Evaluating Supply Chain Effectiveness Commerce Essay
Global textile and apparel sourcing is in a state of change. Today, sourcing has become more diversified as it moves progressively towards emerging markets and developing countries that have materialized as important suppliers of quality readymade apparel. However, the challenges faced by developing countries are vast, because global competition is intensifying and international trade is taking new forms, which has made it more difficult to break into new markets. Further, technological change coupled with improvements in transportation have given rise to organized global production networks and value chains that house sophisticated skills, capabilities and strategies at all levels – even for manufacturing goods as simple as T-shirts.
During this same period, the concept of supply chain management has gained wide acceptance because it is the management of key business processes across a network of organizations that ultimately compromise a supply chain. Today, companies are working to monitor key business processes to improve efficiency and increase competitiveness, and gauging the performance of supply chains has become increasingly more important. Currently, companies are achieving this through supply chain management, where performance of the supply chain is measured to identify areas of improvement for increased competitiveness. However, many companies have been unable to maximize their supply chain’s potential because they have failed to develop the performance measures and metrics needed to fully integrate their supply chain to maximize effectiveness and efficiency (Gunasekaran et al., 2004).
The main research question for this study asks “How can developing countries achieve preferred supplier status and how they can differentiate themselves from competitors utilizing performance measures in the supply chain?” Further, the research will evaluate the effectiveness of supply chain management by discussing characteristics of textile and apparel supply chains in order to identify those measures, which can be used to gauge performance. A model will then be created for how to improve efficiency in the supply chain and increase competitiveness through the use of performance measurement systems.
In developing countries, distance from customers in the U.S. and European markets, long production lead-times and minimum batch sizes for production often presents problems in the textile and apparel supply chain. Further, developing countries are at the farthest end of the global supply chain and often compete with each other to attract the same group of global buyers and producers. As a result, there is a need for efficient supply chain management that better integrates developing countries into global production networks, accelerating the process of knowledge transfer and company sophistication. While companies actively work to increase efficiency in the supply chain, challenges still exist in terms of identifying appropriate performance measures for the analysis of textile and apparel supply chains (Arzu Akyuz, & Erman Erkan, 2010; Beamon, 1999). One of the main reasons for the failure to implement successful performance measures can be attributed to the fact that there is lack of agreement between researchers as to what constitutes the critical dimensions of supply chain management (Donlon, 1996). Further, there is no interlinking between supply chain management dimensions and performance (Chen & Paulraj, 2004a, 2004b). Today, effective supply chain management remains one of the primary challenges for developing countries in the textile and apparel industry and an effective method to evaluate performance is required in order to improve competitiveness in the global markets.
Review of Literature
The Textile and Apparel Industry
The Textile and apparel industry is one of the most global industries in the world and is a “starter” industry for countries engaged in export-orientated industrialization (Gereffi 2002). Today, the industry plays a vital role in the manufacturing production, employment and trade in many developing countries. Further, the industry is important to developing countries in the short-term because it provides income, jobs and foreign currency receipts and in the long-term because it provides countries with an opportunity for sustained economic development.
However, barriers and industry challenges have made it difficult for developing countries to be competitive within the industry. An increase in the number of production facilities are needed in order to meet consumer demand for textile and apparel products, however, developing countries often lack the finances necessary to setup factories for textile and apparel production. Further, developing countries do not have the resources and manpower necessary to explore raw materials.
Today, trade regulations that were once in favor of developed countries have been reviewed in order to facilitate imports from developing countries. However, these trade policy regulations have had a major impact on the pattern of textile and apparel production. For example, China has become a very important player now that restrictions on its trade are being lifted. This has intensified the competition for traditional textile and clothing producers and a need for supply chain management has become increasingly important. The research will investigate how developing countries can achieve preferred supplier status and how they can differentiate themselves from competitors utilizing performance measures in their supply chain.
What is a Supply Chain?
The term “supply chain” is used to describe the flow of goods from the very first process encountered in the production of a product right through to the final sale to the end consumer. According to Beamon (1999), “a supply chain is an integrated process wherein raw materials are manufactured into final products, then delivered to customers (via distribution, retail, or both).”
Lummus (1999) combined several definitions to define the supply chain as: all the 20 activities involved in delivering a product from raw material to the customer including sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, delivery to the customer, and the information systems necessary to monitor all of these activities. While, Christopher (1994) defines a more simplified supply chain as “the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.” A typical supply chain is shown in Figure 2.1.
Figure 2.1: Typical Supply Chain
Source: Chopra, S. and Meindl, P. (2001)
The supply chain in Figure 2.1 encompasses suppliers, manufacturers, distributors, retailers, and customers. According to Chopra and Meindl (2001), “customers should be the main focus of the chain, since the primary purpose of the existence of any supply chain is to satisfy customer needs, in the process generating profit for itself”.
The Textile and Apparel Supply Chain
The textile and apparel industry has an extensive supply chain that starts with raw materials suppliers and ends with the consumer. Today, in developing countries, the textile and apparel supply chain is effective at maximizing low-skilled workers, which increases not only employment opportunities but export earnings. However, traditional textile and apparel supply chain designs are poor and are often characterized by short product lifecycles, high volatility, long processing lead times, uncertainty of demand and a high number of stock-keeping units (Lam and Postle, 2006, Jin, 2004). Further, concern has been expressed that traditional textile and apparel supply chain designs cannot meet the needs of transports distance and small production lot sizes, both of which increase supply chain costs (Lam and Postle, 2006). Through the use of performance measures, we can evaluate current supply chain effectiveness in an effort to improve textile and apparel supply chain designs. A typical textile and apparel supply chain is shown in Figure 2.2
Figure 2.2: Typical Textile and Apparel Supply Chain
Source: Redfern, R. (1996)
What is Supply Chain Management?
The concept of supply chain management can be defined as “the systematic, strategic coordination or traditional business functions within a particular company or across businesses within the supply chain, for the purposes of improving long-term performance of an individual company or supply chain as a whole” (Mentzer et. al., 2001; Mentzer, Myers & Stank, 2007). This working definition would include all undertakings from concept to consumer. In addition, supply chain management encompasses terms such as interorganizational relationships, supplier management, logistics management, transaction cost economics, and corporate strategy (Choi et al., 1996).
Today, the concept of supply chain management has become increasingly important in the textile and apparel industry, because fewer companies are vertically integrated and the effect that one entity has on the entire supply chain. This has created a greater emphasis on flexibility and the need to produce new products more quickly (Lummas, 1999). Further, the need for companies to be competitive in the areas of time, cost, quality, delivery, and technology have created an increase in the need for efficient supply chain management (Handfield, 1999). Companies utilize supply chain management to achieve a balance among financial returns, social performance and environment concerns (Glavic et al. 2007). By achieving a balance among these three factors, companies are able to increase the competitiveness of their supply chains and their vantage point in the global markets.
While the concept of supply chain management has gained wide acceptance in the textile and apparel industry, the integration of the concept has been slow due to a failure to develop performance measures, lack of guidelines to form alliances with partners, lack of trust amongst suppliers and customers, lack of trust within a company, organizational resistance, and lack of integrated technology (Lummas, 1999). Today, the textile and apparel industry needs to integrate all activities that go into producing a product in order to strengthen its relationships among supply chain members in an effort to create a competitive advantage in the global markets (Handfield and Nichols, 1999).
One example of how the textile and apparel industry has practiced supply chain management is through the practice of Quick Response, which combines three concepts to include communication of information between trading partners, reduction of time in the soft goods pipeline, and consumer responsiveness (Kincade et al., 1993). However, while there have been many advances in Quick Response, the industry as a whole is still experiencing issues in the supply chain, causing long lead-times and poor coordination among trading partners (Aron, 1998). These critical factors are affecting companies’ profitability and their ability to be competitive in global markets.
Theoretical Framework for Supply Chain Management
To accurately identify performance measures in the supply chain, we must first examine the theoretical framework of supply chain management. The most extensive study to date was conducted by Chen & Paulraj (2004), who reviewed more than 400 articles to develop a theoretical framework for research in supply chain management. The authors (Chen and Paulraj 2004) focused on supply chain management in terms of physical distribution and transport (Croom et al. 2000), strategic and interorganizational issues (Cox 1996, Harland et al. 1999), purchasing and supply perspective (Morgan and Monczka 1996) and the manner in which companies develop relationships with suppliers (Helper 1991, Hines 1994, Narus and Anderson 1995). However, the authors (Chen & Paulraj, 2004) narrowed their focus “to purchasing and supply, logistics and transportation, marketing, organizational behavior, network, strategic management, management information systems and operations management” which served as the basis for their theoretical framework. A theoretical framework for research in supply chain management is shown in Figure 2.3.
Figure 2.3 Theoretical framework for supply chain management research
Source: Chen, I., & Paulraj, A. (2004)
Because the research concerns performance measurement in supply chain management, it will focus on those components of the model most susceptible to this measurement. First, supplier performance and upstream supply chain actions have a direct impact on performance of products and upstream portions of the supply chain. Second, buyer performance deals directly with the downstream portion of the supply chain. The last component, supply management is different from supply chain management in that supply chain management emphasizes all aspects of delivering products and services to customers, whereas supply management emphasizes primarily the buyer–supplier relationship (Leenders et al. 2002). Specifically, supply management addresses concerns of a company from an internal perspective that would be affected by performance of the entire supply chain (Chen & Paulraj, 2004a). The components that make up supply management are:
The authors Chen & Paulraj (2004) demonstrate that effective two-way communication is essential to a successful supplier relationship. Traditionally, poor communication is often seen as a fundamental weakness in the interface between a buyer and its supplier, which can ultimately undermine the buyer’s eﬀorts that are needed in order to achieve increased levels of supplier performance (Lascelles and Dale 1989).
Supplier Base Reduction:
Today, many companies have reduced the number of primary suppliers and have allocated a majority of the purchased material requirements to a single source (Manoocheri 1984, Hahn et al. 1986, Spekman 1988, Pilling and Zhang 1992, Kekre et al. 1995). Benefits attributed to this practice exceed those achieved through multiple binding sources, which often emphasizes low prices at the expense of performance (Mohr and Spekman 1994).
Hahn et al. (1986) compared the potential costs associated with diﬀerent sourcing strategies and suggested that companies would beneﬁt by placing a larger volume of business with fewer suppliers using long-term contracts. Further, Carr and Pearson (1999) discovered that strategically managed long-term relationships with key suppliers have a positive impact on supplier performance.
Supplier Selection / Certification / Involvement:
Selecting suppliers for speciﬁc goods and services is a critical decision, as supplier performance can have a direct ﬁnancial and operational impact on a company (Bailey et al. 1994, Ittner et al. 1999). Suppliers should be certified to be in a buyer–supplier partnership, which often involves high levels of trust and communication, often leading to improved quality and lower costs (Grieco, 1989). Further, research has shown that the eﬀective integration of suppliers into new product development can yield beneﬁts such as reduced cost, improved quality of purchased materials, reduced product development time, and overall improved access to and application of technology (Ragatz et al. 1997, 2002, Primo and Amundson 2002).
Cross-functional Teams / Trust and Commitment:
The concept of supply chain management is built on the idea that trust and commitment and teamwork are a critical components that are central to organizational change efforts (Drew and Coulson-Thomas 1997). The consensus is that trust can contribute signiﬁcantly to the long-term stability of a company (Handﬁeld and Bechtel 2002).
Supply Chain Efficiency and Effectiveness
Chen & Paulraj (2004) provide a theoretical foundation for supply chain management. However, what factors should be considered when evaluating supply chain effectiveness? The concept of supply chain management is used to assist companies in achieving the best possible internal and external performance factors. Within supply chain management, efficiency is an often a cost-related advantage, while effectiveness is an advantage of customer responsiveness. Internal performance factors affecting the efficiency within a supply chain are long processing lead times and a high number of stock keeping units, while external performance factors are delivery precision, uncertainty of demand and short product lifecycles.
Today, evaluating supply chain effectiveness is critical to increasing a company’s performance in global markets and can be defined as the extent to which goals are accomplished (Mentzer, 1991). The research will investigate how well developing countries optimize the concept of supply chain management in an effort to provide high quality products to its customers, at low cost and within short lead times in order to maximize profitability (Hoover et al., 2001).
What is Performance Measurement?
One of the fundamental areas of supply chain management is measuring the performance of the whole supply chain, because an organization and/or industry cannot manage what it cannot measure (Sink and Tuttle, 1989). Thus, to gauge supply chain effectiveness, companies utilize a performance measure, which is a set of metrics used to quantify the efficiency and/or effectiveness of an action, whereas performance measurement can be defined as the process of quantifying the efficiency and effectiveness of an action (Neely et al. 1995). Ultimately, the role of a performance measurement system should be to provide a company with the information necessary for decision-making and action.
According to Beamon (1996), cost was the primary metric that served as the basis of performance measurement in supply chain models. However, purely financial performance measures have since been criticized because of “their backward looking focus and inability to reflect contemporary value-creating actions” (Kaplan & Norton, 1992). Beamon (1999) indicated researchers acknowledged these issues with purely financial performance metrics and that towards the end of the nineties, two new types of performance measurements were developed known as cost and customer responsiveness, which included lead-time, stocking, probability and fill rate. Keebler (1999) agreed and stated there are “three principal categories of measurements, namely time, quality and cost”.
Research further reveals that Beamon (1998) then categorized performance measures into two groups, qualitative and quantitative to account for non-financial measures, such as time and capacity utilization, in addition to incorporating qualitative metrics, such as customer satisfaction, information flow, supplier performance and risk management (Beamon, 1999). Characteristics that serve as a starting point for analyzing supply chain performance should include evaluating a supply chain based on the following: inclusiveness, universality, measurability, and consistency with organizational goals (Beamon, 1996). While the requirements of performance measurement systems are diverse, they should seek to fulfill stakeholder concerns, facilitation of strategy concerns and mix quantitative and qualitative measures (Beamon, 1996). The following section will discuss a variety of performance measurement approaches that have been developed to aid companies with the framework necessary for measuring performance in the supply chain.
Performance Measurement Models
The Balanced Scorecard
Developed by Robert Kaplan and David Norton, the Balanced Scorecard is a strategic measurement tool and management system that translates a company’s strategy and goals into a balanced set of performance measures. The Balanced Scorecard recommends metrics based on the following four perspectives:
What must a company do to succeed financially?
What must a company do to achieve its vision?
Internal and Business Processes:
What must a company do to satisfy shareholders and customers? Specifically, what business processes must a company excel at?
Learning and Growth:
What must a company do to sustain its ability to change and improve?
The information compiled from the four perspectives directs the long-term strategy of a company and its overall state of strategic performance. Further, the Balanced Scorecard links the four perspectives with the cause and effect relationship, thus having a stronger structure than other performance measurement systems. The Balanced Scorecard not only serves as a performance measurement system but also a management system that enables organizations to clarify their vision and strategy in order to translate them into action.
Supply Chain Operations Reference Model
The Supply Chain Operations Reference model “SCOR” provides a comprehensive toolset that links business processes to metrics, best practices and technology (Stephens, 2001).
The concept of the SCOR model is to provide a standard way to measure supply chain performance and to use common metrics to benchmark against other companies (Christopher, 1998).
The SCOR model is based on the following four management processes:
Plan: Balances supply and demand
Source: Procurement of products and services
Make: Transformation of products and services into finished goods
Deliver: Delivery of products and services
Further, the SCOR model has three levels:
Top Level: Defines the scope and overall content for a supply chain
Configuration Level: Designs the supply chain
Process Element Level: Provides detailed information on each process
The SCOR model has 12 performance metrics according to Huan et al. (2004)
Order fulfillment lead time
Perfect order fulfillment
Supply chain responsiveness
Total logistic management cost
Value-added employee productivity
Cash to cash cycle time
Inventory days of supply
Research Studies Performance Metrics in the Textile and Apparel Industry
While there has been an abundance of research focusing on performance measures for supply chains, textile and apparel industry specific research is lacking. However, McMullen’s (1996) study on supply chain management processes in the Asia Pacific region reveals that 85% of textile and apparel firms surveyed utilize financial performance measures in conjunction with customer service performance measures. These performance measures include budget to actual, savings, return on investment, return on equity, on-time deliveries, customer complaints, back order, stock-outs, investor accuracy, ship errors, total cycle time and fill rates.
Kurt Salmon Associates conducted a study on the sourcing of textiles and apparel, which revealed vendor selection criteria such as cost, quality program, product development/execution capabilities and lead time (Sauls, 2007). Further, respondents of the study revealed that their companies utilize some form of a scorecard for performance measurement (Sauls, 2007).
Another study conducted by Nowell (2005) identified performance measures through secondary literature that were related directly to the textile and apparel industry. The author (Nowell, 2005) reviewed several non-textile and apparel specific sources (Beamon, 1999; Cooke, 2001; Gunasekaran et al., 2004; Handfield & Nichols, 1999; Keebler et al., 1999) in order to develop a comprehensive list of performance measures that included cost, quality, on-time delivery, lead time, responsiveness, customer service, order fill rate, order accuracy, stock outs, damages, flexibility, technical expertise, product range, and capacity. Further, Nowell (2005) was able to identify compliance, flexibility, and product innovation as being important performance metrics in terms of vendor selection criteria.
Another interesting research study as cited by Nunnally (1978) was developed based on the Churchill (1979) methodology of scale development. The study was conducted based on scale items of supply chain performance. Scale items were developed that measured the extent to which an organization had adopted or embraced a particular set of policies, practices and procedures pertaining to its supply chain performance of organizations. Data was collected from 32 textile and apparel companies and the results revealed that respondents were in consensus on 8 out of 10 of the performance-measuring drivers. The respondents ranked the following performance-measuring drivers as being important to a supply chain: Time, Information Sharing, Flexibility, Cost, Quality, Product Development, Innovation, Profitability, Productivity and Assets Management Efficiency. Further, a variance test was performed that determined the mean values of the performance-measuring drivers were statistically different from one another.
Research will seek to evaluate the effectiveness of supply chain management by discussing characteristics of textile and apparel supply chains in developing countries in order to identify those measures, which can be used to gauge performance. A model will then be created for how to improve efficiency in the supply chain and increase competitiveness through the use of performance measurement systems. The following will therefore form the problem statement for this thesis:
Evaluating supply chain effectiveness in the textile and apparel industry with a focus towards creating a model for how to improve efficiency in the supply chain and increase competitiveness using performance measurement systems.
The objectives of this research are to:
RO1: Evaluate the efforts of textile and apparel companies to improve supply chain management and performance in developing countries
RO2: Identify the measures used by textile and apparel companies to gauge performance of their supply chains in developing countries.
RO3: Identify those critical measures that affect performance in the supply chain
RO3: Construct a model of performance measurement specific to the textile and apparel industry of developing countries.
Purpose of Study
The purpose of the study is to fulfill an aim for more knowledge about models for measuring performance in the supply chain. Specifically, research will investigate performance measurement for supply chains in developing countries. Specific measures that textile and apparel companies use to gauge performance of their supply chains will be identified. This research is significant because a model for performance measurement specific to the textile and apparel industry will be created that outlines critical factors affecting performance. Further, this research would enrich supply chain and textile and apparel literature because the study will identify industry specific performance measures that could be used as a basis for benchmarking going forward.
“How can developing countries achieve preferred supplier status and how they can differentiate themselves from competitors utilizing performance measures in the supply chain?"
Research Design and Methodology
The research will consist of a four-phase, mixed methods approach that includes both quantitative and qualitative research designs. By using multiple methods of data collection and analysis, a more comprehensive study of the research problem can be performed. According to Creswell (2003), this strategy is the most effective as it offers the ability to confirm, cross-validate, and corroborate findings within a single study. A mixed methods research design also allows for both open and closed-ended questions to be utilized as well as statistical analyses to be performed (Creswell, 2003).
Further, when researchers use both quantitative and qualitative methods in a mixed methods research design or methodological triangulation, it gives the researcher multidimensional insight into management problems, because “triangulation” provides a middle ground between the two extremes (Mangan, 2004). A mixed methods research design is typically used to eliminate any bias from using one single method, for the results from one method can influence the other method (Creswell, 2003). Ultimately, a mixed methods research design provides a more comprehensive analysis of the research problem.
The first phase of this methodology is exploratory in nature and will consist of data collection on the 10 countries of the Association of Southeast Asian Nations “ASEAN” to include Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. This research will focus on ASEAN members as many are in direct competition with more developed countries with respect to the textile and apparel industry. Further, ASEAN members are actively working on accelerating their economic growth, social progress and culture development and are good candidates for the implementation of performance measures in supply chains. The second phase of the research will consist of creating a SWOT analysis based on secondary research and examinations in Phase I. The SWOT analysis will be used to assess the strategic objectives of textile and clothing companies in ASEAN countries. Phase III of the research will propose a basic balanced scorecard in order to identify key performance measures in the supply chain. Last, Phase IV will consist of surveys on a sample of textile and apparel companies in ASEAN countries. The survey will be made from the key performance measures identified in Phase III and will be used to evaluate companies’ commitment to the concept of supply chain management as it relates to performance. Further, the survey will identify specific performance measures being utilized by developing countries’ textile and apparel supply chain. The last phase will consist of coding the survey into description statistics so that a chi-square analysis can be performed to determine if statistical differences exist among the key performance metrics. By pinpointing those performance measurement metrics that best increase efficiency, we can determine which metrics contribute to performance in the supply chain.
The survey sample will be chosen from textile and apparel companies in countries of the Association of South East Asian Nations “ASEAN” to include Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Companies targeted for this study will be chosen through country specific textile and apparel trade associations. Further, companies that will be identified must compete in the following sectors of textile and apparel supply chain: 1) fiber/yarn producers, 2) fabric manufacturers, 3) fabric finishers, 4) apparel manufacturers, 5) apparel brand managers and marketers, and 6) retailers. The pool of textile and apparel companies will be evaluated for how they perceive performance through secondary data. This will give a more general perspective about the industry through a comparison of the definition of supply chain management in this thesis.
Phase I (Data Collection)
Phase I of this research will consist of data collection on the 10 ASEAN countries. External sources will be viewed in order to gather information to provide depth into the subject and to provide data that could be used to contribute to the development of Phase II of this research study. External sources will include specific data in the form of published materials, online databases as well as sector and academic reports. This phase is critical to developing an understanding of the textile and apparel industry in developing countries.
Phase II (SWOT Analysis)
Phase II of this research will consist of creating a SWOT analysis based on secondary research and examinations in Phase I. A SWOT analysis will be made in order to assess the strategic objectives of textile and clothing companies in ASEAN countries. Specifically, clothing subcontractors producing for global brands and buyers will be determined and mapped according to a cause and effect relation with regard to Kaplan and Norton’s four perspectives of the Balanced Scorecard. .
Phase III (Balanced Scorecard)
Phase II of this research will aim to propose a basic balanced scorecard based off the SWOT analysis and secondary data in Phase I and II of this research study. Key performance measures will then be identified for monitoring the application of the strategic goals proposed. The overall aim of these measures is to quantify the achievement of the strategic goals that will be defined through the SWOT analysis.
Phase IV (Survey)
An electronic mailing list will created for textile and apparel companies within ASEAN countries. The key performance metrics identified will be used to create survey-related research questions that will be sent to respondents for review. Respondents will be sent an e-mail cover letter that will contain a link to an online survey. Once results from the survey have been obtained, the data will be coded so that descriptive statistics can be obtained. Next, a chi-square analysis will be performed to determine if there are any statistical differences in performance measures within the textile and apparel supply chain. The purpose of the chi-square analysis is to test whether significant statistical differences exist among current performance measures in the supply chain in order to pinpoint those performance measurement metrics that best increase efficiency and performance in the supply chain.
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