ISCM

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24 World Review of Intermodal Transportation Research, Vol. 1, No. 1, 2006

Copyright 2006 Inderscience Enterprises Ltd.

Integration of Supply Chain Management systems

Uche Okongwu

CERMAS Research Centreand Department of Logistics and Organisation,Toulouse Business School, 20 boulevard Lascrosses,BP 7010, 31068 Toulouse cedex 7, FranceE-mail: [email protected]

Abstract: This paper proposes a new model (termed SCM FunctionDeployment) that would enable managers to design their SCM system more

effectively. The outcome of the model helps to: determine the degree of collaboration and integration

assess the required level of interconnectivity between SC partners

identify areas of development and improvement

make decisions related to transport integration.

Applying the model to an aerospace company to assess the degree ofcollaboration and integration shows that only few of the suppliers should befully integrated at the highest level where strategic information is shared.

Keywords: Supply Chain Management; SCM; Supply Chain ManagementFunction Deployment; SCMFD; aerospace; SCM integration; transportintegration.

Reference to this paper should be made as follows: Okongwu, U. (2006)Integration of Supply Chain Management systems, World Review ofIntermodal Transportation Research, Vol. 1, No. 1, pp.2444.

Biographical notes: Uche Okongwu is currently a Professor of Supply ChainManagement at Toulouse Business School, France. He holds an MSc Degree inMechanical Engineering and a PhD in Industrial Management. At ToulouseBusiness School, he has held many faculty positions such as Director of anMBA program in Aerospace Management and Director of a graduate programin Supply Chain Management (SCM). His current research work is focused ondevelopment and performance measurement of SCM systems. He is also anindependent consultant on SCM issues and industrial organisation.

1 Introduction

Globalisation and changing economic environments have forced organisations toconstantly search for new ways of designing their SCs in order to improvecompetitiveness and profitability. Although the aim of investing in this area is very clear,Supply Chain Management (SCM) as a concept is defined and implemented in manydifferent ways both in theory and practice. In theory, its definition and design depend onthe subject area of educators and researchers: purchasing and supply, logistics and

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Integration of Supply Chain Management systems 25

transportation, marketing, strategic management, management of information systems

and operations management (Chen and Paulraj, 2004). In practice, its implementationdepends on many parameters: type of products (Fisher, 1997), market characteristics interms of volume, variety and predictability (Christopher, 2000), strategic and tacticalgoals of companies in the SC (Narayanan and Raman, 2004), structure of distributionchannels (Payne and Peters, 2004), nature and degree of relationship between companiesthat constitute the SC (Harland, 1996) and characteristics of the business sector(Cullen and Hickman, 2001). It follows that one size does not fit all (Schewchuk, 1998;Towill et al., 2002).

SCs must be designed to best satisfy their ultimate customer requirements(Fisher, 1997). The values imbedded in the processes of a SC are not of equal importanceand the companies that comprise the SC do not contribute equally to the processes.There is therefore need for the focal firm of the SC to choose companies who carry out

value-adding activities (primary members to differentiate from supporting members) asthey affect directly the final value delivered to a specific customer or market (Davenport,1993; Carbone and de Martino, 2003). After deciding which suppliers and customers tointegrate in the SC, managers would also want to decide the level of integration required.Generally, we can talk about three levels of integration: simple communication,coordination using computer-based or web-based systems or collaboration on a long-term

basis.This decision-making exercise on SC integration can be carried out effectively by

adapting and applying the Quality Function Deployment (QFD) tool. QFD is a methodused in Quality Management for translating customer requirements into functionaldesign. Generally, authors describe it as a customer-driven product management systemused to incorporate the voice of the customer into appropriate company requirements ateach stage of the product development process (Chan and Wu, 2002). QFD has beenwidely and successfully applied to other fields such as budget planning (Nogueira, 2003),integration of environmental issues in product design (Zhang et al., 1999), manufacturingstrategic planning (Crowe and Cheng, 1996), and curriculum and course design(Denton et al., 2005). Since SCM entails incorporating the voice of the customer in the

business processes, we propose in this paper to adapt and use the QFD approach to designthe SCM system. This gives rise to a new concept that we can call SupplyChain Management Function Deployment (SCMFD). We can define SCMFD as acustomer-driven SCM model, which is used to incorporate the voice of the customerinto appropriate business processes (or activities) at each level of the SC, from ultimatesuppliers to ultimate customers, in order to create higher customer satisfaction, atoptimum costs.

In order to use the SCMFD concept effectively, SCM needs to be defined from a

broad perspective, such that all key business processes and customer requirements wouldbe identified and taken into consideration in the design of the system. So, in this paper,we start by discussing different terms that help to clarify what is meant by SCM. Then,we present the QFD concept and its application to SCM; this gives birth to the SCMFDconcept. We also discuss how the outcome could be used to make decisions related totransport integration and the choice of information systems to support inter-organisationalrelationships. Finally, we discuss the application of the SCMFD concept to an aerospacecompany.

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2 Supply Chain Management (SCM)

In defining a SCM system, Mentzer et al. (2001) suggested that a company could includejust its immediate suppliers and customers (Direct SC), suppliers of the immediatesuppliers and customers of the immediate customers (Extended SC) or all theorganisations involved in the SC, from the ultimate suppliers to the ultimate customers(Ultimate SC).

Fawcett and Magnan (2002) presented the SCM concept differently by lookingat the part of the linkages that are integrated: only within the company (internal orcross-functional process integration), including only the supplier side (backward orupstream integration) including only the customer side (forward or downstreamintegration) or including both supplier and customer sides (complete downstream andupstream integration). However, they pointed out that total integration beyond second-tier

suppliers and customers is perceived by managers as very rare more of a theoreticalideal than a reality.Christopher defined a SC as

the network of organizations that are involved, through upstream anddownstream linkages, in the different processes and activities that producevalue in the form of products and services delivered to the ultimate consumer.(Christopher, 1992)

This definition emphasises the key elements, which should be used to design a SC:

number of organisations in the SC

nature and part of the linkages (upstream, downstream or both)

type of flows (products, services, information, and/or finance)

type of activities (marketing, design, manufacturing, distribution, delivery, etc.)

value created by the different processes

ultimate consumers and their requirements.

For products (such as cars and aircraft) that have a relatively long lifespan after sales,aftermarket activities (such as spare parts inventory and logistics management, andMaintenance/Repairs/Overhaul (MRO)) can be included in the SC structure. In this case,the SC can be divided into two major parts:

the before-market SC, which includes all activities that take place before and up tothe point of selling the product: market surveys, research and development, productdesign, process design, purchasing, procurement, production, distribution, sales, anddelivery

the aftermarket SC, which includes all activities that take place after selling theproduct: return of unsold or defective products, MRO, spare parts logistics andinventory management, customer support, and recycling of used products.

The before-market SC can be divided further into two parts: before-market upstreamSC and before-market downstream SC.

Although there is a consensus on what constitutes a SC, authors nevertheless dodiverge when defining SCM. This implies that the divergence may stem from the word

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Management. Whoever wants to manage a SC must first define the goals and objectives.

Walker (1988) states that strategic management focuses on a firms goal to establish andmaintain a competitive advantage in its product markets. We can therefore say that thegoals of a SC are threefold: maximise the satisfaction of the ultimate customer, minimiseoperational cost by eliminating non value-added activities and maintain a competitiveadvantage for all the actors of the SC.

Managers would always want to identify and manage the processes (or activities) thatcontribute to satisfying these ultimate customers. Looking at the literature, the discussioncan be grouped into two schools of thought:

those who see the activities of a SC limited to logistics activities (Tan et al., 1998)

those who define a SC very broadly by including all the business activities1 orfunctions, from research and development to sales, through purchasing and

production (Lambert et al., 1998).In this broad approach, The Global SC Forum identified eight processes rangingfrom Product Development to Product Returns which should be managed in a SC(Rogers et al., 2004).

In order to achieve higher performance in terms of cost savings and customersatisfaction, all or some of the SC partners (suppliers, manufacturers, distributors,carriers, and third-party service providers) should be closely involved in managing thevarious SC activities. SCM has to do with efforts made by managers to align objectivesand integrate resources across company boundaries (Ballou et al., 2000). It follows thatan appropriate definition of SCM should be broad enough to include all the business

processes (or activities) and SC partners that add value to the products and servicesdelivered to the ultimate customer, both before- and after-market of the products.

We therefore propose and adopt the following definition:Supply Chain Management is the coordination and integration of all or part ofthe business processes, within and across company boundaries, to generate costsavings and/or better customer service over part or all of the before-marketand/or aftermarket chain of organizations involved in the development, supply,production, delivery and maintenance of products, services and informationthat add value (satisfaction) for the ultimate customers.

3 Applying the QFD concept to SCM system design

3.1 Quality Function Deployment (QFD)

There are sometimes gaps between the functionalities of a product designed by engineersand the needs initially expressed by the customers, and this could contribute to marketfailure. To reduce these gaps, companies need to pay particular attention to how customerrequirements are translated into functional product design. QFD is a method used for this

purpose. Initially developed by Akao (1990), QFD was used by engineers to considerquality early in the design process. It entails identifying critical customer attributes andcreating a specific link between these attributes and design (technical) parameters.Basically, it provides a formal linkage between objectives (WHATs) and responses(HOWs) and constitutes a systematic method for developing or deploying the HOWsfrom the WHATs and for setting priorities (Cohen, 1995; Chan and Wu, 2002). As QFD

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techniques were improved upon, the Japanese automobile industry adopted the process to

reduce development time, before it was adopted and used by many different firms toreduce time to market, decrease costs of design and manufacture, increase overall productquality, promote teamwork, improve communication between functional departments and

provide documentation (zgener, 2003; Hauser and Clausing, 1988; Griffin and Hauser,1993). Also referred to as the House of Quality (HOQ), a typical QFD used for productdesign consists of the following six steps as shown in Figure 1:

Step 1: Make a list of the customer requirements for the product concerned.

Step 2: Record the relative degree of importance for each customer requirement in acolumn vector, which constitutes the importance weighting of the requirements. This is

based on the fact that all customer requirements are not of equal importance to thecustomer.

Step 3: Make a list of technical parameters required to meet the customer requirements.

Step 4: Establish the central relationship matrix, which is used to determine therelationship between the customer requirements and the technical design parameters. Thismatrix expresses the degree by which each technical parameter contributes to satisfyingeach customer requirement.

Step 5: Compute and record in a row vector the relative degree of importance of thetechnical parameters. The relative importance weight of each technical parameterrepresents the degree by which it contributes to satisfying the overall requirements of thecustomers. It is computed from the weighted column sum of the importance weighting ofeach customer requirement multiplied by the relationship value of the correspondingtechnical parameter in the central relationship matrix.

Step 6: Identify the positive or negative correlations between the technical parameters.This enables to manage the tradeoffs between technical design parameters. Negativecorrelations are traded off to find the best compromise while positive correlations arestudied to coordinate investment efforts and maximise customer satisfaction.

Figure 1 Structure of the QFD model

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The successful implementation of the QFD tool depends on three key issues: how to

collect data, how to score items and who does the scoring? These issues are brieflydiscussed below.

How should data be collected? The method for determining customer requirementsdepends on the type of customers (enterprises or individuals). Generally, methodsinclude surveys, interviews (one-on-one or focus groups), listening and observing,sales meetings and trade shows, sales records, feedback from employees, customercomplaints, warranty data, and publications (Bicknell and Bicknell, 1995; Chan andWu, 2002). However, face-to-face interview is often the most suitable methodfor collecting qualitative data since they enable to control the scope of responses(Griffin and Hauser, 1993).

How should items be scored (or weighted) and prioritised? In the literature, items are

scored on a 5-, 7- or 9-point scale, with the highest number assigned to the mostimportant item. Citing the work done by Saaty (1977) and Chan et al. (1999) notedthat the determination of the number of points in a scale is rather intuitive too few

points provide little information and too many points may make the scale toocomplex to be practical. Bagozzi (1994) indicated that at least five points should beused in order to gain assurance that distributional properties of responses will besatisfactory. An increase from 5 to 7 or 9 points does not necessarily improve thereliability of the ratings (Sekaran, 1992; Chan et al., 1999). Therefore, for manyitems such as the relative importance of customer requirements, a 5-point scale(where 1 = very unimportant, 2 = unimportant, 3 = moderately important,4 = important, and 5 = very important) is often used. Whatever the scale used, thereis always some degree of subjectivity when numerical values are used to measurequalitative information. The aim of most QFD projects is therefore not necessarily tohave a strictly ordered list of items, but rather to group items into two or three maincategories: strategically important, medium, and less important. So, numbers can berepeated. When the order of the items is very important, the level of subjectivitycould be significantly reduced by using more robust techniques, such as the fuzzymethod (Chan et al., 1999) or the analytical hierarchical approach (Chan and Chan,2004), to prioritise items. In order to further reduce the imprecision and vagueness ofhuman judgement, Kwong and Bai (2003) combined the fuzzy and AHP methods todetermine importance weights for the customer requirements.

Regarding the relationship matrix, using numerical values to measure the degree ofcorrelation between two qualitative data (or between quantitative and qualitativedata) could be highly subjective. The common practice is therefore to simply identifyfour relationship levels, that is, no relationship, weak relationship, moderaterelationship, and strong relationship. Two sets of scoring scales may be used toquantify the said relationships: (0, 1, 3 and 5) and (0, 1, 3 and 9). Chan and Wu(2002) noted that the latter scale is more frequently used and seems more suitablesince it assigns a much higher weight to the strong relationship, thereby clearlyidentifying the most strategic relationships. In this four-score-system, 3 is three timesmore correlated than 1 and 9 is three times more correlated than 3 and nine timesmore correlated than 1. For the same reason, a five-score (9, 3, 0, 3 and 9) systemis used to quantify the positive or negative correlations between the technical

parameters in step 6 of the QFD process: 9 means strong positive correlation,

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3 means positive correlation, 0 means no correlation, 3 means negative

correlation, and 9 means strong negative correlation.

Who should do the scoring? The level of subjectivity is also reduced by using focusgroups or cross-functional teams which try to reach consensus through opendiscussions. Moreover, the creation of an multifunctional QFD team, composed ofmembers from various departments (engineering, production, production planningand control, purchasing, quality, marketing, and sales) enables to take intoconsideration all product and business attributes when establishing relationships

between the WHATs and the HOWs.

Today, there are two dominant QFD models: the Akaos Matrix of Matrices model andthe Four-Phase model which links four houses in order to convey the customers voicethrough to manufacturing (Sullivan, 1986; Chan and Wu, 2002; Hauser and Clausing,

1988). In this case, the HOWs of one house become the WHATs of the next house andthe computed relative importance weights are normalised (to sum up to 1 or 100) andused as weights in the next stage.

In as much as customer satisfaction through enhanced product and service quality is acore focus for business success, profit and business growth need to be realised in order toensure future customer satisfaction; business priorities (such as design cost, design time,competence, and strategic goals) should therefore be incorporated into QFD (Chuan andRaghavan, 2004). Relative weights are also attributed to these business priorities andused to multiply the major item in order to obtain relative comprehensive importanceweighting and prioritisation.

3.2 The Supply Chain Management Function Deployment (SCMFD) model

We have argued that the main issue in the design of a SCM system is identifying:

key customers and their requirements

key business processes that add value and contribute to meeting these requirements

the key organisations (suppliers, manufacturers, distributors, carriers, and third partyservice providers) that are involved in the various processes and with whom tocollaborate in order to achieve the desired goals.

This would help to formulate an integration strategy and to decide the most appropriateinformation technology needed to implement it. Just as customer requirements drive

product design, customer requirements should also drive the integration of processes andSC partners. The QFD approach can therefore be adapted and applied to SCM system

design and this gives rise to our new model termed SCMFD.The SCMFD model comprises eleven parts that are grouped into two major

interlinked stages (see Figure 2). In stage I, customer requirements correlation,process-customer requirements relationship and process integration are explored, and instage II, company-process relationship and company integration are explored.

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Figure 2 Structure of the SCM Function Deployment (SCMFD) model

3.2.1 Stage I: customer requirements and process integration

Part 1: Here, we identify the ultimate customers. Then, we make a list of theirrequirements (WHATs). Let Ri be the ith requirement, i = 1, 2, , m. As indicated inSection 3.1, short-listing of these requirements can be done through focus groups orindividual interviews of the customers. By analysing responses obtained from30 potential customers of portable food-carrying and storing devices, Griffin and Hauser(1993) hypothesised that 2030 interviews are necessary to capture 9095% of thecustomer requirements.

Part 2: The Customer Requirements Weighting box contains three elements:

The Requirement Relative ImportanceRRIi, which is the relative importance ofeach of the m requirements. Customers should be asked to score their requirementson a continuous scale of five points. We note that the same score may be attributed tomany requirements since the aim is not to obtain a detailed ranking, but rather toidentify the most important requirements, which must be satisfied in order toguarantee business success.

The Requirement Strategic GoalRSGi, which represents the strategic goaldetermined by top management for each of the m requirements, depending on how

much the company wants it to constitute a competitive advantage for the SC actors.Based on the argument developed in Section 3.1, we also recommend that a 5-pointscale be used for this rating.

The Requirement Strategic WeightRSWi, which is a comprehensive relativenormalised weight of each of the m requirements, computed fromRRIi andRSGias follows:

1

( ) ( ) 100.m

i i i i i

i

RSW RRI RSG RRI RSG=

=

(1)

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Part 3: The Customer Requirements Correlation Matrix explores the interrelationship

between pairs of customer requirements. Again, based on our argument in Section 3.1, afive-score (9, 3, 0, 3 and 9) system is used: 9 means strong positive correlation,3 means positive correlation, 0 means no correlation, 3 means negative correlation,and 9 means strong negative correlation. This should be done by the cross-functionalQFD team.

Part 4: In this part, we identify all the business processes (HOWs) that contribute tomeeting the requirements enumerated in part 1. LetPj be thejth process,j = 1, 2, , n.

Part 5: In the Process-Requirement Relationship Matrix we demonstrate therelationship between customer requirements and processes by assigning scoresin the intersecting cells. Here again, these scores should be assigned and discussed by thecross-functional QFD team, using the four-score (0, 1, 3, and 9) system as discussed in

Section 3.1 and where 0 means no relationship, 1 means weakly associated, 3 meansmoderately associated, and 9 means strongly associated (that is, the processcontributes heavily to meeting the customer requirement). LetAij be the score assigned tothe relationship between the ith customer requirement and thejth process.

Part 6: The Process Weighting box contains three elements which help to assess thestrategic importance of each process:

the Process Relative ImportancePRIj, which is the sum of the products of therelationship between customer requirements and processes and the relative strategicweight of the customer requirements, that is,

1

( ), 1,2, ,m

j ij i

j

PRI A RSW j n=

= = K (2)

the Process Value ImportancePVIj, is the added-value factor which expresses(on a 5-point scale) how much value each of the processes adds to the SC and the

potential cost savings that it encompasses

the Process Strategic WeightPSWj, which is a comprehensive relative normalisedweight of each of the n processes, computed fromPRIj andPVIj as follows:

1

( ) ( ) 100.n

j j j j j

j

PSW PRI PVI PRI PVI=

=

(3)

Part 7: The Process Integration Matrix is an assessment of how much the processes areinterrelated. The degree of interrelationship is a function of the amount of information

shared between any two given processes. Here we use 9 for high amount ofinformation, 3 for moderate amount of information, 1 for low amountof information and 0 for no information shared. This Process IntegrationIndex, assigned to each pair of processes, helps to determine the degree of processintegration.

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3.2.2 Stage II: company integration

Part 8: This part comprises all the major companies (WHOs) that are involved in the

processes identified in part 4. This could include third party service providers. Let Ck be

the kth company, k= 1, 2, ,s.

Part 9: The Company-Process Relationship Matrix explores the relationship between

companies and processes by assigning a score of 0, 1, 3 or 9 in the intersecting cells,

A high score signifies that a company is a major contributor to a given process. LetBkj be

the score assigned to the relationship between the kth company and thejth process. Here,

the scoring is done first by the internal QFD cross-functional team before being discussed

by inter-organisational teams on a pairwise basis.

Part 10: The Company Weighting box contains three elements, which help to assess the

strategic importance of each company:

the Company Relative Importance CRIk, which is the sum of the products of the

relationship between companies and processes and the relative strategic weight of the

processes, that is,

1

( ), 1,2, ,n

k kj j

j

CRI B PSW k s=

= = K (4)

the Company Strategic Importance CSIk, which expresses (on a 5-point scale)

the strategic importance attached by top management to the various companies

(this is a measure of the degree of collaboration on a long term basis)

the Company Strategic Weight CSWk, which is a comprehensive relative

normalised weight of each of thes companies, computed from CRIkand CSIkasfollows:

1

( ) ( ) 100.s

k k k k k

k

CSW CRI CSI CRI CSI =

=

(5)

Part 11: The Company Integration Matrix is an assessment of how much the companies

are interrelated. The degree of interrelationship is a function of the amount and strategic

importance of information shared between any two given companies. Information shared

could include data on product design, production capacity, production planning, customer

order management, forecasting, inventory, warehousing, transportation, cost structure,

performance metrics, product returns and after-sales activities. Here we use the same

scores as in part 7, that is, 0, 1, 3 and 9. Since information flow between two companies

could be bidirectional, each cell contains a double score (referred to as the CompanyIntegration Index (CII)) that indicates the intensity of information flow in each direction.

For example, if the number 91 is entered in the intersecting cell of companies C1 and C2,

the first digit (9) signifies that there is a high amount of information flowing from C1 to

C2 while the second digit (1) signifies that the amount of information flowing from C2 to

C1 is low. Blank or 00 means that there is no information flow in both directions. The CII

helps to determine the degree of company integration.

The goal of SC integration is to link up the marketplace, the distribution network, the

manufacturing process, and the procurement activity in such a way that customers are

better serviced at a lower total cost; information systems make this integration to be

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successful since they link customers directly to suppliers and enable the suppliers to react

in real time to changes in the marketplace, thereby enabling supply and demand to bequickly matched (Chopra and Meindl, 2001; Siau and Tian, 2004). We will therefore, inthis paper, assimilate SC (company) integration to sharing of information between the SC

partners. Though integration includes joint coordination of the various SC activities(forecasting, production planning, inventory management ), coordination becomes realsuccess when information on these activities is exchanged and shared among members ofthe SC.

3.3 Transport integration

In many business sectors, transportation is a crucial component of the SC sincemanufactured goods have to be moved to the customer quickly, safely, cost-effectively

and on time. Given also that customers ask more and more for an integrated just-in-timeand efficient all-inclusive door-to-door service at a predetermined price, contemporarycarriers are expected to play a major role in supply chain integration and dissemination ofinformation (Wagner and Frankel, 2000). Panayides defined intermodal transport as

the transport of unitised loads by the coordinated use of more than onetransport mode so that the comparative advantages of the modes are maximisedand the transport chain is guided as one unity. (Panayides, 2002)

In our SCM Function Deployment model, carriers are considered as SC partners and assuch are included in part 8 which comprises all the major companies (WHOs) that areinvolved in the processes identified in part 4. If a SC uses carriers with different modes oftransport, we can use the CII, determined in part 11, to assess the amount of informationshared between them. This would help to determine the nature and level of coordination

and integration required between the carriers, before finally choosing the appropriateinformation technology that would enable better planning and interconnectivity of modes,facilities and services.

3.4 Integration and information support system

If process integration has been relatively well accomplished with the introduction ofEnterprise Resource Planning (ERP) systems, which enable to integrate the transaction

processing activities of the entire company, company (inter-organisational) integrationstill remains a difficult and complex task. Information Technologies (ranging from simpleElectronic Data Interchange (EDI) systems to more sophisticated internet and web-basedsystems) exist for various degrees of integration, but for managers, it is often difficult todecide the most appropriate IT to manage relationships with their SC partners. We

propose a template that would help to make such decisions.With advances in technology, there has been a considerable evolution in the nature of

Inter-Organisational Systems (IOS). Clark et al. (2001) enumerated seven levels ofOrganisational Interconnectivity (OIC), ranging from physical data transfer using paperto web-based virtual integration where information, cost and risk are shared based onmutual trust. From our preceding analysis in this paper, these seven levels can be groupedand reduced to three: communication, coordination and collaboration. We use the wordcommunication to represent the simplest level of OIC where there is a unidirectionalelectronic transfer of messages (data) from one organisation to another. Coordination is

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the second level and refers to cases where there is bidirectional transfer of data, which are

integrated with the internal information system of the organisations in order to efficientlycoordinate activities between them. Collaboration is the third and highest level where, inaddition to total integration and exchange of data, organisations share proprietary andvery sensitive information on a long-term basis.

The level of interconnectivity between two organisations will depend not only ontheir respective strategic importance (which corresponds to the CompanyStrategic Weight in our SCMFD model), but also on the amount and importance ofinformation that they exchange (which corresponds to the CII in our SCMFD model).A cross-tabulation of these two variables provides a template (see Table 1) for decidingthe level of interconnectivity. In rows we have the CII grouped into six categories and incolumns we have pairs of Company Strategic Weights (for example, High-High meansthat the CSW is high for both firms, High-Medium means that the CSW is high for one

firm and medium for the other, High-Low means that the CSW is high for one firm andlow for the other, etc.). In Table 1 collaboration is highly suggested when the CSWcouple is High-High and the intensity of information flow is high or medium in bothdirections (CII = 99, 93 or 39). On the other extreme, communication (or nothing) issuggested when the CSW couple is High-Low, Medium-Low or Low-Low and the CII is10 or 01.

Table 1 Deciding the level of interconnectivity between firms

Company strategic weight

High-low/medium-low/low-low

High-medium/medium-medium High-high

99, 93, 39 Collaborate if cost effective

and data are strategic

Collaborate if data

are strategic

Collaborate

91, 19, 33Coordinate

Collaborate if costeffective and dataare strategic

Cooperate if dataare strategic

31, 13, 11Coordinate if cost effective Coordinate

Collaborate if costeffective and dataare strategic

90, 09, 30, 03 Communicate if data areimportant

CommunicateCommunicate

10, 01 Communicate if costeffective and data areimportant

Communicate ifdata are important

Communicate

CompanyIntegrationIndex(CII)

00 No linkage

The use of this template will help to group a firms SC partners into three categoriesdepending on the level of interconnectivity required communication, coordination andcollaboration before deciding the appropriate Information Technology to beimplemented for each category. Generally, EDI or simple internet connections areenough for the first level (communication) while coordination and collaboration requiremore advanced technologies such as proprietary application software, web-basedsystems, XML, or a combination of these (Premkumar, 2000). One of the informationsystem initiatives that have helped to move towards real collaboration is CollaborativePlanning, Forecasting and Replenishment (CPFR).

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Generally, the failure or success of an IOS depends on various factors: effective

communication, trust, operational uncertainty, different objectives, changes in businessprocesses, power relations and politics, cross-cultural issues, resistance to change,disparate expectation levels, use involvement and participation, training of users,relationship management, and information, data standards and protocol (Allen et al.,2000; Grossman, 2004). It follows that, in a very dynamic business environment, the ISOshould be designed to allow for partnering flexibility, which refers to the ease ofchanging SC partners, in response to changes in the business environment (Gosain et al.,2004). The system should also be designed such as to increase the involvement of allactors, more so when suppliers do not benefit equally from IT used in SC relationships(Subramani, 2004).

In summary, the SCMFD helps us not only to identify key processes that contribute tomeeting the requirements of ultimate customers, but also to determine those processes

that should be integrated and the degree of integration necessary. It also enables toidentify key members (companies) in the SC that should be integrated, as well as thedegree of integration and collaboration amongst them.

4 Applying the SCMFD

High Tech Electronics (HTE)2 is a big aerospace company that manufactures keyelectronics components for commercial transport, business jets, military helicopters andaircraft. It supplies products and services to a dozen manufacturers, some 250 airlines and50 armed forces around the world. It generates an annual turnover of about 12 billioneuros and employs more than 60,000 people in 58 different countries.

Up till the year 2002, HTE was faced with problems of high operational logisticscosts (inventory, packaging, shipping, transport, containerisation, freightforwarding/brokerage, and paperwork/documentation) and late deliveries to theircustomers (aircraft manufacturers and airlines). It therefore felt the need to re-design andintegrate its SCM systems, with the aim to:

increase the percentage of items delivered on time from 75% to 98%

reduce overall operational logistics costs by 20%

reduce delivery lead time by 30%

deliver 100% error-free products.

At the preliminary stage of re-designing the SCM system, HTE asked questions such as:

Which internal functions should be grouped together under the SCM umbrella?

Should one SCM system be responsible for the three main business operations:supply of original equipment to aircraft makers, supply and distribution of spare

parts to airlines, and maintenance and repair of its products? Or, should a differentSCM system be designed for each of these operations?

In the case of spare parts, what should the distribution network look like and, howmuch inventory should be kept and where?

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Which of the SC partners should be closely involved and to what extent?

What information support systems should be used to run the system?

What should be the missions of the SCM department?

To address these issues, HTE created a pilot committee that included staff from differentdepartments logistics, purchasing, procurement, engineering, marketing and sales. This

pilot team constituted the QFD team that interviewed (during several face-to-facemeetings) inter-functional groups of the customer companies in order to identify theirrequirements. The team was also responsible for scoring the different items andrelationship matrices in our SCMFD model, as well as prioritising them.

4.1 The SCM systems of the aerospace company HTE

Generally, in the aerospace sector both before- and after-market SC activities aresignificant. The degree of product complexity is high due to engineering complexity,tough product certification requirements (for safety and reliability) and configurationmanagement associated with the technological evolution of aircraft components.

Figure 3 shows the SCs for commercial aircraft. It can be seen that HTE belongs totwo distinct SCs in that it is a tier-1 supplier of original equipment to aircraftmanufacturers (mainly Airbus and Boeing) and a direct supplier of spare parts and

provider of engineering and MRO services to airlines and operators. It therefore has twodirect customers: aircraft manufacturers and airlines.

Figure 3 Supply Chains for commercial aircraft

Apart from internal coordination and integration of manufacturing functions, it followsthat there are two main areas where collaboration and integration are needed.

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The Before-market Upstream SC where there is more and more collaboration

between the aircraft manufacturers and their tier-1 suppliers in the design of keysubsystems. HTE, being almost as big as its customers, is totally independent interms of research and fully responsible for the development of its products. Here, themain objective of its SCM system is to maximise operational efficiency by assuringan uninterrupted direct flow of components to the aircraft assembly plants.

The Aftermarket SC where inventory of costly spare parts is needed for efficientMRO activities, to enable airlines to reduce turnaround time. In this case, OEMshave to provide customer support throughout the lifespan of the aircraft.

Moreover, HTE is very active in the SC where close collaboration between airlines,OEMs and part suppliers is needed in order to reduce the Life Cycle Cost3 of the aircraftand to manage traceability and technological evolution of parts throughout the lifespan of

the aircraft.After extensive consultations of the key SC actors, this pilot committee set up byHTE came up with three different scenarios that were assessed using a multi-criteriaweighted average method. The main points in the option adopted are:

Two distinct SCM departments the first one being responsible for on-time directdelivery of error-free components to the aircraft assembly plants (flow 1 in Figure 3);and the second one being responsible for the aftermarket MRO activities. Thissecond SCM system consists of two subsystems: the SC of spare parts (flow 2a inFigure 3) and the management of Line Replaceable Units (flow 2b in Figure 3).The latter entails maintaining an inventory of components (or subassemblies)that are used to replace failed LRUs almost instantly in order to minimise theAircraft-On-Ground downtime

The SCM systems included only the following functions: forecasting, logistics,procurement and delivery, and excluded purchasing and engineering

The missions of the SCM systems were clearly defined: have a real-time globalknowledge of spare parts and LRU inventory around the world, optimise inventorylevels, optimise the distribution network, optimise physical and information flows,guarantee the availability of reliable information at every level of the SCs, guaranteean efficient and responsive MRO system, satisfy both the aircraft makers and theairlines in terms of quality, punctuality and service levels, minimise transportationcost and, coordinate and integrate the key actors of the two SCs.

4.2 The SCMFD model applied to the aerospace company HTE

Figure 4 shows a concrete application of this model to the case of HTE Company. Here,some of the customer (airlines) requirements are maximum safety (R1), on-time delivery(R2), low operating cost (R3) and passenger comfort (R4). And some of the processes are

product design (P1), manufacturing process management (P2), spare parts supplymanagement (P3), order fulfilment (P4) and procurement of raw materials (P5).

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Figure 4 Example of SCMFD (as applied to the HTE case)

We refer to the companies involved in the SC as C1, C2, C3 and C4. Some of theconclusions that we can draw from this figure are:

In terms of gaining competitive advantage and satisfying key customer requirements,HTE should invest more on requirement R1, which has a strategic weight of 43rather than on R4, which has a weight of 10 (see column RSW).

Looking at the Customer Requirements Correlation Matrix, we can see that there is astrong negative correlation between R1 and R3. This means that an excessive searchfor low operating cost would have an adverse effect on safety. Therefore, top

management has to be conscious of the trade-off between these two requirements.

With a strategic weight of 48 (see row PSW), P1 is a strategically value-addingprocess and should be totally integrated with P2 (PII = 9 in the process integrationmatrix), whereas P3 (with a strategic weight of 6) is of less importance.

With a strategic weight of 60 (see column CSW), C1 is a strong strategic partner ofHTE, whereas C3 could be regarded as a division 3 partner.

Concerning the level of interconnectivity, HTE should consider long-termcollaboration with C1 and C2 (with which it has a CII of 93 and 99 respectively).

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Generally, most of the objectives set out by HTE have been achieved. By the end of

2004, the percentage of items delivered on time had reached 99%, the overall operationallogistics costs was cut down by 15%, the delivery lead time was shortened by 40%,and 99.5% of their products were delivered error-free. Note that these achievementswere made by implementing some SCM concepts and techniques such asVendor-Managed-Inventory, Direct Store Delivery, Lean Manufacturing, CPFR,Integrated Logistic Support, EDI and web-based systems. The SCMFD model was usedmainly as a decision-making tool to identify development and improvement areas, as wellas the major SC partners with whom to collaborate for the effective implementation ofthe above concepts and techniques.

5 Discussion and conclusion

In this paper, we demonstrated that it is normal to have many configurations of SCs bothin theory and practice, due to diverse situations on one hand and the diverse nature andcharacteristics of products and industrial sectors on the other hand. We defined SCMfrom a broad perspective and presented a semi-qualitative model that we named SCMFD,adapted from the QFD method. QFD has been used by some authors to linkmanufacturing processes to customer requirements (for example, Crowe and Cheng,1996) and by others to select suppliers (for example, Onesime et al., 2004). This is thefirst time that the two business management issues (the identification of key processesand the selection of key suppliers) are tackled in one single model, by linking the threekey components of a SCM system: customer requirements, business processes, and SC

partners. In practice, relationship with customers is most often managed by marketing,sales and outbound logistics departments while relationship with suppliers is management

by procurement and inbound logistics departments. As a result, there are inefficienciesbetween the upstream and downstream parts of the SC. Our SCMFD model is a powerfultool which managers can use to link customer relationship management and supplierrelationship management, making the entire SC to be oriented towards the satisfaction ofthe ultimate customers while removing wastes from the processes that link the upstreamand downstream parts. This brings efficiency to the company, as well as to itsSC partners. Applying QFD to SCM also enables to identify improvement areas that, ifaddressed, would lead to shorter lead times, increased communication, increasedmultifunctional and inter-organisational teamwork, better understanding of the ultimatecustomers needs by the major SC partners, better conciliation of customer satisfactionand business priorities, easy identification of improvement areas, effective integration of

processes, improved connectivity between SC partners, and better choice of information

support systems.The most sensitive issue in the application of QFD to any real-world problem is the

choice of the scoring system. Burke et al. (2002) developed a set of rules to act asguidelines for building and scoring QFD matrices:

ensure the importance scores are on a ratio scale

normalise the scores so they sum to one (or 100) and can be used as weights

ensure the relationship scoring is on a ratio scale, if possible, to ensure an intervalscale column score

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the scores from one HOQ should not be used as weights for another HOQ since the

method for producing the scores cannot guarantee ratio scale scores

remember that final scores are only a recommendation. Our SCMFD model respectsall the above rules except rule number 4.

This did not significantly impact the meaningfulness of the results obtained by our casestudy company (HTE) since the aim was not to obtain a strictly ordered list of processesand SC partners, but simply to identify key processes that need utmost attention andmajor SC partners with whom to share risk and important business information on a longterm basis, in order to better meet the key requirements of the ultimate customers.However, if the aim is to rank and prioritise the different items, then a more robustscoring system such as the Analytic Hierarchy Process (AHP) approach should be used.Capable of handling both qualitative and quantitative attributes, AHP is a multi-criteria

decision-making method that enables to structure items into different hierarchical levelsbefore they are compared on a pairwise basis in order to determine their relativeimportance. Using the AHP method, the 5-point scale (5, 4, 3, 2 and 1) is transformedinto priority weights of 0.416, 0.262, 0.161, 0.099 and 0.062. With these weights, the riskof explosion, that could result from the weighted sum of the scores, would be reducedsignificantly since the ratio between adjacent scores is constant (approximately 1.6),compared to the increasing ratio (1.25, 1.33, 1.5 and 2) between adjacent scores in the5-point scale. Readers who are interested in the details of how the AHP weights arecomputed should consult Onesime et al. (2004) or Chan and Chan (2004) for anillustrative example of an AHP model used for supplier selection.

Also, in our SCMFD model, the Relative Company Importance was determined basedon mainly strategic business priorities such as cost, innovation, quality, delivery speedand reliability, flexibility and responsiveness. Using the AHP method would enable totake into consideration other relationship factors such as trust, operational uncertainty,divergent objectives, power relations and politics, cross-cultural issues, and resistance tochange. From the above discussion, it is clear that one of the topics for further researchwill focus on the incorporation of the AHP approach into our model.

Four of the major SCs in the civil aerospace industry are:

the production of original equipment for aircraft assembly

the production of parts for aircraft maintenance

aircraft maintenance service operations

the transportation of passengers by the airlines.

This paper addressed mainly the first two SCs which are manufacturing-orientedoperations. The last two are more of service-oriented operations. Applying our model tothe service industry requires further research for two main reasons:

services are intangible products and as noted by Sampson (2000) intangibles are inmost cases produced and consumed simultaneously, they are difficult to store and itcould be difficult to identify their suppliers

as also noted by Sampson (2000), there is a customer-supplier duality in serviceoperations, that is, some services have customers as primary suppliers of inputs.

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For example, in the aircraft maintenance service sector, an airline supplies (delivers) its

aircraft to the maintenance operator. This implies a bidirectional flow of products,whereas in the traditional SCM concept as it is applied to the manufacturing industry,there is mainly a unidirectional flow of products from suppliers to customers.

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Notes1Note that activities, functions and processes are sometimes used interchangeably both in theliterature and in this paper, but generally a process encompasses activities that are executed by thedifferent functions of a company.

2Fictional name.

3Life Cycle Cost, LCC = Total cost of Acquisition + Maintenance + Energy + Replacement+ Recycling + Disposal Salvage.

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