hobbs, 1996). Harrigan's (1985) study concluded that uncertainty concerning final product demand and volatile competition can mitigate the advantages of in-house investment through presenting the risk of over-capacity. However Lieberman's (1991) study did not support the view that backward integration is discouraged by volatility in downstream demand, rather integration was addressed to variability in the input market.

Capability

Within the resource-based view of the firm, resources and capabilities are seen as the foundation for the firm’s long term strategy and profit (Grant, 1991). The core activities of a business are essential parts of its capability, the set of business processes that consistently provide superior value (Stalk et al., 1992). In addressing the issue of strategic outsourcing, Quinn and Hilmer (1994) emphasized the need for the organization to concentrate its resources on a set of core competencies where it can achieve definable pre-eminence and provide unique values for customers strategically outsourcing other activities, including many traditionally considered integral to the company (Quinn and Hilmer, 1994, p. 43).

The application of this argument is far from straightforward. There are difficulties in identifying the core activities of an organization (Javidan, 1998; McIvor et al., 1997; Venkatesan, 1992). An example can be found within the financial services industry where the core activities have been variously defined as those concerning the information system, the product development process and the distribution system. Each definition opens up the possibility of very different outsourcing strategies.

Core capabilities need to be unique, important, controllable, durable and able to generate excess profit (Schoemaker, 1992). They do not necessarily have to be wholly owned. However such capabilities do require a seamless integration of activities. When considering the outsourcing of near to core activities great care must be taken to ensure that the essential relationships that underpin the creation of value will remain available and can be maintained and developed. Such relationships can be successfully built across organizations, providing the opportunity to achieve increased learning (Lamming, 1993). Such integration is achieved through information exchange, not necessarily ownership (Christopher, 1998; Richardson, 1996).

Cost

Short term cost reduction has often been the predominant criteria adopted by firms in assessing sourcing decisions (Ford et al., 1993). The evaluation of cost requires a comprehensive identification of variable and overhead costs and the implicit costs concerning the alternative use of released resources. The analysis needs to encompass all of the costs associated with the acquisition of the activity throughout the entire supply chain, from idea conception to any costs incurred during use by the final customer (McIvor et al., 1997).

While a decision that demonstrates cost and headcount reductions may be welcomed by senior executives (Greer et al., 1999) care has to be taken in identifying the cost drivers (Porter, 1985) possessed by potential suppliers that will enable them to provide and sustain superior cost performance.

On occasion in-house supply, vertical integration, can provide lower costs (D'Aveni and Ravenscraft, 1994). Large organizations may find prospective suppliers unable to match their own internal economies of scale and many specialist suppliers may have an effective scale that is no greater than that of their customers (Alexander and Young, 1996). Even if outside suppliers possess greater efficiency, cost savings may not be obtainable when a few vendors dominate a specialized market (Greer et al., 1999).

Technology

For a business to develop and sustain competitive advantage requires access to one or more technologies and the ability to benefit from, or even lead, the development of relevant technologies. The development of technology can be expensive, consequently the decision as to which technologies should be developed in-house must be made on a selective basis that ensures support for sustaining competitive advantage.

Guidelines for evaluating the outsourcing of technologies have been considered by Welch and Nayak (1992) and also Blumberg (1998). Both authors emphasize the need to consider the rate of technological change. A technology’s maturity implies little potential for improving advantage and the possibility of a broad range of potential outside suppliers. Alternatively technological change may occur at a faster rate than the firm can sustain internally. Additional factors for consideration include, the relevance of the technology for the firm’s competitive advantage and the company's relative technological performance, it is unlikely that a firm which is lagging in a technology can move to a position of leadership.

Supply environment

Outside supply can be based on a range of relationships from arm's length contracting through to long term relationships based upon partnership, with the separate roles of customer and supplier being replaced by the acceptance of "mutual destiny by neighbors in the supply chain" (Lamming, 1996, p. 187). Such supply chains may act to reduce waste throughout the chain, improve flexibility and learning.

However the supply environment can also be problematic. Lonsdale (1999) warns of a lack of awareness of the dangers of outsourcing into a limited supply market, where few firms are capable of providing goods or services to the required standards or volume or in the required geographical area, opening the possibility of suppliers exploiting the situation. Similarly incomplete contracts, established to provide flexibility in an uncertain situation, may later become a basis for disagreement and opportunistic supplier behavior, when switching costs have become established and the incumbent supplier has acquired superior knowledge to that of other potential suppliers. Cox (1999a) re-asserts the strategic importance of value appropriation (Kay, 1993) in that there is a need for a proper understanding of the power structures that exist in supply chains before attempting to implement particular supply strategies.

Strategic decisions need to be evaluated against a long term perspective. For sourcing decisions that includes a consideration of longer term trends in the supply market, including concentration, and the switching costs that face the customer organization in the near, medium and longer term.

The service capability of suppliers and their financial strength must also be assessed to avoid supplier failure (Blumberg, 1998) as must their ability to understand the customer organization's goals, mission and culture as a basis for partnering.

2.7 Passing value to customers: on the power of regulation in the industrial electricity supply chain

Mapping the supply chain

There are five key functional stages in the supply chain for industrial electricity. As shown in Figure 3 The industrial electricity supply chain: functional stages and key resources , these are the supply of a primary fuel source, generation, transmission, distribution, and supply.

Figure 3: The industrial electricity supply chain: functional stages and key

resources

We will consider each of these stages in turn, discussing them in terms of the primary activities carried out at that stage, the resources needed for these activities, and the major firms operating at a particular stage.

Primary fuel

The primary fuel stage is perhaps the most complex to map descriptively, because there are a number of different supply markets operating here. These represent the six main types of fuel used to generate electricity in the UK, namely coal, nuclear, gas, renewables, coal and oil derivatives, and oil itself. There is, however, a single primary activity that is common to all of these fuel types. This can be defined as the capture/extraction and refining of a raw energy source followed by the delivery of that refined energy source to the generator. Again, the diversity of different fuel types means that the resources required by suppliers do vary somewhat. Nevertheless, the following three resources can be identified as common to the provision of all fuels. These are licensed access to specific sites, an expertise in finding and exploiting these sites as efficiently as possible, and an ability to provide a reliable supply of satisfactory quality.

Generation

The key activity at this stage is the conversion of a primary fuel source into electrical energy. This conversion involves a variety of plant types depending on the fuel used, but the fundamental process always includes the same steps. First, the fuel source is converted from potential energy to kinetic energy to drive turbines. Second, the motion of these turbines generates high voltage electrical energy.

Whatever the plant type in question, there are three resources that are essential to any firm operating at this stage in the supply chain. The first of these are the technical skills necessary to ensure an efficient use of fuel inputs and plant capacity so that the generator achieves the maximum electricity output for a given unit of fuel. A second and related resource is an expertise in repair and maintenance to minimize the time when a generating set is inoperable. In combination, these first two resources are vital if a generator is to achieve and maintain a low cost operation. The third key resource for a generator is access to suitable sites on which to build their power stations.

Transmission

This functional stage involves the bulk transfer of electrical energy along high voltage wires to localized distribution networks. The transmission network consists of pylons carrying overhead lines in rural areas, underground cables in more urbanized areas, and sub-stations connected to the regional distribution networks.

The key resources required to operate at this stage in the supply chain are threefold. First, an organization needs free access to the land on which the transmission network is based, so that it is able to perform vital repair and maintenance tasks. This does not mean, however, that the organization needs to own all of the land surrounding the network, simply that it should enjoy a right of unfettered access across land that is owned by a variety of private individuals and organizations. The second key resource is the technical skills necessary to ensure safe, reliable and efficient transmission. Finally, an organization needs a licence to operate granted by the state.

Distribution

The distribution function involves the transfer of high voltage electricity, drawn from access points in the transmission network, through a localized distribution network which reduces the voltage and which provides a connection to the premises of the end customer. The localized distribution network consists of overhead lines in rural areas, underground cables in urban areas, and a number of sub-stations operating at successively lower voltages. The key resources required for efficient and effective operation at this stage are the same as those required in the transmission stage, namely open land access, the right technical skills, and a licence to operate.

Supply

This is the final functional stage in the electricity supply chain. It involves the bulk purchase of electricity from generators and its sale to end-users. Electricity is bought in one of two ways: either from the Pool or, more commonly, under a direct contract with a generator. This is essentially a trading activity backed up by meter reading, billing, and collection of customer payments. Supply companies are also increasingly offering their industrial customer's value added in the form of energy management services. This is a response to the significant levels of competition that have developed at this stage in the chain following the phased liberalization of the 1MW+ segment (1990) and the 100kW+ segment (1994) (OFFER, 1998h).

Given these conditions of open competition in what is a commodity market, there are four key resources required by a firm at this stage in the chain. The first is an efficient and secure system for collecting and managing customer information. The second resource is a combination of good negotiation and contract management skills to win and retain customers and to purchase electricity at favorable prices. Third, a firm needs an in-depth understanding of customer needs and wants. Finally, the firm needs a good reputation and a strong brand identity, because the product itself cannot be a basis for differentiation

The strategy of vertical integration has implications for management's ability to identify core capabilities, with the possibility that the company may fail to adequately recognize and develop the necessary core activities. The wide range of activities associated with being both a manufacturer and a retailer can be seen as facing Thorntons with difficulties in focusing their development. In the interviews and through their public statements Thorntons's directors clearly stated that the company was primarily a retailer but for a prolonged part of the company's history that focus was not apparent. In the mid 1980s the company made considerable investment in the improvement of shop appearance, but acknowledged that for the following ten years the appearance of the shops had tended to be neglected.

2.8 Green supply chain

Green approaches

Despite the fact that categorizations of green approaches are being criticized for their broad nature, they do have something to say. Fundamentals of greening as a competitive initiative were explained in detail by Porter and van der Linde (1995). Their basic reasoning is that investments in greening can be resource saving, waste eliminating and productivity improving. As a result, green initiatives can lower not only the environmental impact of a business but also raise efficiency, possibly creating major competitive advantages in innovation and operations.

Kopicki et al. (1993) introduced three approaches in environmental management: the reactive, proactive and value-seeking approach. In the reactive approach companies commit minimal resources to environmental management as they start to procure some products with some recycled content, start labeling products that are recyclable and use filters to lower the environmental impact of production. However, filters are an "end of pipeline" initiative used to comply with environmental legislation that do not take away any of the causes of the environmental impact. In the proactive approach, companies start to pre-empt new environmental laws by realizing a modest resource commitment to initiate the recycling of products and designing green products. In this approach the company assumes responsibility over product re-use and recycling as an element of environmental management. The most far-reaching approach is value-seeking, in that companies integrate environmental activities into a business strategy and operate the firm to reduce its impact on the environment as a strategic initiative. The CEO establishes a strong environmental commitment and the capital commitment is shared among partners in the supply chain. Operating systems in the value-seeking phase may include the (re-) design of products for dis-assembly, the use of life-cycle analysis and creating an involvement of third parties. In this approach environmental management assumes supply chain wide responsibility as opposed to ad hoc and fragmented organization (generation one) or functional silo organization (generation two).

Walton et al. (1998) use a comparable three phase model that starts with "comply with the letter of the law" (reactive) and goes from "clean up" to proactive. Despite the fact that Kopicki et al. (1993) use the proactive phase as a second phase the explanation of the proactive approach provided by Walton et al. (1998) is comparable to that of the value-seeking phase of Kopicki et al. (1993). Companies are integrating environmental management into corporate strategic planning and into day-to-day processes as they adopt a resource-productivity framework to maximize benefits attained from environmental programs.

The extension of the Kopicki et al. (1993) framework offered by Walton et al. (1998) is that they state that companies will only thrive in the final phase of environmental management when they act as a whole system that includes customers, suppliers and other players in the supply chain. By explicitly developing a supply chain approach in the environmental management process, the impact on operations is leveraged throughout the chain, expanding the domain to a much wider arena. They detail how such an approach requires that cross-functional and cross-company processes are addressed, including product design, supplier's processes, evaluation systems and inbound logistics. Of course, this approach requires a much more far-reaching effort of players in the supply chain and larger investments than those in filters. This indicates the need for a strategic approach and in-depth development of opportunities. Walley and Whitehead (1994) also mention the value-based approach as the most far-reaching approach in environmental management. They characterize this approach as systematic, through the strong commitment and integration of flexible strategies and structures, throughout the supply chain. Flexibility relates to the ability to exercise different options, applied in the Recap project through the development of various new channel structures depending on the type of application of recycled material. Within this approach three types of activities are undertaken: operational, technical and strategic activities, depending on the impact on value and the scope of discretionary response. Hart (1997) introduced the distinction between today’s greening efforts and tomorrow's targets, internal and external efforts. The difference between today’s efforts and tomorrow’s targets appears to be relatively similar to the scope of discretionary response, the external dimension meets the supply chain approach. Table II Management approaches to greening lists the characteristics of the three approaches.

Table II Management approaches to greening lists the characteristics of the three approaches.

Green steps to take

If a supply chain approach is so important in a value-seeking greening initiative, how should businesses develop such an approach? Figure 4 highlights some of the changes needed in the evolution from reversed logistics to green supply chains. First, this evolution fits within a move away from reactive approaches oriented at complying with regulation to a more far-reaching attempt to seek value, proactively and gain competitiveness, as explained in the previous section. The perspective then changes from greening as a burden to greening as a potential source of competitiveness. Such competitiveness may be based on:

·creating a marketing edge by using greening as a unique selling point with environmentally conscious customers;

·leveraging innovation. Design for dis-assembly for example, can be based on smart product connectors which are easier to (dis-)assemble, lowering assembly lead-times; or

·cost-savings realized through resource-savings. Using less fuel for example, by lowering trucking miles, not only lowers emissions but also saves on fuel expenses and drivers’ working hours.

Figure 4: The changes needed in the evolution from reversed logistics to green supply chains.

The scope of actions in the chain has to change from an initial sale to that of the entire product usage life-time, not only because of environmental impact during its use (instead of during production and distribution only) but also because of the future return flow. Some companies, like MCC (a wholly owned Mercedes company) that makes the new Smart car, are already experimenting with this concept. Establishing a relationship with customers is used to facilitate customer loyalty and follow up orders. Smart uses product upgrades and adjustments (e.g. different coloured door panels etc.) as a carrier for the enduring customer contact (see also: van Hoek and Weken, 1998). During the life of the car (the use by a customer) clients can have the car adjusted to changing needs with add-on modules and even new body panels. As a result the product's life cycle can be extended and waste volume can be lowered; only modules are abolished not entire cars. Why not use these initiatives to expand the scope of actions beyond its initial life into a second and third life, while raising customer loyalty and raising the number of repeat orders? The related solutions to greening are thus more reduce and re-use initiatives than end-of-pipeline solutions. The latter do not take away the cause of emissions, they just filter the emission after the occurrence. If we really look at greening opportunities throughout the supply chain we can address environmental impact right at the source and throughout the process and migrate from low-end solutions to solutions far higher in the greening hierarchy, with a far more significant impact on greening (see Figure 5). Again the scope of greening initiatives then moves beyond individual companies to the supply chain. The question then becomes how to re-define Figure 4.

Figure 5: the greening hierarchy with a far more significant impact on greening

Green supply chains to make

Table III Players, activities and evaluation of greening efforts throughout the supply chain provides an attempt to redefine the context and scope of greening initiatives in the supply chain. First of all, the supply chain involves multiple players. The first row lists a number of them, reaching as far as raw material suppliers and retailers. All of these players can play an important role in greening the supply chain. In the downstream stages products are taken back into circulation after their initial life cycles. These are then scrapped, shredded and dis-assembled in the midstream stages by manufacturers and main suppliers. The suppliers in the upstream stages can then recycle and re-use the parts and modules. In the initial production, materials are to be selected upstream, the design for assembly used midstream has to favor dis-assembly and transportation and packaging downstream has to be environmentally conscious.

Table III Players, activities and evaluation of greening efforts throughout the supply chain

If a supply chain is to really assume responsibility over its ecologic footprint it is to be evaluated on these grounds. The supply chain footprint has to be measured against different indicators than the original footprint measure. In that respect, a set of performance measures relevant for these activities is identified and listed in the final row of Table III. Materials can be selected against emission rate and energy consumption standards. Re-use of materials can be measured against the percentage of "virgin" or new materials used in parts production. Ideally, this percentage should be as low as possible. Dis-assembly and shredding can be measured as volume of goods handled per time unit. Transportation can be assessed in terms of loads against capacity of transport equipment. A high degree of utilization is an indicator of the efficiency of transportation. Driving empty trucks around creates emissions without economic value. Packaging cannot only be evaluated based on packaging material used but also by the amount of air or useless space in the package. Returns handling can be measured in terms of volumes handled to indicate the size of the operation. More important is the volume selected for recycling/entering the re-use supply chain, as this provides an indication of the effectiveness of the return flow of goods and the value of products returned.

2.9 Satisficing dependent customers: on the power of suppliers in IT

systems integration supply chains

Key stages in the supply chain

Each of the key functional stages in the systems integration supply chain is described below (Figure 6).

Figure 6: The power of suppliers in IT systems integration supply chains

The end customer

The number of actual and potential end customers for systems integration is difficult to quantify precisely. End customers of complex systems integration are confined to large organizations. If large firms are taken as those with 500 or more employees, this would include 2,380 companies registered at Companies House (excluding holding companies that do not generally trade). The addition of the public sector central and local government, NHS trusts, etc. would bring this figure to approximately 3,000 potential end users. The major players do not consider the 19,500 medium-sized businesses and 2.5 million small businesses, at present, as potential customers for turnkey systems integration projects. The current view is that such customers are probably better served if they install industry standard packages rather than create their own bespoke systems.

Systems integrators

It is not possible to quantify exactly the number of systems integration firms that exist within the 50,000 UK companies currently operating in the computing services sector. The complexity stems from the fact that these companies, operating within many of the IT supply chains, make a varying percentage of their turnover from systems integration. Other services that contribute to the revenue generation of these firms may include: facilities management; hardware and software support and maintenance; training; and consultancy services.

Of the 50,000 companies operating in the computing services sector, ten companies account for 40 per cent of UK systems integration revenues. These ten companies, in current order of business turnover, are as follows: EDS; IBM; ICL; Sema; Andersen Consulting; Computer Sciences Corporation; Cap Gemini UK (Hoskyns); GEC-Marconi; Microsoft UK; and Oracle UK. This demonstrates that the marketplace is highly contested and that while there are many players, there are also many hundreds of small systems integrators (Key Note, 1997a).

The structure of the market for systems integration is constantly changing, due to acquisitions and an increase in the number of vendors. The costs of entry can be high, due to the need for significant capital requirements and the need for a reputation and credibility for the successful implementation of business solutions. Despite this, the marketplace is attractive for new entrants, due to the high level of achievable profits, the rapidly expanding market opportunities and the fact that efficient information processing is becoming increasingly critical for business success in the Internet age. This has prompted many organizations to seek to find ways to overcome existing entry barriers.

Hardware

Management information processing hardware and associated maintenance accounts for approximately a third of the £32bn computer market in the UK (Key Note, 1997b). The sector includes computers (varying in size from large mainframes and enterprise servers to workstations and personal computers), peripherals, printers and other input/output devices and storage devices of all types.

There are conflicting pressures on the numerous hardware supply chains. Personal computers form the largest and most dynamic sector of the market. Like peripherals, which form the next largest sector, PCs are a maturing market and the cost of the hardware is decreasing rapidly. Firms such as IBM, Compaq, Fujitsu and Toshiba in PCs and Hewlett-Packard (Table IV) , Seagate and Canon (in addition to IBM) in peripherals are facing increased competition predicated on price. Without the explosion in sales this would have led to a decrease in the overall value of the hardware market. The fact that hardware is becoming more of a commodity in certain areas has provided less scope for the major players to premium price.

Table IV HP's supplier accreditation and performance criteria and examples of measures

It is for this reason that existing hardware manufacturers and service providers have focused on more profitable systems integration services as an addition to (or replacement of) the traditional manufacture of hardware. The troubles faced by IBM and others forced them to find related businesses, such as outsourcing, and adopt strategies that were aimed at turning their existing client base into outsourcing and systems integration customers. Such firms faced lower entry barriers but had to overcome the anxiety of end customers who thought that they were still in the hardware market. A characteristic of the nature of demand is that the solutions are technically complex and that end customers do not fully understand the technology and are not in a position to exert effective control over what they are purchasing. It should be noted that, to be successful, systems integrators will not automatically sell their own hardware per se.

The hardware supply chains are highly dependent on the supply of components. With these components accounting for a significant proportion of costs and the security of timely supply being critical, there exists a considerable amount of vertical integration within the supply chains. The considerable change experienced by the numerous IT supply chains and the players within them has perhaps been most prominent within the hardware supply chains. Figure 7 The forces that have developed and evolved the IT systems integration supply chains highlights how the industry has developed and the major forces that have driven these changes.

Figure 7 The forces that have developed and evolved the IT systems integration supply chains

Software

The UK software market was worth £4.87bn in 1997 (Key Note, 1998). This market accounts for 17.9 per cent of the western European software market and approximately 6 per cent of the global market. Recent growth has been fuelled by the movement away from customized bespoke applications towards packaged software and high demand for PC software packages.

The UK computer software market can be segmented by either the type of software offering (systems software, applications software or application tools) or the nature of the revenue stream for the supplying organization (dependent on the type of licence). Applications software is consistently the largest sector of the market (48 per cent in 1997), but there has been a shift towards application tools (25 per cent) away from systems software (27 per cent). This move from customized applications running on proprietary mainframes and minicomputers towards generic software is because more firms are adopting client-server solutions.

The software market is very diverse, with even the largest players only accountable for 10 per cent of the market. IBM is the largest company in the UK software market followed by Microsoft. Apart from Microsoft, the majority of software organizations tend to be vertically integrated in both software development and hardware manufacturing. Outside of the mainframe market, where IBM is the dominant player and where proprietary operating systems are the norm, the operating system market divides into two groups, consisting of Microsoft and all others.

The packaged generic software industry is characterized by extremely rapid technological change, which requires constant attention to the marketplace to monitor software technology trends, shifts in consumer demand and rapid product innovation.

The pace of change has recently become even greater, due to the surge of interest in the Internet, other forms of online services, server-based networking, and new programming languages, such as Java.

Major marketing and research and development resources are therefore required by the organizations to sustain and generate customer demand. The costs of the companies operating at this stage of the supply chain are mainly attributable to the labor costs of the software authors.

The analysis presented later considers business software products within the supply chain. Like systems integration generally, analysis of customized bespoke software is made difficult because of the project nature of the one-off, ad hoc and technically uncertain expenditure.

Consultancy organizations

Information technology is the major sector in the management consultancy market in terms of value. This is because IT assignments tend to be more costly, due to the length of time required to complete projects. The structure of the IT consultancy market is changing rapidly, due to entry by an increasing number of organizations who are developing more sophisticated supply strategies centred around the creation of client “lock-in”, through permanent dependencies and high switching costs. The market is highly contested. The principal consultancy providers come from IT companies, IT-specific consultancies, as well as from accountancy-based and other more general consultancies.

The IT management consultancy sector can be divided into three: consultancy; systems development; and facilities management. Although these are categorized as separate activities, there are cases when the operation within one sector leads to work within another.

In the context of management consultancy, facilities management refers to the management of a firm’s computer facilities by an external third party. As IT has developed technically and become more specialized, an increasing number of organizations have decided to outsource the management of this function to an external company. Through their understanding of the numerous IT supply chains, several of the leading consultancies, such as Andersen Consulting, have targeted this sector aggressively. At the same time, the growth in this sector has also encouraged mainline IT hardware and software companies to expand into consulting. The main attraction of this sector to the consultancies is that it provides a more regular, process-like stream of revenue, unlike traditional consultancy with its inevitably intermittent and project-specific demand characteristics.

2.10 The perception gap among buyer and suppliers

Firms are trying to concentrate on their core competence as a means of winning competitive advantage amid fierce competition and rapid changes in the global economy (Prahaladand Hamel, 1990). As such, it is simply not making economic or managerial sense for a manufacturing firm to do every production process in-house since doing so effectively prevents the firm from focusing on its core competence. Thus, outsourcing part of the internal production process to outside suppliers seems a viable option to the manufacturer who is aiming to develop strong core competence (Deavers, 1997).

Outsourcing is an arrangement of co-operative interfirm relationship, which should be based on mutual trust between partner organizations for improving performance of the inter-firm transaction (Smith et al., 1995). However, trust is a highly complex concept, difficult to define in an absolute sense. Studying buyer-supplier inter-firm relationships in the electrical equipment manufacturing industry, Zaheer et al. (1998) defined trust as the expectation that an actor:

Can be relied on to fulfil obligations,

Will behave in a predictable manner, and

Will act and negotiate fairly when the possibility for opportunism is present.

In effect, their definition of trust is based on three components, reliability, predictability, and fairness. Their primary objective was to confirm the correlation between interfirm trust and performance, which they proclaimed was partially verified.

From Zaheer et al. (1998), we can see the close link of trust with expectation, which in turn needs to be deeply involved in understanding perception (Mangold and Babakus, 1990). As a result, extending the conceptualization of trust in the literature, we postulate another linkage between inter-firm trust and perception gap (Farnham, 1989) and suggest that a large perception gap has a negative impact on inter-firm trust. Then, incorporating the work by Zaheer et al. (1998), we can establish a causal connection between perception gap and performance of the outsourcing transaction.

We can say there is perception gap between a buyer and suppliers when factors considered by the buyer as critical for an effective outsourcing partnership are significantly different from those perceived by the suppliers. There can also exist perception gaps among the suppliers when ideas about the critical factors differ significantly between them.

For instance, we can find a similar line of research on service quality monitoring systems (Mangold and Babakus, 1990; Parasuraman et al., 1985, 1988). Mangold and Babakus (1990) suggested four types of perception gap in the service delivery process between service provider and customer. The first is service quality gap, which is the difference between the customer's expectation and his/her perception of the service actually delivered. The second gap is called expectation gap. This gap represents the difference between the customer's expectation and that of the service provider. The third gap is service delivery gap, which relates to the difference between the service provider’s expectation and perception of service delivered. Finally, the fourth is labelled as perception gap, which is the difference between the service provider's and customer's perception of the service quality.

That characteristics of the relationship shared by buyer and supplier could influence the success of a mutually profitable outsourcing partnership. In fact, the long-term co-operative relationship between buyer and supplier is viewed as critical for successful outsourcing (Kalwani and Narayandas, 1995). Ganesan (1994) postulated such long-term relationships could emerge from mutual dependence and trust between the two parties. Ellram (1995) elaborated on five characteristics of relationships between buyers and suppliers for successful outsourcing:

(1) Lasting co-operation;

(2) Risk sharing;

(3) Efficient communication;

(4) Continuous improvement effort; and

(5) Information sharing,

In a similar vein, Landeros et al. (1995) proposed a four-stage model for a constructive partnership between buyer and supplier that proceeds from buyer's expectation, supplier's recognition/understanding, mutual understanding and contracting, to performance evaluation. He also suggested five characteristics for a successful outsourcing partnership:

(1) Communication improvement;

(2) Understanding of need and expectation;

(3) Elimination of problems and concerns;

(4) Consistent performance; and

(5) Creation of competitive advantages.

2.11 The general principles of value chain management

Maximizing net added value

Figure 8 Maximizing net added value

Added value analysis can be applied equally well to administrative and social processes. For example, the treatment of a patient can be made both more efficient from his or her standpoint and more cost effective for the hospital, by analyzing the events where real value is added and comparing them with the times where costs continue to rise but no value is being added (Figure 9: Added value analysis can be applied equally well to administrative and social processes as well as manufacturing processes).

Figure 9: Added value analysis be applied equally well to administrative and social processes as well as manufacturing processes

This technique can also be applied to measuring the impact of governmental requirements on private processes. For example, in association with exporting, the acquisition of export certificates and the inspection of goods, even when strictly necessary, adds no value. Hence, new methods need to be sought to minimize the time and cost involved to maximize net value added value.

Figure 10: The key elements in value chain uncertainty

Reducing uncertainty

The key elements in value chain uncertainty are best analyzed in terms of how they contribute to inefficiencies in both demand and supply: (Figure 10 and Figure 11)

Figure 11: Supply chain inefficiencies

Demand:

Timing of an action or order how predictable is this?

Size and composition of an action or order are there unexpected elements, and is it subject to change?

The degree to which intermediate demands are influenced by institutional and random factors rather than by final consumer demand.

Data accuracy on products required, prices, delivery points and timings.

Supply:

Lead time to supply how predictable is this?

Quantity supplied can the delivery be accepted without being counted?

Quality of supply can the supplies be used without testing and without subsequent waste and inefficiency?

Data accuracy on products supplied and prices.

Value chain management aims systematically to reduce these sources of uncertainty through the active co-operation of the key players in each value chain. By reducing uncertainty, total service is improved and overall cost is reduced (McGuffog, 1997).

This requires a structured approach, which is not only aided by electronic communications, but is also made more essential by them. For example, if an order is going to be automatically processed and actioned with minimum lead time it must be accurate in all respects and it must contain no unexpected elements. This can only be achieved by the synchronization of master data between departments and organizations prior to the exchange of orders. Each group needs to be using the same code numbers for the same products and services, prices, costs, specifications, processes and trading locations. If, for example, orders and invoices are exchanged every day, then master data should be synchronized in advance, say, once per week using electronic data interchange of files or via a shared electronic catalogue.

However, for orders to be successfully met, a great deal of prior planning needs to take place among value chain partners several weeks or months ahead. Traditionally much of the communication which took place between companies passed between the salesman and the buyer. Even assuming that each fully understood and communicated the same details of their agreements, and each had the authority to action the agreement within their organizations, there remained the uncertainties caused by each internal departmental silo in both companies.

To avoid these problems, there needs to be a vigorous definition of the overall joint process of decision-taking and communication.

Improved processes can now be powerfully supported by the application of Internet technology to collaborative event management (CEM) systems, such as the EQOS software developed jointly by Nestle´ and J.Sainsbury. All those who need to reach agreement to achieve the successful outcome of a value chain event can build up shared data on screens seeking electronic authorization as required, tracking each stage, each provisional and confirmed action, and any changes to plan as they occur. As plans and master data are confirmed, they can be automatically and consistently downloaded into each collaborator's internal computer applications. In this way both the quality of the plan and the joint commitment to both the process and the plan are greatly improved. The silo syndrome is ameliorated.

It has to be emphasized that the first priority is to make the process across a shared value chain as simple and standard, and hence as speedy and certain, as is practicable. The second priority is to gain comprehensive commitment to the shared process, and the third priority is to apply electronic communications to the process. All three are vital.

Standard value chain processes and messages

The more simple and standard can the joint processes in a value chain become, the more speed and certainty will be achieved, with all the concomitant benefits (McGuffog, 1999).

Most firms and organizations have developed different ways of doing things for historical reasons. They have made such processes more difficult to change by computerizing them, but have failed to get the full benefits of computerization because they have not simplified and standardized their value chains.

Furthermore, an order to deliver is basically the same transaction as an order to move something, or to process a metal, or to treat a patient, provided that the detail is handled via master data and not in the transaction, i.e. all value chain orders are in essence performing the same function, although hitherto this has rarely been recognized either in internal procedures or external communications.

There needs to be an agreed time structure detailing how an event is to be planned and managed which functions or departments or individuals need to be involved across all the concerned organizations in relation to each decision that needs to be taken. The approach outlined in Table V Possible time structure for event management (this example is a product promotion with a four month lead time) helps to define clearly which groups really need to be involved, communicated with, who needs to authorize what, the required lead times and the flows of data and information. In this way processes can be simplified and clarified.

Collaborative event management can be applied beneficially to all value chain events designing a product or service, engineering projects, administrative changes, government campaigns.

Table V: Possible time structure for event management

Co-operation and competition

Adam Smith (1776, p. 102) also contributed greatly to economic development by encouraging competition at the expense of restrictive practices and trade barriers. In his famous phrase he said that "people in the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices". How can both competition and co-operation be fostered without the one endangering the other, with the consequent loss of overall benefit to the final consumer of the product or service?

Simply purchasing from suppliers on the basis of tenders without understanding the opportunities to provide better total performance at a lower total cost through value chain management is no longer the way to achieve world class standards of operation. Equally, great care has to be taken to safeguard competition and foster innovation and enterprise. Commercial competition needs to be enhanced while stimulating the simplification and standardization of value chains across both the public and private sectors. Value chain management and, in particular, collaborative event planning and management, supported by electronic commerce, enable substantial improvements to total performance and cost without inhibiting innovation and enterprise.

Electronic commerce is already revolutionizing the means by which markets are developed, potential customers attracted and value chain partners co-ordinated. Value chain restructuring needs to precede the application of electronic commerce to achieve maximum competitiveness.

The order

The main value chain message is the order. An order should only be for the delivery of one or more items to one place at one date/time. This is because each delivery of a product or service can only be to one place at one date/time. An invoice can then be easily matched to both delivery and order, thus aligning all the key value chain transactions, and logically relating these to both operational and financial information.

Most firms and organizations have developed different ways of doing things and different “cultures” over many years as they have grown in size via mergers and take-overs, and as a consequence of developing new products and services. Most management analysis goes deeply into new product development, or acquisitions, or financial control. Little goes into simplification and standardization, and less into how to achieve these across the whole value chain including customers and suppliers. In this fast changing and complex world, simplification and standardization may well have more to offer than sophistication. Too little education and training is related to the effect of individual actions on other parts of the value chain. Indeed, reward systems, which focus simply on growing sales or on gross margins, rather than on overall service, performance and cost, encourage the silo mentality.

However, it is not only possible to do this, but also essential for competitive survival. It is the firms and organizations, which can make their value chains most simple, standard, speedy and certain, which will be able to provide the best customer service at the lowest total cost. This will be achieved by combining value chain management with electronic commerce direct electronic communication with consumers and value chain partners allied with low cost value chains. For example, bookselling over the Internet allied to direct home delivery of books from the publishers or even the printers (or direct delivery to the reader in electronic form), without book wholesaling and retailing, can supersede High Street book retailing. When there is no physical product to deliver, as in financial services, new value chains can appear even more quickly and powerfully.

To achieve low cost, simple and standard value chains and electronic commerce, the following must also be simple and standard:

(1) The key processes

(2) The supporting flows of information business and administrative messages

(3) The definitions of each data element

(4) The definitions of each master file which will be built collaboratively, which will

be synchronized between organizations, and which will be used to process

transactions

(5) The codes or number which will link the data and messages to the master files

Value chains are driven most efficiently by the sharing of knowledge in the

medium or longer-term, and by structuring this into shared plans and master files using collaborative systems. When such master data have been synchronized in an error free form in the near term, using common access codes, the key value chain messages such as orders and invoices can be automatically processed and routed and actioned without delay.

Unfortunately most organizations and industries have defined their order processes differently and have developed different data definitions. This makes computer applications within companies complicated, and even more so the electronic communications between companies. Expensive cross reference tables have to be maintained, and errors are commonplace.

Recently, we at Nestlé UK and e-centreuk (recently merged Article Number Association and Electronic Commerce Association) have attempted to solve these problems by directly linking the principles of value chain management to electronic communications via SIMPL-EDI – the Simplest Value Chain Messages for Electronic Data Interchange (Fenton et al., 1998).

3. The critique

3.1 Logistic partnership

Problem areas

Although the outcomes of the partnership have been positive, significant problems were encountered along the way. Notable problem areas included the planning and start-up process, documentation, measurement of progress, and cultural and organizational barriers that proved difficult to overcome. Each of these impediments is discussed below.

Planning and start-up

Melville implemented the new relationship in its largest importing division first to maximize cost reduction potential. Unfortunately, the division was at the beginning of its import processing peak season. Hindsight makes clear that this was not the most prudent strategy. Although Mercantile Logistics had engaged in two months of planning prior to the initiation of import management services, it still could not effectively handle the volume of cargo and data associated with the peak season.

Another problem stemmed from changes to vendor locations. The buying organization was engaged in shifting vendors and factories from Korean and Taiwan-based firms to firms located in Mainland China during the start-up phase. This shift rendered all historical data on cargo movement (volume by origin port) useless in terms of planning future movements.

The new sourcing locations also changed the import process. Well over 100 e-mail messages a day were sent from Mercantile Logistics operations in the Far East to the divisional headquarters as managers attempted to understand the new process. As a result, attention focused on responding to e-mail and diverted attention from cargo management, documentation, and reporting, causing delayed and/or poor quality management reporting. Often the cargo moved but the information did not. Mercantile Logistics made significant increases in its manpower assigned to information management, and within six to eight weeks managed to correct the problem. The difficult start-up, however, strained the partner relationship for almost two years.

Documentation and measurement

Both organizations struggled with issues of how best to measure and document the achieved results during the early years of the partnership. One issue that proved especially difficult was establishing clear baseline data at a level of granularity that permitted accurate comparison of results. Melville's historical record contained high-level data that indicated the number of containers shipped by origin and destination, total expenditures, and estimates of unit volumes. Although exact details of individual shipments were available in ocean bills of lading, the cost of collecting this historical data was prohibitive.

Shifting sourcing locations also hindered documentation and measurement. Comparing one year’s numbers with another became suspect when sourcing locations shifted. The movement into China for lower product prices, for example, resulted in higher transportation costs and longer transit times. It was difficult to explain these results without a measurement system that provided the capability to reflect sourcing changes and compare new functional cost structures against a detailed base case. Three years of experimentation with analysis and reporting processes were required to develop a comprehensive approach to management reporting that clearly revealed the program’s progress to the senior management of both partner firms.

Poor data quality presented another challenge to measurement system development. Both the source data and the data captured during the tracking process had to be carefully reviewed. Significant efforts were made to establish editing processes that cleansed the data as it was entered into the system. Vendor codes, port codes, vessel names, dates, and numerous other fields were carefully checked and controlled. Even the most minor problems such as the difference in international and US date formats created problems. Vessels were often reported as departing, for example, on 3/2 (3 February) and arriving on 3/3 (3 March). These inconsistencies were common in the first year operating database. The impact of data quality cannot be underestimated. A report that is 90 percent correct is worthless. Data quality had to be managed to better than 99 percent before operating decisions could be based on reports. This level of accuracy took over six months to achieve.

Another problem focused on turning operating data into information that senior management found useful. The wealth of operating data generated by the information system was summarized and displayed in a wide variety of ways including complex graphics accessible through a sophisticated user interface. Almost any operating question could be answered but the key management question, “Are we better off than we were?” proved difficult to answer. Eventually, a conceptual model of productivity management based on standard costing concepts was developed to relate the operating database to the financial database in a simple format. The final result was a one-page, four-line report that indicated overall performance on a year-over-year basis. The first line displayed overall productivity; the next two lines showed Melville's contributions to productivity changes (volume shipped and lanes utilized); the final line showed Mercantile Logistics lane cost per cubic meter. It was possible to drill down from these measures to daily operating data to explain a particular element of the productivity equation if necessary.

Culture and organization

Organizational culture and structure had a significant impact on the Melville/Mercantile Logistics partnership. Melville, based in the USA, adopted a relatively short-term focus characteristic of publicly held retail organizations and believed strongly in divisional autonomy and accountability. Mercantile Logistics was part of the large Danish firm, A.P. Moller. The culture was private, centralized, and focused on the long term, as is characteristic of organizations in capital-intensive businesses. These two cultures and structures did not mesh easily.

Cultural differences are often not easy to characterize. Differing attitudes toward e-mail by the partner firms in the Melville/Mercantile Logistics relationship exemplified the gap that initially inhibited effective working relations. When e-mail was first introduced it was deployed as an office-to-office communication system. It was not possible to address individuals within offices. Mercantile adopted the European "model" that e-mail responses represented the entire office while Melville’s culture represented the contrasting belief that e-mails were addressed to individuals and individuals assumed responsibility for action. This fundamental difference in approach to responsibility proved to be both educational and frustrating for each party. While these and other differences were eventually overcome and never presented serious problems, it is instructive to note that when two organizations come together in a partnership each brings a distinct cultural tradition and set of operating assumptions. Failure to recognize the differences and to be receptive to reviewing existing culturally driven assumptions generates conflict that is at best counterproductive.

Organizational structure of each of the partners also impacted relationship success. The relative autonomy and individual accountability of the Melville divisions worked against some aspects of the partnership. It was difficult to secure support for efforts that produced significant savings for one division and neutral results for another. It was impossible to implement programs that traded off benefits between divisions. The same was true at Mercantile Logistics as decentralization was rolled out as an A.P. Moller initiative. The interesting dilemma in this partnership was that the overall size of Melville in international logistics permitted development of some programs but the individual accountability of the divisions retarded the development of other programs.

3.2 E-supply chain approaches

The two basic problems with the Amazon supply chain, very much in line with the expert quotes in the introduction, are its partial, as opposed to integral, supply chain scope and its operational, as opposed to strategic, approach to information in the supply chain. Its supply chain is integrated using information from the sales interface and partially to the logistics operations of its service providers, yet not throughout the entire supply chain. As a result, observers point at the lack of reporting structures to identify emerging stock shortfalls, order processing systems and the lack of technology behind the shop window, needed to actually fulfill demand. Moreover, the use of the information is operational in nature – it is used to organize shipments, order products, etc. More advanced strategic utilization of the information in the supply chain is not practiced.

Figure 12: Supply chain approaches to e-business, illustrates the two primary dimensions that can be used in assessing the supply chain approach to e-business: the supply chain scope of e-business applications (which can be partial and limited to segments of the supply chain only or integral throughout the entire supply chain); and the approach of information to be used in the supply chain (which can be operational and ad hoc only, or more structured and with a greater impact, up to a strategic business enhancement approach). Whereas current practice, as indicated in the Amazon example, usually falls in the left bottom quadrant, the true e-supply chain needs to be in the upper right quadrant, as will be explained below.

Figure 12: Supply chain approaches to e-business

First, there are many calls for connectivity and transparency in information flow as a qualifier for information integration (see Bowersox et al. (1992) and CLM, 1995) in which connectivity between supply chain layers and transparency of information as mentioned in the previous section are used as elements of world class logistics capabilities). However, this requires the establishment of a basic information infrastructure in the supply chain. Bar codes as an information source are one example of a possible infrastructure. Bar codes are often used in a warehouse, sometimes stretching as far as final delivery but for the support of operational systems only. An interesting development along these lines would be to apply the system throughout the supply chain. Exel/Reebok, for example, is beginning to attach bar codes in production and use them all the way through the supply chain until the point of sale (and back for obsolete products).

Thus, the information flow in the supply chain should not be used for operational/transactional purposes only, but for strategic advantage as well. Information integration by third-party logistics service providers, called fourth-party logistics (4PL) by Arthur Andersen and practiced by UPS Worldwide Logistics, leverages operational information for the strategic benefits of learning, supply chain engineering and competitive differentiation. The operational information about the transportation and distribution stages of the supply chain is recorded and can be used to monitor transportation links, identify opportunities for lowering costs by shifting volumes between routes or realizing a competitive advantage through differentiating services in response to the market information stored in the databases. The 4PL concept centers around information integration of transportation and distribution only, and thus represents a partially integrated supply chain scope. Also the 4PL will compete with virtual transport markets or auctions where transport supply is accessible on-line for transport buyers to book capacity (Crowley, 1998).

Nike has developed a supply-chain-wide advanced notification system for its products in which retail orders are shared with suppliers; the European distribution center receives an advanced notification of shipments leaving suppliers; and retailers are then pre-advised of the scheduled delivery of goods which are in the pipeline. As a result, connectivity and transparency between individual players in the information flow are taken to an advanced level in which the entire supply chain web is seamlessly integrated. In a strategic drive to leverage the basic information infrastructure for competitive differentiation, Nike is now developing closed sites for its long-term preferred suppliers in an attempt to leverage transactional data and open databases relevant to order fulfillment. Suppliers will be able to learn about future initiatives and will be free to contribute to, or raise, additional supply chain improvement opportunities. As another example, UPS can make a bigger supply chain contribution by becoming involved in the online ordering of supplies on behalf of its clients, based upon inventory status information in its databases, ultimately leading to a more integral scope of its involvement in the supply chain and potentially leading to the creation of an e-supply chain (upper right quadrant of Figure 13).

The supply chain of the Smart car also represents an experiment in this sphere. On-line ordering on the Web, or the engineering of a customized car using multimedia tools in the showroom, is directly and electronically linked to production planning. The production plan is shared with suppliers who receive orders in real-time from the OEM, using the supply-chain-wide information infrastructure. As a result, the entire supply chain is involved in the concept. Additionally, information is not only used for operational ordering purposes but also as a strategic, long-term resource for competitiveness and further innovation in the supply chain. Customer information recorded in the showroom, for example, is also used for data-mining. Recorded customer preferences, customer characteristics and customer profiles are used as an input to the further development of product options, service elements and future generations of the product. In the supply chain a multitude of companies co-operate in a web-link environment (which is multi-directional rather than linear and sequential as in the traditional Forrester approach) and the information flow is a critical tool for the OEM to integrate and direct the supply chain. Note here that as a result the OEM is hardly present in the physical sphere anymore as it adds only about 10-15 per cent of operational added value (van Hoek, 1998).

The e-supply chain format resulting from these initiatives is different from traditional e-commerce and purchasing approaches in that:

A supply chain-wide information infrastructure is used to directly disseminate relevant market information throughout the chain as a whole, avoiding a loss of time and "noises" leading to Forrester effects.

The supply chain partners can co-operate more intensely around market opportunities and with broader and more elaborate co-ordination mechanisms,

Information is not solely used for ordering and transactional purposes, but as a long-term resource for innovation, enhanced consumer relations and service propositions (such as: "Feel free to design your own car and have an impact on our innovation efforts too").

The fact that the e-supply chain approach runs through the various layers and players in the chain (as opposed to an internal virtual enterprise model) not only helps avoid costs resulting from Forrester effects. It also brings companies into a position to re-engineer the supply chain for competitive differentiation and improve focus on key competencies. The OEM in the Smart case, for example, focuses almost exclusively on supply chain co-ordination while leaving most of the operational activities to specialists.

Figure 13 Towards the e-supply chain displays the full framework for moving towards an e-supply chain as introduced here, including the above mentioned changes in organizing and managing the supply chain, indicated using arrows.

Figure 13 Toward the e-supply chain

Relevant practices

Having outlined the generic approach to establishing an e-supply chain, specific themes can be suggested where research and practice can make a valid contribution. Having mentioned that the e-supply chain is under-practiced, it should also be noted that a large effort is worthwhile in contributing to the realization of the concept. Judging by the amount of investments and research going into e-business this may well be achievable. Our rapidly growing library of over 150 papers and articles on e-business and supply chains suggests that this is likely to come into place, making these suggestion or research opportunities highly relevant. The assumption here is that e-supply chains will be created so that companies can pre-qualify for the following practical benefits.

It is worth looking at digital distribution and structures of e-supply chains. Despite the efforts of UPS to benefit from the e-business waves by offering services tuned to this business arena, an e-supply chain might not need physical distribution but use digital distribution instead. For example, texts and music can be distributed on-line for the client to download. Figure 14 Factors of concern in digital distribution lists some factors of concern in assessing whether or not to consider digital distribution.

Figure 14 Factors of concern in digital distribution

In considering the role of digital distribution, the value/volume ratio of a product is the first factor that deserves attention. Especially products with a high value and a relatively low volume (for example computer memory chips) can carry more expensive express transport modes often used in e-commerce, whereas products of lower monetary value that are more voluminous (such as diapers) would benefit more from digital distribution if it avoids transportation costs. However, such products might be more difficult to digitize (the second factor of concern). Finally, there is a feel component to the purchase of some products. Customers buying a car will want to see, drive and test the car before e-buying it or receiving a product digitally, which is why samples of CDs can be played on CD Web sites and why e-commerce channels are often a supplement to showrooms of traditional stores. It might be that regular purchases of standard products (a book is the same book wherever purchased) are best serviced with an electronic purchasing or commerce.

3.3 Innovation supply chain

Marketing

Marketing has core strategic responsibility for the customer-supplier relationship. To achieve well-managed consumer experiences, one needs to set clear goals for others to understand and follow willingly.

Marketing executives at BMW and Mercedes set a benchmark for manufacturing industry. Their risk on substantial engineering investment is managed through intensive effort which ensures that the experience of owning a BMW is significantly differentiated from the experience of owning a Mercedes. Both organizations concentrate their effort on understanding their consumers in the minutest detail which can make the all-important difference at point of purchase.

This diligence should extend to marketers in all disciplines, even on capital goods. The reality is that everyone has a brand, but only few are managed. Unmanaged brand equity is often negative. Marketers need to build a direct knowledge of their consumers as well as their immediate distributors. This direct consumer knowledge offers important commercial leverage. Armed with detailed consumer knowledge, marketers can define a clearly differentiated experience specification - and use it to differentiate their service, product and brand from those of their competitors.

Small, distinct service experiences will combine to create a strong overriding impression of quality and value. This mechanism is the foundation of achieving a strong brand. However, to be achieved in practice, these service targets need to be understood and communicated clearly up and down the innovation supply chain.

Advertisements are wonderful for making promises. They set up essential expectations, but they cannot control the delivery or the consumer experience. This is why direct product experience is such a powerful new medium, where credibility depends on regular doses of direct product experience. Getting the consumer experience specification right in the first place will ensure that messages are not lost in media clutter. Indeed, the right specification will result in obvious product benefits and maximize advertising spend by ensuring the brand promise is delivered at point of sale and beyond.

Designers need to work even more closely with marketing if they are to be effective custodians of brand identity. They need to improve their use and interpretation of consumer research. And they need to be more innovative in promoting newer forms of inspirational research.

Manufacturing

In many markets manufacturing is the easiest function to displace and, more and more, to outsource. Manufacturing needs to accept that unless it creates value in a form that can be perceived by the consumer, it is easily reduced to low commodity, margins. To remain integrated with the marketing function, manufacturing needs to deliver a strategic advantage from that integration, hopefully one that is perceived by consumers.

Two good examples: first, Dell Computers is a company that uses in-house manufacturing to gain a speed and stock management advantage. Dell customers get faster deliveries, lower prices and more up-to-date choice. Second, razor manufacturer Gillette uses manufacturing innovation linked closely with design to create novel shaving experiences that command higher margins.

Outsourced manufacturing needs to develop a service offer that is good enough to overcome any strategic cost disadvantage due to location. High flexibility can often be a better service offer than high productivity.

Every manufacturer needs to justify its location in a global context - trading off shipping costs against productivity and flexibility.

Distribution channels

Being closest to the consumer, retailers and distributors have vast knowledge of what sells, and what does not. However, this is reactive information. The information needs to reach manufacturers at a time when it can be best used to influence the product. For example, fast feedback adds value in fashion where it helps to match color supply with demand.

Conventional retailers are ideally positioned to influence buying attitudes at the point of sale. Those who do not capitalize on this advantage risk being bypassed altogether by new, more direct forms of distribution such as Web-based retailers like Amazon.

Retailers offer choice, immediacy, different price points and an ambience that influences consumption. The win-win scenario is where manufacturers and retailers work together to create highly satisfying experiences for the consumer. While retailers can use their proximity to the consumer market, manufacturers can also use this proximity to create products, which deliver those experiences. But only if they work together and merge their knowledge to the benefit of respective margins will there ultimately be a benefit to the consumer.

Retailers are past masters at playing up this direct consumer knowledge and use their own position as buyers to achieve high margins. If manufacturers are to achieve similar margins, they need to break the dependency chain and invest to get closer to the consumer; to become the knowledge experts in their target area. Consulting and serving distribution channels is important but a total reliance on them leaves manufacturers vulnerable to margin squeeze.

Retail planning is extremely short-term - shorter than even the best development cycles; getting closer to the consumer, be that directly or through earlier dialogue with distributors, reduces risk of product failure and range stagnation.

The balance between retailers and manufacturers will always be an uneasy one. Both can work together but the higher margins will always go to the player who dominates the consumer experience.

The research areas are presented more formally below:

Research area one: What are the current levels of involvement in cross-organizational collaboration among firms using automatic inventory replenishment programs? How successful have programs been with respect to achieving: operating process changes; performance goals; and high level systems capabilities?

Research area two: Is there an association between implementation of CPFR and effectiveness in implementing operational process changes?

Research area three: Is there an association between implementation of CPFR and effectiveness in achieving operational performance goals?

Research area four: Is there an association between implementation of CPFR and information system capabilities?

3.4 Collaboration and planning management of supply chain

Collaborative planning, forecasting and replenishment

Forecasting demand (and subsequently setting inventory levels) is difficult owing to the influence of promotions, changing demand patterns, and competitive pressures. The traditional answer to inventory problems has been to simply hold increased inventories. Holding high levels of anticipatory inventory may offer a way to avoid out-of-stocks, but it is a very expensive method of avoidance. As an alternative, many value-chain participants (i.e. the buyer-seller dyad) have determined that a better approach is to aggressively work together to manage inventory. Co-operative planning between trading partners facilitates better matching of supply and demand. Rather than trying to independently project demand patterns, buyers and sellers share information in advance and work together to develop realistic, informed, and detailed estimates that can be used to guide business operations.

3.5 The ethics continuum

Craig Smith (1995) proposes that in relation to ethical decisions for marketers, a continuum exists which explains the stances these individuals will take in relation to customers (Figure 15). This model proposes that business decision-makers demonstrate through their practices, a tendency towards one of the various categories included in the model. Smith presents an well-argued case for the existence of a continuum to demonstrate the stance of the business decision-maker in relation to a variety of ethical positions exemplified by a number of indicators or characteristics. As the author puts it:

Figure 15: The ethics continuum

Besides providing a historical time line of the move from caveat emptor, the ethics continuum provides benchmarks against which we can calibrate business conduct and understand individual managers perspectives. The different positions on the continuum reflect different views of a firm's obligations to its customers, but this is not to advance ethical relativism.

The general thrust of the model is that, in today's society, business managers need to move away from the minimalist approach represented by the caveat emptor position. The shift towards caveat venditor is apparently epitomized by the marketing concept with companies engaged in the pursuit of consumer (or presumably customer) satisfaction embodying the ultimate zenith of ethical decision making for businesses. It is assumed that each industry operates under different conditions and that each position on the continuum may contain different characteristics among different industries.

Craig Smith’s (1995) ethical decision-making continuum (discussed below) presents a scale of ethical awareness from "caveat emptor" at the least ethical end to "caveat venditor" at the most ethical end of the continuum. It is intended to utilize this model in mapping interview data against the various stances discussed by Smith. The research questions arising from the discussion of this theory and, more importantly, conversation analysis are as follows:

(1) To what extent do manufacturing managers’ accounts of ethical issues correspond with the ethical accounts of food regulators? Craig Smith's (1995) theory would lead us to expect that the accounts given would show some consistency both inter and intra group.

(2) Do regulators and food manufacturers make sense of ethical issues in terms of retailer power and coercion? Constructions of retailer power are considered in detail from both groups of respondents

The regulators appeared to confirm the extracts from the manufacturing managers that the ethical stances were more in line with the lower categories on Craig Smith's ethical continuum such as caveat emptor and industry practice. However, increasing variability in the transcripts was observed at the higher end of the Craig Smith model. While all ten manufacturing managers made references to consumer sovereignty and caveat venditor as positive elements of their company’s ethical stance, in contrast, all ten regulators included what appear to be increasingly negative responses in relation to both manufacturers and retailers in the food industry, casting them as the enemy of the consumer. The further upstream respondents looked in the food industry, the more these two key players were seen as coercive forces aimed at improving profits and shareholder dividends. While the two separate groups of respondents provided contrasting accounts of their perspectives and experiences of the food industry, this form of variability could have been expected.

We are also left to question the existence of a conventional stock of knowledge concerning ethical issues. Respondents in both groups failed to draw on the vocabulary of the business ethicist in explaining dilemmas or analyzing situations, which they clearly felt uneasy about. This clearly points to a need for training in the food industry which would equip decision makers with analytical frameworks which would help in practical situations. At present it is clear that retailers hold the balance of power in the industry and that no code of ethics seems to guide their dealings with supply chain members.

The qualitative research carried out here provided the analyst with a deeper and richer understanding of the power relationships and ethical issues facing today’s food industry in the UK. While it is noted that general theories dangerously ignore the complexity of such contexts and can lead analysts to reduce data to fit the model, the "real" ethical issues facing the food industry of the UK have been clearly presented in this study. The issues revealed contrast strongly with some journalistic reports published, for example Ingham (1998), who claims that Tesco has proven it does not receive excess profits through commissioning an independent analysis of the beef market. Although the study conducted by London Economics is very much focussed simply on beef, the extracts included in the article from the report direct the blame for price setting towards central government. Beenstock (1999) reports that there are huge discrepancies in pricing across international food retail markets and between the larger supermarkets in the UK. In contrast to this, the published findings of the Office of Fair Trading (OFT) interim report indicated that there are "two complex monopolies: one in relation to the pricing of groceries and the other deriving from the relationship between grocers and suppliers, but they were not automatically operating against the public interest" (The Guardian, 2000).

Finally, the IGD chief executive, John Beaumont (Ping, 1997), claims to be leading a revolution in promoting an ethical basis to total consumer satisfaction (TCS) in food retailing. His model of ethical behavior excludes supply chain relationships, however, in favor of more general calls for product safety and manufacturing efficiency.

3.4 The critique of case study: Thorntons

Thorntons, the UK's only dedicated high-street retailer of confectionery, was founded in 1911 by Joseph Thornton, a commercial traveller engaged in selling confectionery. From the outset the company devised its own recipes and manufactured and retailed the product, a pattern of vertical integration through ownership that has been maintained throughout the company's development.

In 1996 Thorntons had appointed as chief executive an outside candidate with a retail background. An early review of the company led to the board's acceptance of the conclusion that the company had become too production orientated and needed to emphasize retail development. However, at the same time, it was concluded that due to the nature of the company's product 70 per cent of the product range would retain their in-house manufacture with the outsourcing of non-core products such as solid chocolate bars and ice cream. The retail-led strategy adopted in 1996 included shop development, with a programme of enlargement and relocation to high volume locations.

Competitive strategy

Thorntons primarily compete in the boxed chocolate market where their Continental brand has a 6 per cent share (Cadbury's Roses, the leading brand, 15 per cent). As a gift, the company's boxed chocolates compete with a wide range of products provided by other high street retailers such as Body Shop and KnickerBox, and gifts such as flowers and wine, in the £5-10 price range. As a retailer dedicated to specialist confectionery the company has no large direct competitors in the UK, although to an extent the supermarkets, Boots, Marks & Spencer (to whom Thorntons is a supplier), BhS and Woolworths, offer competing products. Beyond the immediate competitors latent competition was seen as including retailers such as W.H. Smiths or Virgin, where confectionery ranges could be introduced or developed. The widening of the product range to include a greater emphasis on countlines has brought the company more directly into competition with the products of far larger companies, including Nestlé and Cadburys.

The product and service provided through Thorntons's shops are developed to achieve differentiation. Product quality is based on unique product recipes and the use of high quality materials (the company's Champagne Truffle contains Moët et Chandon). Due to the products’ characteristics the shelf life is comparatively short and the product is particularly fresh when it reaches the consumer. The retail outlets offer the opportunity for self-selection of an assortment of chocolates and the personalization of products (for example through messages written in icing on the company’s two million Easter eggs sold each year). In addition the company has an established brand name.

Thorntons: value chain

Thorntons had developed their value chain activities (Figure 16 Thorntons's value chain ) to follow a largely and, in certain aspects, increasingly in-house pattern.

Figure 16 Thorntons's value chain

Retailing

In 1998, 80 per cent of Thorntons's sales were made through the company's own shops, with sales through franchises providing a further 7 per cent of sales. The number of franchised outlets had been intentionally reduced and was intended to account by the year 2001 for 28 per cent of shop outlets, as against 44 per cent in 1994. Sales to commercial customers, that included other high street retailers, accounted for 13 per cent of turnover.

The design and layout of the shops and franchised outlets was developed by an in-house team with the use of outside consultants. The appearance of the shops was changed as often as every two weeks, with the changes developed and evaluated in the company’s mock shops in Derbyshire and the South of England, prior to their high-street introduction.

Outbound logistics

The company’s in-house delivery fleet served the outlets through a 48-hour order delivery cycle. Several reviews had been undertaken to consider the outsourcing of physical distribution. The in-house service was retained due to considerations that included the fragility of some of the products, the difficulties of access to city centre sites and issues concerning night delivery and shop security. In addition the expanding network of outlets helped reduce the cost of distribution.

Manufacturing

Thorntons has described itself as a “market-led, retail-driven business” (1997 Company Report), however, it is also substantially committed to the in-house manufacture of its products. While the equipment for the company’s manufacturing operations is generally available, the company has developed over time knowledge and routines that are particular to the organization and provide the required product characteristics.

New product development

Thorntons operated a development kitchen, with a fully trained patisseur and chef. The company sought to sustain the uniqueness of the product’s characteristics through continuity of the staff involved.

Packaging and raw materials

Packaging accounted for a large part of the product’s perceived value. To maximize its effectiveness packaging was continually modified to provide a new appearance for products. Packaging was also a complex part of the product involving many parts of the organization, marketing, retailing and packing operations. Packaging was designed in-house and bought in. In order to improve supplier performance, in terms of cost, time of delivery and quality, the company had engaged in a process to reduce the number of suppliers from 122 to a possible 20 within four years, with the intention of then developing longer term supplier relationships.

The manufacture of basic, liquid chocolate is a capital intensive process (requiring an investment of £40-50 million and re-investment to achieve equipment updates), consequently Thorntons purchased liquid chocolate from an outside supplier. The supplier achieved economies of scale beyond those that would be available to Thorntons, both in manufacture and through purchasing cocoa beans on a scale that far exceeded Thorntons's individual requirements. The purchasing economies were aided by Thorntons entering into long term purchasing agreements.

The response to this problem took a number of forms. Through product development and shop re-location initiatives Thorntons had sought to achieve a less seasonal pattern of demand, attracting a wider range of customers and increasing the importance of impulse and everyday snack purchases. The effectiveness of these initiatives in smoothing demand had been limited. In 1997-98 the tonnage produced at the low point of production remained half of that achieved at peak.

Planning perfection had become one of Thorntons's six core competencies in which the shop managers were encouraged to excel in order to deliver "Chocolate heaven" in all of the shops. The development of mail order and Internet selling also provided an economic response to a seasonal pattern of demand while new forms of outlet, such as Cafe Thorntons, offered the possibility of developing outlets with a less seasonal pattern of sales.

Capability

Maintaining and developing product/service characteristics

Thorntons continued to manufacture 70 per cent of their product range in-house. The low use of outsourcing in manufacturing may be typical for food supply chains where relatively high standards reflect product perishability and rapid delivery requirements and the need to invest in dedicated expertise. The products and processes involved may be difficult to separate into multiple stages performed at different locations and times and product differentiation may be determined in the primary stages of the process (van Hoek, 1999). Such characteristics require the sourcing of products to be considered on a whole product basis. For Thorntons's core products, boxed chocolate assortments, in-house manufacture was seen by interviewees as important to sustaining a number of the product's differentiating characteristics.

The products’ freshness at the time of consumption was an essential product characteristic. The company’s ownership of the manufacturing-retailing chain was seen as considerably facilitating control of this aspect of product quality. In addition shop ownership provided further opportunities for differentiation through control of shop appearance, layout and the presentation of products, in-store personalization of products and control of service characteristics. Shop ownership also provided enhanced opportunities for experimentation with shop format and increased opportunity for learning from customer feedback. Such information accumulated by a retailer can add significantly to their knowledge of consumer demand (Howe, 1998).

The need to own outlets in order to gain these advantages can be questioned. Ownership required a considerable level of investment, the fitting-out of a shop costing £80-100,000, with the high rate of shop usage requiring a four year write-off. In addition the strategy requires increased overhead costs to manage a retail estate and training. As a form of quasi-integration (Blois, 1972) franchising offers the opportunity to control operations without the costs of ownership and hence the opportunity for coverage of otherwise uneconomic locations.

For many years Thorntons had made use of an extensive network of franchisees to present their product in locations where investment in a company owned shop could not be justified. On occasion the result had been seen as disappointing, both through loss of control of the product’s presentation and through loss of market access when franchisees were taken over by companies that did not sell confectionery. Thorntons's intention was to continue to use franchised outlets to replicate the experience of their own shops but on a reduced and more selective basis.

3.5 Mapping the value chain

We turn next to the value chain that corresponds to the supply chain described above. The question to be addressed in this section is what kind of value distribution is produced by the supply relationships that we have mapped out? The answer is provided in Table VI. The industrial electricity value chain (1993-97) .

Table VI. The industrial electricity value chain (1993-97)

Competitive dynamics, regulation and value distribution

The key to understanding the value distribution in this, and any other, supply chain is to look at the competitive dynamics at each of the functional stages. We must also understand the way in which the dynamics at one stage impact upon the value being appropriated at others. The degree and nature of competition is significant, because it can be used as a proxy measure of the extent to which firms operating at a particular stage have power over their customers, suppliers and competitors. In simple terms, a firm operating under conditions of open competition will have little or no power over its customers, suppliers and competitors. Conversely, a firm operating under conditions of monopoly/monopsony will potentially have immense power. A further factor in this supply chain is the role of regulatory intervention at those stages where effective market competition cannot be introduced (transmission and distribution).

In essence there are six major exchange relationships in this value chain. The competitive dynamics for each relationship can best be understood by dividing them into three exchange groupings. The six exchange relationships and the three exchange groupings are shown in Figure 17. Understanding value appropriation in key exchange relationships: competition and regulation .

Figure 17: The six exchange relationships and the three exchange groupings

Open competition

The first of these relationships is that between industrial customers and what are referred to here as network suppliers. These are suppliers that deliver electricity through the traditional mechanism involving the generation, transmission and distribution stages. Electricity is bought wholesale and sold on to the end user. A major element of the costs of doing this are the use of system (UOS) charges levied by the transmission and distribution companies. These charges are, however, fixed by the regulator and not by the market mechanism. The most important cost of sale incurred by network suppliers is in the buying of wholesale electricity. It is this factor that has the greatest impact on their gross profit margins

Regulated monopoly

The second major grouping of exchange relationships operates under conditions of regulatory intervention. The two relationships falling within this category are those between network suppliers and the owners of the transmission and distribution infrastructures. In both cases, the gross profit margin typically being earned by the owner of the network infrastructure is 6-8 per cent. For distribution companies this margin is achieved on a revenue share of between 16 and 23 per cent, while for the transmission companies the revenue share is typically between 1 and 5 per cent.

Regulated competition

In this final grouping of exchange relationships the market mechanism is not allowed to operate in an unfettered manner. Instead, the margins and revenue shares typically being earned by generators and by primary fuel suppliers are to some extent determined by the priorities of regulatory bodies and other non-market actors.

Value chain mapping in IT systems integration

Apart from the high-end server hardware market which is dominated by IBM, and the PC software market, the IT systems integration supply chains are highly contested. Given this, it is, perhaps, somewhat surprising that gross profit margins are relatively high in this industry. As Figure 18 Typical profit margins and shares of revenue in a system's integration project reveals, based on a typical systems integration project, value appropriation can be very high for many of the participants in the supply chain.

Figure 18: Typical profit margins and shares of revenue in a system's integration project reveals

The figures for profit margins and appropriated values (distributed share of the total revenue for each constituent supply chain) have been calculated for a specific IT project in which the systems integrator provided a complex desktop solution for a financial services company. This project involved elements of hardware, generic and bespoke software and consultancy, all of which had to be integrated to deliver the solution as partially specified by the end customer. The project included many of the major firms in the IT industry supply chains.

The profit margins for each of the upstream suppliers have been calculated for the actual activity concerned, and not across all of their activities. This involved a detailed financial analysis of the companies and in certain cases a cost build-up had to be constructed. It should be noted that the majority of IT projects are one-off, and the margins for each of the suppliers will vary depending on the structural relationships within the specific and unique supply chain that has to be created for the delivery of the specific product or service. It is for this reason that caution should be exercised when taking learning from this case and applying it across the IT industry generally.

All of the exchange relationships in the value chain for systems integration can be characterized as highly contested. Given this, it is somewhat surprising to see that profit margins per project are being made in the order of 20 per cent and 30 per cent by many of the players in the supply chain. Only in the commoditized hardware supply chains are lower profit margins being made. What explains these facts?

The relationship between the end customer and the systems integrator is arguably the key relationship that determines the appropriation of value in these supply and value chains. With limited understanding and insufficient information about the supply base many end customers do not have effective control over what they are purchasing. The systems integrators are able to use this ignorance to earn margins approaching 20 per cent, and at the same engineer positions of dominance in what they believe will become permanent dependency relationships.

Bespoke software firms are also earning margins up to 30 per cent, leveraging their brand and intellectual property in the development process. Such firms are using their relatively superior competence in supply innovation to provide the necessary functionality that end customers require, and premium pricing as a result. Generic software firms, like Microsoft, are able to achieve margins in excess of this figure, due to volume sales for their industry standard packages.

The levels of profit attained by the firms involved in the provision of consultancy to systems integration projects is attributable to the traditional way in which the service is procured. In many areas of consultancy the delivery mechanism may be well defined, but the actual offering is often misunderstood by the end customer and can therefore not be clearly specified prior to the start of the contract. There is also a tendency for clients to accept high industry-wide norms on consultancy day rates. This is a common problem for buyers of what may be referred to as professional standards.

3.6 The determinants of success in the IT systems integration

supply chain

Based on the literature, we integrate key elements of relational characteristics into four categories as follows:

Familiarity

It is proposed that suppliers believe having a good human/informal relationship (e.g., friendship) with managers at the buyer firm could help them to win outsourcing from the buyer company continuously. The variable familiarity captures such perceptions embedded in the suppliers.

Communication

Suppliers as well as buyers would perceive that keeping an efficient "formal communication" channel with the buyer could help suppliers to win the outsourcing contract. To communicate efficiently, it is important to have an IT-related infrastructure in the supply chain.

Risk sharing

Since the business environment changes rapidly, suppliers as well as buyers could feel it necessary to have a kind of formal scheme to allow both partners to share the risks associated with environmental changes. For instance, buyers and suppliers might have to share the cost increases due to sudden changes in the price of raw materials, although such cost increases were not foreseenat the time of signing an outsourcing contract.

Long-term goal congruence

For a collaborative relationship between buyers and suppliers to be sustainable, congruence in their long-term goals could be critical. Consider an example. It can be problematic if the buyer considers the outsourcing transaction as a temporary measure to save production cost, whereas suppliers regard it as a strategically coordinated venture. Because of this difference in their long-term perspectives, it would prove almost impossible for the partners in the outsourcing transaction to come up with a mutually profitable contract in the long run.

We recapitulate the two types of perception considered in our model, production and relational characteristics. There are four elements of production characteristics: price, quality, lead-time, and flexibility; Relational characteristics encompass another four elements: familiarity, communication, risk sharing, and long-term goal congruence.

The key message is the order, which at its simplest consists of:

(1) Order type to deliver, to move, to produce, to process, to treat etc.

(2) Value chain participant:

Customer order generating location; delivery location;

Supplier order receiving location; order fulfilling location.

(3) Date /time of supply.

(4) Product or service,

(5) Quantities required.

Customer and supplier locations, and products or services are each defined by EAN (International Article Number) codes, which cross refer to master data files, where all the necessary details are held.

All data elements are defined according to an international standard (UN/CEFACT). The greatest benefit comes when these definitions are not only used for communication between organizations computer systems, but also within each organizations internal systems i.e. when SIMPL-EDI leads to SIMPL-IT Simple, standard computer applications.

Master data should be categorized as follows:

(1) Value chain participants:

Customers;

Suppliers;

Agents intermediaries such as banks, insurance companies, freight forwarders,

transporters etc.;

Authorities governmental bodies, customs, licensing authorities, inspection

bodies etc.;

People employees, patients, citizens etc.;

(2) Products or services:

Descriptions and key characteristics;

Prices and/or costs;

Technical specifications;

(3) Processes or treatments.

Master data files need to be not only kept accurate and up-to-date within each organization (a notoriously difficult but essential task), but also synchronized between value chain participants. This is best achieved by collaborative event planning and management in the medium term and the near term electronic exchange of master files or use of a common electronic catalogue.

For a modern value chain to function well, its participants will not only be exchanging orders or invoices, but will also wish to share forward plans and past performance data. Depending on the nature of the value chain, mutual benefits can be gained by jointly managing deliveries, inventory levels, service etc. by communicating forward plans for distribution, production or supply and jointly agreeing the required response. (This approach is variously described as vendor or co-managed inventory (VMI/CMI), distribution requirements planning (DRP), and continuous or efficient replenishment planning (CRP/ERP).)

The standard SIMPL-EDI value chain order as defined above can be used to support these value chain management techniques by simply changing the tense – future tense is a planned order, past tense is a fulfilled order and therefore a record of performance. Also the time period to which data relate can be re-defined to suit the value chain and its participants – daily, weekly, monthly time buckets. Thus value chain participants will share forward plans and objectives and also reports on past performance.

3.7 Conceptual Structure:

4. Conclusions and Recommendations

Conclusions

4.1 Logistics partnership

Lessons learned

Although problems were encountered, the Melville/Mercantile Logistics partnership achieved its objectives. In retrospect several lessons were learned that would have allowed those objectives to be achieved earlier and perhaps with less effort. These lessons are discussed below.

Focused measurement

The success of a relationship such as the Melville/Mercantile Logistics partnership requires a sharp focus on mutually agreed upon objectives. In any multi-divisional and multi-party effort there are a myriad of opportunities to explore and ideas to evaluate. Clearly defined objectives provide a way to screen those opportunities and ideas to ensure that the partnership’s efforts remain focused on what is important, and unproductive behavior directed toward agendas that fall outside agreed-upon objectives is minimized.

A well-designed measurement system that clearly and unequivocally tracks and simplifies reports is necessary to ensure that both parties stay focused on the objectives. The focus created by appropriate measurement was evident in the quarterly management board meetings of the Melville/Mercantile Logistics partnership. Before the measurement system was fully refined, the agenda of board meetings was dominated by operating data reviews and problem discussions. Later, almost all of the board’s time was focused on strategic decisions required to determine new avenues of co-operation. The experience clearly demonstrates that focus and measurement are intertwined and self-reinforcing. Other organizations entering into logistics partnerships should remember that focus cannot be achieved without emphasizing a well designed measurement system that eliminates ambiguity regarding objective achievement.

Gain sharing

Partnerships are predicated upon the mutual need to share operating assets and resources. Unfortunately, sharing the financial risks and gains that accompany shared operations is difficult to achieve. Logistics service providers are not motivated to put forth maximum effort if they are not provided with an opportunity to share financial rewards. Merely “keeping the business” is not a sufficient incentive to make a provider apply the necessary effort to outperform expectations. The Melville/Mercantile Logistics partnership included shared financial savings in the contract. Melville created financial incentives by establishing attainable yearly productivity targets and then sharing all savings beyond those targets with Mercantile Logistics. This method of compensation mirrored Melville’s internal system, which provided bonus payments to employees after yearly targets are exceeded.

Communication

Frequent, even repetitive, communication of objectives, measurements, and upcoming changes is essential to keep all parties to a relationship informed and focused. Periodic lapses in communication encourage participants to dissociate themselves from responsibility for partnership objectives and follow their own agendas. In the Melville/Mercantile Logistics partnership this was particularly true when anticipated results were negative. One way that this was avoided was to begin all official communications with a list of events scheduled in the next six months to ensure that that all parties were informed and that there were no surprises.

Frequent formal and informal face-to-face communication also transformed the relationship from a transactional-orientation to a partnership. When participants learn through frequent contact that both sides are making efforts to achieve partnership objectives, the focus of discussions concerning problems shifts from “why did you? to how can we ?” Communication builds a bridge between organizations. Once this bridge is built, partnerships based on trust can be developed.

4.2 Innovation

To survive and achieve high margins, Manufacturers need more than mere innovation they need good innovation. Like the service industries, they need to raise their game to focus on managing customer experiences. To achieve this, they need to involve every link in their innovation supply chain and encourage them to become active participants in the process.

Industrial designers and engineers can play a key enabling role, by converting abstract brand values into a clear product identity and behavior specification to give the other members of the team a clearer picture of what needs to be done to achieve the target experiences.

But ultimately, everyone involved needs to look beyond their own immediate short-term preoccupations towards a clear customer service goal. Managers of and investors in the process should recognize this need and give their creative innovation professionals the freedom to address it.

Internal and external commercial relationships along the innovation supply chain need to be run on a commercial partnership basis, with an equal emphasis on both short- and long-term goals.

4.3 Critical supply chain assets

At each functional stage in a supply chain there are certain resources that provide a basis for operational effectiveness. If these key resources can be owned or controlled in a way that is unique or difficult to imitate, and they are vital to customers or suppliers, then they become what Cox (1997) has called “critical supply chain assets”. These assets are the foundations of supply chain and market power. They give their owners or controllers the potential to appropriate value on a sustainable, long-term basis, because they create a market structure characterized by low or non-existent contestation. We might therefore expect a firm that possesses a critical supply chain asset to be achieving above average profit margins (rents) on a sustained basis (Cox et al., 2000).

The key insight provided by the electricity case, however, is that the creation and/or effective exploitation of critical supply chain assets is in some circumstances constrained by state intervention in support of the “public interest”. There are three key resources at the supply stage of the chain: information on the specific needs and wants of individual customers; strong local reputation and branding; and reliable access to competitively-priced bulk electricity. Given the government's policy of stimulating open competition in electricity supply, it is unlikely that any of these resources could be owned or controlled as critical supply chain assets without inviting regulatory intervention.

The key resource at both the transmission and distribution stages is the network infrastructure itself. This infrastructure has the characteristics of a natural monopoly and it therefore represents a critical supply chain asset. As we have seen, however, the earning of monopoly rents by the owners of this asset is heavily regulated under an RPI X pricing formula designed to encourage operational efficiency.

The key resources at the generation stage of the chain are ownerships of a broad portfolio of plant types and an ability to operate that plant as efficiently as possible. Again, it is unlikely that these resources could be owned or controlled as critical supply chain assets, because the regulator is concerned to promote greater price competition between generators. Additionally, the trend in equipment manufacture is away from nationally unique standards towards EU-wide functional standards as part of the Single Market programme (Thomas and McGowan, 1994). The fact that high profit margins have been consistently earned at this stage since privatization should not be interpreted as evidence of critical asset ownership. These margins are a result of the Pool pricing mechanism rather than of unique resources owned by individual firms.

Finally, the key resources at the primary fuel stage of the chain are licensed access to specific sites, an expertise in finding and exploiting these sites as efficiently as possible, and an ability to provide a reliable supply of satisfactory quality. Here again the state looms large. State intervention has both helped to create a critical supply chain asset in the short term (the guaranteed contracts awarded to RJB Mining between 1994 and 1998) and, through a process of liberalization, it has ensured that one or more fuel suppliers has not achieved long-term market dominance.

In spite of the privatization process, this supply chain remains a creature of the state, because electricity is regarded as an essential public service. The exploitation of existing critical assets and the creation of new ones will therefore always be heavily circumscribed by the regulator’s desire to pass value to the end customer. The firms operating in this supply chain are being forced to delight the consumer as opposed to simply satisficing them.

4.4 Green supply chain: Ecological footprint principle

As supply chains are becoming increasingly globalized and multi-company based, the ecological footprint principle deserves a broader application in the supply chain. Footprints are not only nation-based as suggested by Hart (1997); the scope of supply chains is far broader. This also implies that a focus on reversed logistics, as commonly used in the literature, is no longer adequate. Based on the existing literature, this paper presents a categorization of green approaches and suggests the value-seeking approach as the most relevant in greening the supply chain as a whole (instead of logistics, and regulatory compliance alone). In order to develop greening approaches as a competitive initiative, various elements have been suggested, including sets of actions for various players along the chain, as well as, measures of success. Much research still has to be done to support the evolution in business practice towards greening along the entire supply chain. Hopefully, this paper has identified some of the steps to take, while minding our footprint.

4.5 Collaborative planning, forecasting and replenishment

This paper presents the results of a recent survey assessing current levels of involvement in cross-organizational collaboration among firms utilizing automatic inventory replenishment. The research also provides an indication of process changes, operating effectiveness, and information system capabilities associated with collaborative strategies. Following a brief review of the relevant issues, survey results are presented.

Implications and conclusion

The research revealed relatively high levels of process change, achievement of performance goals, and information system capabilities among responding firms. Additionally, evidence of an association between implementation of CPFR and process and information system support was indicated. Specifically, high levels of CPFR implementation were related to process changes and information system capabilities. Findings regarding the relationship between CFPR and achievement of performance goals, while positive, did not support an association in seven out of nine cases.

Collaboration between manufacturers and retailers can have a broad effect on operations. While CPFR nominally involves only marketing and sales personnel, the true benefits are realized only when collaborative plans are linked to operational change. Trading partners that collaborate to build solid sales targets for four or five week time fences by sharing promotional and demand statistics must also use the information for production and distribution planning. Reliable demand information facilitates response-based operations. Thus, a firm can respond to demand as it occurs rather than attempting to anticipate demand based on historical data. Accurate demand planning enables manufacturing to postpone production of anticipatory stock. Accurate demand planning can also result in shorter, more predictable order cycles for the retailer. Guaranteed sales targets allow logistics and distribution managers to make better use of storage and delivery resources to reduce costs as well as to increase customer service by tailoring operations. Retail receiving departments, for example, may work more closely with a manufacturer’s shipping department to allow shipments to be loaded in the order in which products are needed, facilitating off-loading and sorting time and further streamlining cycle times.

Reports from the field substantiate these claims. Results from one of the earliest CPFR pilots, a program conducted by Wal-Mart and Warner Lambert over three months on 12 Listerine mouthwash SKUs, indicated that Wal-Mart was able to reduce inventory by 25 per cent while increasing shelf in-stock rates from 87 to 98 per cent. Warner Lambert was able to reduce lead times and smooth out production schedules. The greatest benefits, however, may have come from the increased knowledge and trust each gained regarding their partner’s operations. Wal-Mart could trust that the manufacturer would ship and deliver the product on time as requested while Warner Lambert could depend on the fact that the retailer would accept the product in the quantities and at the time agreed on. Collaboration also increased the flexibility possible in supply chain operations. For example, the program enabled the manufacturer to know well beforehand when the retailer was going to need a big shipment and therefore make available a greater amount of product than originally expected. The retailer would know the larger quantity was arriving and could plan resources accordingly. Further, if the manufacturer could not meet the expected demand, the retailer could make allocations within their system to avoid a store shortfall. In a traditional relationship, the retailer might not know of an order shortage until they opened the doors of the truck on which the order arrived. In summary, CPFR ensured the alignment of internal operations at both the manufacturer and the retailer as well as the operations that span the boundaries between the two firms. Ultimately, the operation of the entire supply chain revolves around meeting the actual consumer demand (Doherty, 1998).

Changes to operational processes, however, do not come easily or cheaply. The results of this research indicate that firms heavily engaged in CPFR also have information system capabilities that outdistance firms with lower levels of collaborative integration. Firms with high levels of CPFR implementation enjoy information systems capable of providing timely, accurate, user-friendly, and interfunctional information in real-time. Anything less would fail to support the process changes being implemented to effect response-based operations. Information system capabilities require significant expenditure on capital and human resources. Firms do not make such expenditures lightly, and the payback must justify the investment.

This research fails to verify the existence of broad-based performance enhancements related to implementation of CPFR, but it does indicate that firms engaging in high levels of CPFR can expect to realize reduced overall costs. That is good, but it does not speak of the many other benefits often attributed to CPFR. Significant improvements in customer service, reduced stockouts, less instance of damaged, returned, and refused goods, and lower inventory levels with faster turns are all expected benefits of collaborative demand planning that were not supported at a statistically significant level by this research.

The analysis and discussion which follows examines the interaction between retailers, regulators, food manufacturing and processing companies. Specifically, the terms "caveat emptor" and "caveat venditor" are introduced to the debate of how companies in the private sector can respond to what Craig Smith (1995) refers to as the "ethics era".

4.6 Collaborative planning and management

Once it is recognized that eliminating the cost penalties imposed by the operation of the silo syndrome requires collaborative planning and management and the sharing of data in a structured manner, in the medium and near term as well as in the short term. It follows that there need to be common data definitions and common coding. These require to be used not only to support external communications between value chain participants, but they can then also with great benefit be used for internal computer applications " SIMPL-EDI leads to SIMPL-IT". These definitions apply equally well to the Internet and to enterprise-to-enterprise bulk data transfers.

As in many of life's situations, so in value chain communications does the 80:20 rule apply. There will be some occasions when a particularly complex process requires a correspondingly complex computer application or message. For 80 per cent of applications and communications, simplicity and standardization are not only practicable but also desirable and competitively mandatory with the rapid growth of electronic commerce and the practicability of setting up new low cost value chains, both to communicate with and to supply consumers in most corners of the globe, simplicity and standardization of applications and communications to support speedy and certain value chain management may well be essential for competitive survival. Nevertheless, no one should underestimate the brain pain involved in thinking in a more simple and standard way, and the cultural changes involved in implementing such processes. And of course, even then, there is no substitute for creativity and drive in developing new products and services which, the simple, standard, speedy and certain processes will then support.

4.7 Integration of supply chain

Systems integration is an example of project-based supply chain structure with the following demand characteristics:

·project-specific discrete expenditure which is ad hoc and irregular;

·one-off and unique solutions providing limited opportunities for learning, especially by clients;

·technically-specific non-standard solutions which have very uncertain requirements;

·high value projects which requires extensive financing; and

·the solution is normally crucial to the business because it supports the strategic development of the organization.

The demand characteristics and project specificity of systems integration provide circumstances, which drastically limit the strategic choices available for effective procurement and relationship management by the end customer. The fact that expenditure on IT solutions is of crucial importance to the buyer, and is also one-off, irregular and ad hoc, means that the opportunities for effective leverage over the upstream supply chain participants are limited. The end customer is relatively dependent and power in this supply chain appears to be firmly located with satisficing suppliers. This power is further enhanced by the possession of information asymmetries by these suppliers which if used opportunistically, may lead to creation of significant dependencies that locks-in the end customer. How buyers ameliorate or reverse this situation is an interesting question that will be addressed by future research.

Recommendations

In further studying the role of e-supply chain structures the stages in virtual integration from Rayport and Sviokla (1995) are relevant. Practice is moving away from the first stage, in which the information flow is partially integrated. The flow of information has to be integrated with the flow of goods (in the second stage), followed by an approach focused on creating new products, services and markets based upon the synergy between the flow of information and goods. During these stages various options for structuring the supply chain are relevant (see Table VII Further options for e-supply chain structures).

Table VII Further options for e-supply chain structures

In the initial stage, when the flow of information is still fragmented, a McDrive concept might be used. In this approach the customer can order at a distance but has to pick up goods from a store or collection point (as practiced in grocery and book retailing). With that approach, the information flow does not have to be extended throughout the entire supply chain. An electronic order may simply generate a pick order in a warehouse or a shop near to the customer. The customer then performs part of the logistics function by collecting the product.

In the progressive second stage, digital distribution can be applied because the information flow is fully integrated, from source to customer. In the final stage, new markets and services can be created using the virtual supply chain possibilities such as central stocks (Central European warehouses for example) from which products can be rapidly shipped to the customer, in combination with product customization from the warehouse, based upon a Web-based product design developed on-line by the customer (as practiced by Barbie/Mattel for example).

Cost decreases and performance enhancements increase with the supply chain scope of e-business initiatives. In other words, the more integrated the effort and the more virtual the supply chain, the larger the potential benefits. This suggests that penetrating e-business should by no means be limited to establishing a customer facing an e-commerce business model only. The full supply chain should be integrated if the model is to function properly. The difficulty is, however, that the practical experience introduced here suggests that the further upstream and the more integrated the supply chain focus is, the more time-consuming and complex it is to achieve.

Further research suggestion

This may be attributable to limitations in the research design, however, and merits further exploration. It may also be attributable to the fact that CPFR initiatives are new. It is likely that more time will be required to realize the full potential associated with collaborative efforts. Another issue which is beyond the scope of the current research but which merits future research consideration involves potential differences in manufacturer and retailer perceptions regarding the impact of ARP and CPFR.

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