Critical Success Factors in Supply Chain Management
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Published: Wed, 07 Mar 2018
In today’s turbulent economic environment, firms are striving for ways to achieve competitive advantage. One of the approaches is to manage the entire supply chain to reduce costs and improve performance to create competitive advantage and business success.
This dissertation explores and investigates how high technology firms use supply chain management to gain competitive advantage and increase business success. The research objective is to determine the critical success factors in supply chain management at high technology companies. This dissertation provides a theoretical framework to understand a firm’s performance and argues that supply chain management will help a firm to be competitive and successful. To this end, the critical success factors that make a company more competitive are identified.
The research design is based on the established and recommended procedures of multiple case study research methodology; and this methodology is used to gather data from five companies in California, USA. The analysis is based primarily on cross-case analysis for the purpose of theoretical generalization about the research issues.
The results identify two clusters of company behavior and characteristics, specifically traditional ‘old style’ manufacturing companies and progressive manufacturing companies. Each cluster of company behaves differently. At the traditional manufacturing companies, the selection of critical supply chain management factors is internally focused on factors that are manufacturing and quality focused, while at the progressive manufacturing companies the selection of critical supply chain management factors is externally focused on factors that are directed to customers and information systems.
There are differences between critical supply chain management factors at high technology companies and benchmark (or commodity) companies that were selected in this study. The benchmark companies select supply chain management factors that focus on customer services and quality. This approach is, possibly, due to the fact that the benchmark companies deal in commodity type products and hence they have to focus on differentiating themselves through strong customer services and quality products.
Additionally, with the help of supply chain metrics, financial performance data, and understanding the various companies, it is possible to determine which critical supply chain factors best can contribute to business performance. At the case study companies, an external focus on supply chain management factors such as a strong focus on customer relationship and management, gives better business results.
Finally, this study has proposed a novel and new approach to improving customer satisfaction by using QFD methodology to identify performance gaps (and opportunities) from the customer’s viewpoint in supply chain management. If the companies wish to increase customer satisfaction, they have to use the QFD methodology to identify critical supply chain factors. The reason is primarily because performance gaps derived from customer needs emphasize what the customer wants and that is different from the internal perceptions of a company’s managers. The initiatives that provide the greatest opportunity have been identified in this analysis.
Overall, these findings can be used by high technology firms to select supply chain strategies that will lead to sustainable competitive advantage and hence improve their brand and business performance.
The genesis of this dissertation was a request from a high technology company to investigate the company’s supply chain system and identify factors affecting the successful implementation of supply chain management. This chapter serves as an introduction to the dissertation. It comprises eight sections, which cover the background to the research, objective of the research and the research questions, justification and significance of the research, a brief description of the methodology, an outline of the structure of the study, key definitions, delimitations of this research, and the chapter’s conclusion.
A firm’s strategies, innovations, and well-planned activities will lead to sustainable competitive advantage and hence improve its brand and business performance. As firms strive for ways to achieve competitive advantage, they are looking for new ideas and solutions. This dissertation addresses the topic of competitive advantage, reviews how firm’s attempt to achieve it, and focuses on one aspect of competitive advantage – managing the supply chain to increase competitive advantage and business success.
The early understanding of competitive advantage is based on Leon Walras (1874, 1984) theory of perfect competition. In perfect competition products are homogenous, consumers and producers have perfect information, prices will reach equilibrium, and as a result profits are zero in the long run. A later approach is the Industrial Organization approach (Tirole, 1988), which argues that success comes from market power and a firm’s efficiency. However, the proponents of this approach agree that in the long term there would be industry equilibrium and little profit.
One of the first researchers to propose a theoretical framework for understanding a firm’s performance is Michael Porter (1980). He takes a strategic and analytical approach to understanding competitive strategy, and argues that, “Every firm competing in an industry has a competitive strategy, whether explicit or implicit.” Porter asserts that, except for microeconomic theory, the strategy field and literature had offered few analytical techniques for gaining this understanding. Porter (1980) argues that with the right approach it is possible to break away from the economic equilibrium situation and achieve superior performance. Therefore he proposes a framework for analyzing industries and competitors and describes three generic strategies – cost leadership, differentiation, and focus. He postulates that to be successful, the firm has to do well in one or more of these strategies.
Porter’s (1980) ideas and proposals on achieving competitive advantage have influenced many other researchers to propose complementary theories on achieving competitive advantage. All the theories proposed by researchers are supported with examples of winning strategies implemented at renowned companies. The theories include an emphasis on planning (Porter, 1980, 1985), strategic approach (Hamel and Prahalad, 1990, 1998; Porter, 1985, 1990, 1991), marketing strategies (Day, 1994, 1999), value chain management (Porter, 1985), and supply chain management (Christopher, 1998; Poirier, 1999; Tyndall et al., 1998).
A theory that has gained momentum in the last few years is the concept of supply chain management. In recent years, there have been numerous advances and developments in supply chain techniques and management. One of the reasons is that as trade barriers drop and markets open, competition has become more intense – hence companies need to be more competitive and cost effective. An initiative to help achieve this is a supply chain management program. Supply chain management is the management of upstream and downstream activities, resources, and relationships with suppliers and customers, which is required to deliver products or services. In theory, if this is done well it will lead to competitive advantage through differentiation and lower costs as suggested by Porter (1980). Moreover, some researchers claim that effective supply chain management can reduce costs by several percentage points of revenue (Boyson, et. al, 1999). Furthermore, there has been little verification or research done on measuring competitive advantage gained through supply chain management.
Supply chain management is not a static concept or solution. Instead, new advances and techniques for supply chain management continue to mushroom. This tremendous growth in new ideas and processes is starting to influence and change the business processes and models of companies. Hence companies have many choices in selecting programs in supply chain management. In making their choices, companies need to plan for effective supply chain management, in order to gain competitive advantage.
However, to ensure that effective supply chain management can provide business success, this study must determine the critical success factors in supply chain management that can provide competitive advantage. Furthermore, these critical success factors must be identified and conveyed to senior management in firms that want to have an effective supply chain management program.
1.2 Objective of this research
The objective of this dissertation is to explore and investigate how firms scope, design, and implement supply chain management in order to gain competitive advantage. Most importantly, this dissertation endeavors to determine the critical success factors in supply chain management that can provide competitive advantage. It also explores and investigates the advances and new ideas in supply chain management and examines how firms scope, design, and implement supply chain management in order to gain competitive advantage.
The genesis of this dissertation was a request from a high technology company to investigate the company’s supply chain system and propose improvements to help make it more competitive. The company is headquartered in California USA, and this author works for one of the company’s business unit as General Manager for Distribution. The request was to investigate the company’s supply chain management system and to propose improvements that would make it more competitive
This dissertation provides a theoretical framework to understand a firm’s performance and argues that supply chain management is an approach that will help a firm to be competitive and successful. Furthermore, in using supply chain management, firms are faced with choices on what supply chain techniques and developments to adopt for their businesses. This dissertation wil review the choices that high technology companies have today, and will make recommendations to select the best choices, or critical success factors, based on business and customer needs. Therefore, the research objective is to:
Determine the critical success factors in supply chain management at high technology companies.
In fulfilling this objective, this dissertation also addresses the following research issues:
1. Are there differences between critical supply chain management factors at various high technology companies?
2. Are there differences between critical supply chain management factors at high technology companies and non high technology (or benchmark commodity) companies?
3. Will a focus on external supply chain management factors give better business results?
4. Are perceived critical gaps (and opportunities) in performance derived from traditional methodology similar to those deployed from customer needs?
In this study, the critical success factors to make a company more competitive are identified. To ensure a robust analysis and conclusion, the expectations and perceptions of respondents, involved in this study, are taken into consideration as well as customer requirements.
1.3 Significance of the research
There are many theories and empirical studies on competitive advantage. However, the empirical studies, using mathematical models, tend to be limited in scope (Porter, 1991; Buzzel and Gale, 1990), and do not include supply chain management parameters. While there has been much research on activities that can provide competitive advantage, there is little knowledge on the process of selection and impact of supply chain management on the competitive position and business performance of a high technology firm. Firms need to understand how supply chain management can help them achieve competitive advantage. Furthermore, there is an expectation that high technology companies will use leading edge technology and invest heavily in supply chain management. This dissertation makes the following contributions:
1. Fulfils a request from a high technology company: The author of this study works for a high technology company, head-quartered in California USA, and was requested to investigate the company’s (business unit) supply chain system and propose improvements to help make it more competitive.
2. Identifies the critical success factors in supply chain management from a high technology company’s viewpoint. Often when reviewing critical success factors, only the perception of respondents is taken into account. However, in this analysis both the perceptions and expectations of respondents are taken into consideration. Such an analysis will be more robust and will allow performance gaps to be analyzed and understood.
3. Identifies the critical success factors in supply chain management from customers of high technology companies. To enhance the relevance of the conclusions, customer requirements are also taken into consideration by using the quality function deployment (QFD) methodology and these are compared to the high technology companies’ performance gaps. Such an analysis will allow performance gaps to be analyzed and understood from the viewpoint of customers of high technology companies.
4. Contributes to the understanding of how high technology companies scope, design, and develop their supply chain management system.
1.4 Research Methodology
This study employs the qualitative research process using multiple case studies. There are several reasons for this: Since the focus of this research is on high technology companies operating in California, USA, there is a concern that there will be a small number of companies willing to participate in a large (sample size) quantitative survey. Furthermore face-to-face meetings with respondents can help provide understanding and information on several qualitative areas, such as: reasons for implementing specific supply chain factors (or strategies), customer needs data, and discussions and feedback on the questionnaire. Also, cases can be viewed and studied alone and across cases to provide comparison and contrast and richer details and insights regarding the research issues (Eisenhardt 1989; Stake 1994; Yin 1994). Hence this research will be done via a multiple case study approach using structured interviews with a questionnaire (Yin, 1994).5
1.5 Structure of the dissertation
In addition to this introductory chapter, this dissertation consists of four chapters ( 1.1). Chapter 2 reviews the relevant literature, addresses the disciplines under investigation, and provides an overview of competitive advantage. The chapter then provides a detailed review of the current literature and practices of supply chain management. With that as the background, chapter 2 continues into identifying gaps in the literature and provides the rationale for selecting the research topic and issues. Chapter 5Conclusion and opportunities for further researchChapter 1IntroductionChapter 3Research methodologyChapter 2Literature review and research issuesChapter 4Data analysis and interpretationsChapter interpretations
Chapter 3 discusses the research methodology used for this study and it includes: the justification of the research methodology, a discussion on preparation of the questionnaire and the data gathering process, the process used for data analysis and determining gaps, the process used to generate recommendations from the data, and concludes with a discussion on the limitations of case study research.
Chapter 4 summarizes the data collected from the selected companies and respondents and aims to interpret the data in relation to the research objective. Each of the four research issues is analyzed, interpreted, and the detailed findings are presented. The chapter concludes with a summary of the research findings.
Chapter 5 provides a summary of the findings and conclusions of the research objective and issues, discusses the contribution of the research findings to the literature and theory, reviews the implications of the findings, discusses the limitations of the research, and concludes with suggested direction for future research.
1.6 Key definitions
Definitions adopted by researchers are often not uniform; hence key terms are defined to establish positions taken for this dissertation (Perry 1998). This will ensure that subsequent research, undertaken at a later stage, will better measure and compare what this dissertation has set out to do.
• Logistics: The management and movement of product and services, including storage and warehousing, and their transport via air, land, and water (Coyle, Bardi, and Langley, 1988).
• Supply chain: Consists of all inter-linked resources and activities needed to create and deliver products and services to customers (Hakanson, 1999).
• Supply chain management: This includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, distribution across all channels, and delivery to the customer (Supply Chain Council, 2001).
• Supply chain agility or agile supply chain: An agile supply chain is one that is flexible and has a business-wide capability that embraces organizational structures, information systems, and logistics processes. (Christopher, 2000)
• Critical success factors (CSF): Critical success factors are those few things that must go well to ensure success for a manager or organization, and therefore may represent those managerial or enterprise areas that must be given continual attention. CSFs include issues vital to an organization’s current operating activities and to its future success (Boynton and Zmud, 1984).
• Customer relationship management (CRM): CRM is the management of technology, processes, information, and people in order to maximize each customer contact by obtaining a 360-degree view of the customer (Galbreath and Rogers, 1999).
• Performance gap: This is a gap between the perceived performance and the expected importance of a factor (in this dissertation it is a supply chain factor). The performance gap provides an indication as to whether executives and managers are successful in translating their vision to their employees and hence such perception may give an indication regarding the degree of employees’ alignment with the organization’s vision. If a factor is critical and has a negative value of factor alignment (perceived performance is less than the expectation), then the organization may have a potential problem with that factor. Information on factor alignment allows executives to develop a strategy to overcome the challenges associated with the gaps between importance and performance. (Martilla and James, 1977).
• Quality Function Deployment (QFD): QFD is a comprehensive quality tool that can be used to uncover customers spoken and unspoken needs, and convert these needs to product or service design targets and processes (Akao, 1990).
There are several delimitations in this dissertation.
• The theoretical model derived from this dissertation is only applicable to the high technology companies.
• The dissertation is focused on companies operating geographically in California, United States of America, where there is a concentration of high technology companies.
• This dissertation is an exploratory research and will have to be tested for generalizability in later, more extensive, quantitative research (Perry, 1998).
• There is no scientific basis for choosing the number of cases in this dissertation. The number selected is based on the experiences and recommendations of the research and academic community (Eisenhardt, 1989; Perry, 1998).
This chapter provides an overview of the dissertation. The aim, objectives, and justification of the research topic were discussed. The dissertation is an investigation on the impact of a supply chain management system on the competitive position of high technology business firms. It explores and investigates new ideas in supply chain management and examines how high technology firms manage and improve their supply chain management system. Furthermore, this dissertation will analyze the gaps and opportunities for supply chain management in high technology companies and give a set of recommendations. The methodology was briefly described, key definitions were explained, delimitations of this research were addressed, and the structure of the dissertation was outlined. With all the important areas of the research briefly introduced in this chapter, the following four chapters of this dissertation will present detailed description and findings of the research topic.
LITERATURE REVIEW AND RESEARCH ISSUES
The previous chapter provided an overview of the dissertation and listed the objective, issues, and significance of the research topic.
This chapter reviews the relevant literature and comprises of six sections. The review starts with a discussion on early approaches to understanding a firm’s performance and its competitive advantage. This is followed by the development of a theoretical framework and a discussion on contemporary approaches to competitive advantage. Next there is a discussion on supply chain management, followed by an overview of advanced supply chain management systems. The last two sections conclude with a discussion on gaps in the literature, identification of areas for further research, and the summary.
2.1 Early approaches to understanding a firm’s performance and competitive advantage
One of the earliest (chronologically) approaches to competitive advantage is the microeconomic approach, or the idea of perfect competition (Walras, 1874, 1969). In perfect competition products are homogenous, consumers and producers have perfect information, prices will reach equilibrium, and as a result profits are negligible or low in the long run. However, according to Gill (1991), such a perfect economy is an abstraction, because there are monopolies, oligopolies, and perfect competition. Furthermore, there are also two kinds of competition: spatial and monopolistic. Spatial differentiation pertains to oligopolistic competition (Hotelling, 1929), and it meets consumer’s different tastes. Monopolistic competition assumes that small firms produce a variety of differentiated products (Chamberlin, 1933; in Gill, 1991). All these situations allow for profit maximization and higher profits (Gill, 1991).
The industrial organization (IO) approach takes a richer approach to understanding a firm’s successful performance. IO differs from the microeconomic approach by introducing variables that explain real-world economic behavior. In IO, there are two competing hypothesis that lead to higher profits and success – market power and a firm’s efficiency (Scherer, 1990; Tirole, 1988). Nevertheless, the IO approach assumes that markets and firms will reach equilibrium, and in equilibrium profits differences will not exist (Tirole, 1988). Both the microeconomic approach and the industrial organization approach assume that all firms would reach equilibrium and have equal profit and success. However, we know from a daily look at many firms’ performance on the stock market that profit and performance vary across firms, even when they are in the same business. Eaton and Lipsey (1978) have verified that differences in performance and profit exist between firms.
2.2 Contemporary approaches to achieving competitive advantage
2.2.1 Framework to understanding a firm’s performance
One of the first researchers to propose a theoretical framework for understanding a firm’s performance is Porter (1980). He takes a strategic and analytical approach to understanding competitive strategy, and argued that, “Every firm competing in an industry has a competitive strategy, whether explicit or implicit” (Porter, 1980, p. xiii). He proposes a framework for analyzing industries and competitors and describes three generic strategies – cost leadership, differentiation, and focus. He postulates that if a firm is able to do well in any of these strategies, it will gain competitive advantage. Porter’s concept is illustrated in 2-1. Generic Competitive Strategies•Overall cost leadership•Differentiation•FocusCompetitive Advantageof a Firm
• Cost leadership requires efficient-scale facilities, pursuit of cost reductions, and cost minimization in all areas of the firm. This will give more profit.
• Differentiation of product or service requires industry-wide differentiation, including design and brand image, customer service, and distribution or dealer network. Product or service differentiation will help increase customer loyalty and ensure repurchase.
• Focus on markets, buyers, or product lines can maximize profits.
The framework, in 2-1, shows that the right strategies can provide competitive advantage. Porter (1985) also argues that competitive advantage come from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product. Each of these activities contributes to a firm’s relative cost position and creates a basis for differentiation. This is the value chain, and a firm has to disaggregate its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities cheaper or better than its competitors (Porter, 1985), and this can lead to a higher profit margin. The value chain concept is illustrated in 2-2.
Manufacturing Operations, and other Internal
Human Resource Management
Firm Infrastructure and Platform Services
Marketing and Sales
Supply Chain Approach
Marketing Capabilities Approach
The Value Chain and Theoretical Framework to Achieve Competitive Advantage
Adapted from Porter (1985) and this literature review.
Note 1: Key approaches to competitive advantage are highlighted with underlined
Note 2: The definition of supply chain implies all activities necessary to deliver a product (Hakanson, 1999). Therefore sales, marketing, and customer service activities can be construed as part of the supply chain approach shown in the . In this study, sales and marketing processes, such as demand management, order processing, and customer relationship management are included in the internal processes shown in the and in the supply chain literature review. However, sales and marketing activity, such as sales calls, advertising, product positioning, market research, and some post delivery support processes are excluded from supply chain activity. This is consistent with the approach taken by the Supply Chain Council and the SCOR (Supply Chain Operational Reference) model it uses to measure supply chain activity (Supply Chain Council, 2001).
2.2.2 Summary of contemporary approaches to competitive advantage
Porter’s approach presents new thinking to competitive advantage (Rumelt, Schendel, and Teece, 1991) and has influenced other approaches to creating competitive advantage. Many of the other approaches to competitive advantage are summarized in Table 2-1. From the table, it can be seen that all the approaches to increasing competitive advantage, except for the early microeconomic and industrial organization approaches, fit the theoretical framework in 2-2. However, all these approaches to competitive advantage are complementary and not alternatives or conflicting theories – they basically propose various segments of the theoretical framework shown in 2-2.
The various approaches are discussed very briefly below, but the last approach (in Table 2-1), Supply Chain Management, is discussed in greater detail.
2.2.3 The strategic planning approach
In essence, Porter’s (1980, 1985) approaches are strategic planning approaches, i.e. a firm’s competitive advantage can be planned for. This includes planning for differentiation in the value chain, low cost leadership, and focus.
Nations can also be competitive (Porter, 1990). Nations need four conditions to gain competitive advantage and be successful. The four conditions are: factor conditions (education and skill levels), demand conditions (or market size), related and supporting industries, and company strategy and rivalry (Porter, 1990).
Strategy is “lucky foresight…Strategy is always the product of a complex and unexpected interplay between ideas, information, personalities, and desire…” according to Hamel (1998). What this implies is that one does not settle for obvious solutions and strategies but should look at alternatives, challenge assumptions, and look at new ways of delivering superior customer value and firm performance.
Table 2-1 Summary of early and contemporary approaches to competitive advantage
Walras (1874, 1984)
Perfect competition results in negligible profits
Ideas ignore monopolies, oligopolies, and product differentiation. Profit does vary across firms according to Eaton and Lipsey (1978).
Success comes from market power and a firm’s efficiency.
All proponents agree that in the long term there will be industry equilibrium and little profit.
Porter (1980) Porter (1985) Provides a framework for achieving competitive advantage.
Every firm has a generic competitive strategy in cost leadership, market focus, or differentiation.
The value chain disaggregates a firm into its strategically relevant activities. A firm gains competitive advantage by performing these important activities better than its competitors. Challenges the stereotype approach of perfect competition and industry equilibrium. Provides a prescriptive approach to achieve competitive advantage, but the ideas and solutions are essentially conceptual. Hamel (1998) Strategy is the product of a complex and unexpected interplay between ideas, information, personalities, and desire. A firm has to seek alternatives and new ways of delivering superior customer value and firm performance.
The Strategic Approach and its Variations
Value Chain Approach
Resource Based Approach
Barney (1991), Rumelt, Schendel, and Teece (1991).
A firm has to identify specific, or rare, resources that lead to higher profits. Long-term superior performance comes from building product market positions that effectively utilize and maintain these resources. Examples of such resources include customer loyalty, and technological leads.
If the resources are unique and difficult to duplicate, then the firm achieves competitive advantage.
Table 2-1 (Continued) Summary of early and contemporary approaches to
Marketing Capabilities Approach
Day (1994,1999), Cool and Dierickx (1989), Aaker (1989), Caves and Ghemawat (1986).
Also, Buzzell an
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