Prevalent practices and trends in supply chain and logistics management

Today and also in the next few blogs I am going to share my views on the concurrent global supply chain management. Those views were put together through the interviews by Singapore Business Review - thought leadership series. The first part is about the prevalent practices and development trends in supply chain and logistics management.

I my view there are six major development trends in supply chain and logistics management.

• The first is the trend of increasing global market volatility and uncertainty across most of industrial sectors. This is particularly so after the impact of economic down-turn since 2008. The trend has been mainly influenced by the increased market transparency and greater price sensitivity driven by the Internet based shopping facilities, which have led to much lowered customer loyalty.
• The second trend is that the supply chains and global logistics businesses are increasingly reliant on the growth of global customer bases, giving rise to a more global facing business model. The law of economy of scope has determined that the critical importance of market expansion especially for the logistics businesses. Future survival of supply chains depends more on the newly explored international customers instead of the existing indigenous customer bases.
• The third trend is the increased management emphasis on supply chain sustainability. Environmental, social and economic sustainability are becoming the key strategic considerations in the development of future supply chains especially in the resource hungry logistics businesses. Today, the sustainability issue is no longer driven by the need for regulatory compliance alone; it is becoming the strategic differentiator.
• The fourth is the trend towards more flexible and agile supply chains. This is a responding development to the increasingly volatile global market places, especially in the fast developing regions in Asia. Logistics business in particular has become more nibble, elastic, and versatile in its value-offering that aims to satisfy the sharp end of the customer needs.
• The fifth is that supply chains across the world have displayed an unmistaken trend towards vertical-dis-integration and heightened level of outsourcing. Being able to outsource increases the supply chain’s survivability through engaging external capabilities. Thus today’s trend is to “managing the vertical integration without actually having a one”.
• The sixth trend is towards the increasingly intensified risk management. Supply chain managers realised that in today’s business environment, not to manage the risk will result in managed by the risks. In the global logistics business sector, high sea piracy and extreme weather conditions all play a more disturbing role in exacerbating the risk factor. Risk and opportunity management should span the entire supply chain—from demand planning to the expansion of manufacturing capacity.

In terms of the most prevalent and widely discussed supply chain management practices, I would like to mention the following.

Supply Chain Integration perhaps is the most ‘popular’ supply chain management practice. It can be understood as managing independent participating members in the supply chain to perform as if they are one. It creates multiple level interfacing and collaborations; share extensive amount of information in between the member companies; develop joint scheduling and planning systems; practices early involvement of suppliers in NPI (new product introduction) processes and so on.

Managing through Close Partnership is also an approach widely acclaimed to be effective in supply chain management practice. It has been modelled as ‘win-win partnership’ whereby all parties in the relationship will have positive gains and there will be no net losers. This practice is based on the philosophical understanding that when the two parties gets closer in their engagement, there come the trust, loyalty, commitment and synergy as the outcome. It is evident there is a trend from the short-term antagonistic relationship model towards a long-term, share destiny relationship model in supply chain management. The relationship approach works particularly well-suited in Asia nations due to some supportive cultural factors.

Lean Supply Management is another major category of concurrent supply chain management practices, which is developed from the Japanese auto supply chains’ best practices. It features many widely benchmarked best-practices, such as constructing a small 1st-tier supply base, close relationship with suppliers, long term contract, single or dual sourcing, performance based supplier selection, ‘market price minus’ pricing, synchronised flexible capacity, and just in time delivery.

Agile Supply Management practice has recently become well known. One of the most distinctive characteristics of the agile supply chain management is being able to respond to the demand fluctuation very quickly and effectively, hence achieving higher level of supply chain responsiveness. It is most applicable in fashion product category supply chains, where the market demand could be uncertain and volatile. The most used approach to achieve supply chain agility is ‘postponement strategy’ or ‘delayed product configuration’.

Strategic Outsourcing is also a prevalent supply chain management practice, which essentially addresses the supply chain’s structural re-design or re-configuration. It basically moves one or more internal operations or processes out to the external suppliers. There are many strategic advantages that outsourcing can achieve for the supply chain if it is carried out properly, such as reducing the total supply chain cost, focusing on core competences, increasing business flexibility, and further differentiating the competitive edge and so on.

There are also many other supply chain management approaches such as: strategic alliance, vertical integration, knowledge based sourcing, consolidated purchasing, joint venture, Keiretsu relationship, vendor managed inventory, value stream mapping, time based process mapping, and etc..

Dawei Lu : 01 Jul 2014 17:16 |  Comments (0) |  Close comments |  Report a problem

Excellence Models and their theoretical basis: the Individualistic Logic

Following my discussion on the commonality logic on February 6th 2013, I would like to share my research on the development of Individualist Logic. The problem with the commonality logic is that it can only deliver the necessary conditions for achieving business excellence. It offers no theoretical reassurance of the sufficient conditions to achieve the excellence. In fact, the only thing management would like to have in the end is a set of sufficient conditions that guarantee the attainment of excellence. Necessary conditions offer only the first step albeit critically important. The gap between the necessary condition and sufficient condition is, however, not common to all organisations. To fill the gap we must use an alternative theory that addresses the individually specific conditions for excellence – we call it ‘individualistic logic’.

The individualistic logic in the context of assessing business excellence is defined by the authors as ‘the theoretical reasoning approach that is based on the individually specific conditions that contribute and suffice the business excellence.’ It is worth noting that to have something different is by all means ubiquitous; but, having the unique practices that directly result in the market success and excellence is quite another matter, and that is what we are defining. With this definition and its application in the assessment of business excellence, we would suggest a number of potential conceptual implications for debating since not all will be rigorously testified in this paper:

• All excellence is a unique excellence, never a ‘common excellence’.
• The details of a company’s future attainment of excellence cannot be foreseen until unless it has been achieved, since they will be brand new to us.
• To achieve excellence, companies should not just benchmarking on the best practices of others, but to cultivate personalised individual unique practices that suits the individual circumstance.
• Any individually developed unique practice, when proven beneficial for much wider circumstances; it becomes the general ‘best practice’, and cease to be unique to others.
• The uniqueness or individuality plays equally important role in achieving excellence.

Today, world class organisations often owe their achievements and excellence to their individually specific unique practices (including unique strategies, unique business models, and unique operational processes) that fit to their specific business environment. Our research shows that all world class organizations became so by having something unique, something that they do differently from their competitors and as a result they bring about market success. The literature world is replete with evidence of such uniqueness of world class companies such as Toyota, Zara, Dell, IKEA and so on (all those four companies are the Forbes 2012 top 25 most admired companies).

Dawei Lu : 27 Feb 2014 16:48 |  Comments (0) |  Close comments |  Report a problem

Thoughts on world class excellence – Unique Voice

Following my earlier discussion on the thoughts of World class excellence covering operational excellence, strategic fit and capability to adapt, here I would like to discuss another defining characteristics of world class excellence that is the unique or even idiosyncratic nature of business. The Unique Organizational Voice (or Unique Voice in short) is thus defined by as organization’s unique practices that result in market success. The idiosyncrasy is a trait that has been acknowledged in much of the capability literature (Gratton and Ghoshal, 2005, Barkema and Shvyrkov, 2007). This dimension of our model is a combined representation of any unique business policy, process or operation that fits particularly well to the organization’s specific circumstance and delivers winning performance in the market place. Our research shows that all world class organizations became so by having something unique, something that they do differently from their competitors and as a result they bring about market success. The literature world is replete with evidence of such uniqueness for world class companies such as Toyota, Zara, Dell, IKEA and so on. Figure 2 illustrates a conceptual model of Unique Voice. From an organization’s internal perspective, it represents the signature policies, processes and operations that characterize the brand or distinctive image of the organization in the eyes of its customers. Externally it represents the differentiated advantage the organization enjoys in the market place as a result.

It should be noted that the concept of signature process is not new (Gratton et al, 2005). The significant difference here is that the Unique Voice has two parts, inside and outside. The inside one refers to the signature practice which includes signature processes, signature strategy, policies and operations and so on. The outside one represents the favourable outcomes in the market place as the result of the signature practices. Our literature review so far reveals that no existing business excellence models or performance measurement system has captured this important dimension.

Unique voice represents the individualist school of business excellence. The paradigm change from a generic approach towards an individualist approach took place from the beginning of the 21st century with a growing body of literature discussing how leading edge organizations created excellence through identifying and developing their own signature practices that outperform their competitors. They often sail into the unchartered water by pursuing differentiated competences and unique voices that result in difficult-to-imitate competences which lead to an enhanced competitive edge, thus supporting the conclusion that true excellence is always unique. This perspective has been echoed by many contemporary management thinkers around the world. Gratton et al (2005) stressed the importance of developing the individualized signature processes not just copying the best practices. McGahan (2004) developed an industry evolutionary model and concluded that business success and excellent performance can only be realized if and only if they fit to their individually specific trajectory of evolution. Kim and Mauborgne (2005) in their international bestselling book “Blue Ocean Strategy” emphasized the critical importance of creating the company’s own individualized “blue ocean” to make the competition irrelevant.

Dawei Lu : 24 Oct 2013 10:27 |  Tags: Excellence |  Comments (0) |  Close comments |  Report a problem

Excellence models and their theoretical basis: The Commonality–Logic

The value and contribution brought about by the world wide movements and campaigns on developing business excellence has also been undeniably significant and remarkable (Dahlgaard & Eskildsen, 1999; Dahlgaard-Park & Dahlgaard, 2006). Nevertheless, the quantity of the models developed and the scale of their global application will not disguise the challenges arising from within. As part of my research focus at the moment, one challenge is about our understanding on the underlying theoretical basis upon which all or most of the excellence models are based. If such basis do exist, the next question would be how comfortable are we about its validity and appropriateness for today’s requirement.

To this end, I would like put forth a hypothesis that all business excellence models (or frameworks used interchangeably later) are based on one theory defined herewith as the ‘commonality logic’. The commonality logic in the context of assessing business excellence means a reasoning and decision approach that is based on identifying and measuring against the common factors of business excellence. This logic suggests two points: 1) all excellent companies have a set of common characters; 2) any non-excellent company can become excellent one if it acquires those common factors. Those ‘factors’ are often referred to as in the forms of KPIs, success factors, principles, traits, characters, excellence measures and so on that are common to all excellent companies. We hereby define this underlying assumption as the ‘commonality logic’.

The evidences to support the hypothesis are fortunately readily available in the plethora of literatures. Peters and Waterman’s (1982) work is regarded as a seminal contribution to the understanding of the common traits of the ‘excellence’ companies with the eight attributes of excellence defined. Hayes and Wheelwright (1984) provided a major sea-change to their connection between internal development and the evolution to ‘external excellence’, and provided the four common stages of excellence development. Schonberger (1986) picks up the same issues as Hayes and Wheelwright and coined the phrase World Class Manufacturing and in his follow-up book “World Class Manufacturing: The next decade” (Schonberger, 1996) described the 16 common principles that underscored the importance of connecting customer-focus with employee-drive and data-based process performance. In the European Excellence Model there are clearly defined 5 enablers and 4 results (EFQM, 1999a,b) in what is called the 9 factors model. The 9 factors are to be assessed as the common dimensions of measures for excellence. The Baldridge Excellence Model sets up seven common categories of criteria for the organizational performance excellence (Lee, et al., 2003; Pannirselvam and Ferguson, 2001), of which six of them are about the approaches and development (including: leadership, strategic planning, customer focus, information / analysis, workforce, and processes) and the seventh criterion is the business performance results. Xerox has defined excellence as being certified with a high score on six common excellence criteria (Fornari and Maszle, 2004 ). This fact finding can surely go on and on.

The only consistent feature of all the models being examined is that they appear to have identified and truly believed in a set of common dimensions of logistics measures. If a company can score well on those dimensions, it will be regarded as an excellence company. The rationale is simply because that all other excellence companies appear to have those factors in common, which is basically the commonality-logic in practice.

Commonality-logic is obviously a valid and powerful logic in many circumstances. Many management theories are largely based on this logic. The argument, however, is often revolved around the choices of the common factors or components, but no one questions the underlying assumption of commonality-logic itself. This appears exactly what has happed to all those diverse varieties of frameworks, some of which may be very disagreeable with one another. Different frameworks have different choices of factors, structures, flows and measures, albeit there is always a significant degree of overlap in between. In the case of measuring logistics performance, we argue that the commonality-logic should not be applied in isolation.

I would like to challenge the research community by arguing that this logic has a pitfall and could even be theoretically fraud. The biggest fallacy of the commonality-logic, however, lies in its lack of falsification (Lakatos, 1978; Lakatos and Feyerabend, 1999). In other words, the conclusion drawn from the commonality logic may fail the falsification test even though they passes the positivist test, and hence the commonality-logic as defined above is certainly not perfect in view of strictly scientific methodology. A practical implication of this view is that it is still possible to identify some excellent companies that do not necessarily meet all the conditions of common factors; and some companies that do so may still not really the world class excellent companies. Thus, a derived further hypothesis would be: to rely on the commonality logic alone is not a secured theoretical approach to evaluate business excellence. This hypothesis is to be tested immediately in the next section. 

Dawei Lu : 06 Feb 2013 09:29 |  Comments (0) |  Close comments |  Report a problem

Thoughts on World Class Organisation – Capability to Adapt

The third dimension of our model looks at an organization’s Capability to Adapt. To be successful and even stunningly successful at one moment in time is not difficult. But it is a lot harder to sustain it. Organizations that meet the challenges with the right responses have been seen to succeed. But faced by new challenges, too often the old successful patterns no longer work. Our literature review again shows that few of the existing models and frameworks have given adequate emphasis to this crucial aspect of world class companies. For example, in the McKinsey’s 7-S framework (structure, strategy, systems, shared values, skills, staff, and style) none of the criteria directly or indirectly specify the constant need to adapt; in Peters and Waterman’s search for excellence model (1982, pp.13-16) the eight attributes are detailed which they believed to have characterised the excellent and innovative companies. Again none is related to capability to adapt. EFQM’s Business Excellence Model has been criticized for not having measures on change management (McAdam & O'Neill 1999). Capability to adapt is a measure of organizational learning and organizational transformation – critical to the long term and sustainable success. It captures personnel training, technology upgrading as well as organizational structure and external supply chain change. We argue that such changes are essential for any organization that aspires to world class excellence.

Capability to adapt reflects the dynamic school of business excellence. Deep and rapid changes in management practices took place during the early 1980s. The changes were mainly spurred by the huge success of Japanese automotive and electronics industries. The concept of excellence here can be summarized as arising from strength in innovation, ability to change and a leadership that excels through both their values and their actions. Thriving on Chaos (Peters, 1987) was published only five years after his seminal book In Search of Excellence and analyzed the impact of uncertainty in the business environment requiring and increased capability for organizations to be able to adapt to such uncertainties. It is frequently stated that technology has an ever-increasing influence on every aspect of business and markets, and that customers continuously change their tastes and preferences. “Excellent firms don’t believe in excellence – only in constant improvement and constant change” (Peters, 1987). Soon after, Michael Hammer and James Champy published their book “Reengineering the Corporation” in 1993, which further supports the idea of adaptation and becoming a learning organization.

Dawei Lu : 18 Nov 2011 14:40 |  Comments (0) |  Close comments |  Report a problem

Has Toyota had a 'change of heart'?

On 7th Oct Bloomberg News bulletin posted an interesting article: 'Toyota Said to Ask Parts-Makers to Cut Prices or Be Replaced'. It is somewhat interesting because Toyota has been long held as the role model for close partnership with its suppliers. The partnership model with the first tier suppliers has been regarded as the critical factor for its success.  Not surprisingly, I was immediately asked by a number of executives in the automotive industry to share my view on this seemingly contentious phenomenon. Here is my answer and I would welcome any discussion and debate.

First, I believe it was a "desperate measure" for the "desperate time", for it was the first time I saw Toyota make such announcement that is seemingly controversial to its long beheld principles. The perpetual economic stagnation has been exacerbated by the rising exchange value of the Yen. The traditionally export-orientated industries of automakers and beyond have thus been truly bog mired in adversarial or even hostile environment. Something different has to be unleashed.

Second, I believe that it should not be read as an all-out "sea-change" in its relationship strategy, nor a "change-of-heart". The parts suppliers that will take the blunt of this strategy are likely to be the non-critical components prefecturers, not the sub-system manufacturers. The switching cost would be too high for Toyota to forsake its long-term sub-system producers. Toyota cannot afford it. Nevertheless, this announcement is still beneficial because "it kills the chicken in front of the monkeys"!

Third, I believe that any theories or business models, no matter how brilliant they may sound (just like the partnership model), will have to give way to the overriding "pragmatism" principle, which is only measured in terms of market success. A dogma is only worthy of beholding when and only when it delivers the practical success. It is perhaps the time now when the partnership modelf stood another real test.

Dawei Lu : 01 Nov 2011 19:59 |  Comments (0) |  Close comments |  Report a problem

Thoughts on World Class Organisation – Strategic Fit

Today I would like to share my views on the importance of "strategic fit" for the world class organisations. This discussion is in the context that to just have "operational excellence" is never enough to become or qualify for a world class organisation.

Strategic Fit

No world class organization can achieve sustainable success by relying on operation performance alone; there is a need to develop and execute strategies that connect internal resources to the external environment whilst representing stakeholders’ interests. Strategic correctness and excellence should thus constitute a distinct category of measures that shape business excellence. Whilst many excellence models emphasize the measures of strategic process, we contend that a brilliant strategic process does not necessarily result in strategic excellence. It is also the correctness of the contents of the business strategy that make or break the success. An apparent shortcoming in the reviewed literature show that many of the models examined do not give sufficient emphasis to strategic excellence, and even less so to the critical aspect of strategic fit.

Strategic fit reflects the strategic school of business excellence. During the 1990s and early 2000s, management communities began to realize the growing imperative of strategic fit over and above other critical measures. The premise of the concept is that the coherence between operational performance and overall business strategy takes a higher priority than the isolated operational performance itself. One must ensure the business is doing the right things first before making sure it does the things right. Thus, mission, vision and value became the pre-condition for business success. Strategy is a mediating factor between stakeholders’ objectives and operational behaviour. In short, this school of thought contends that there can be neither excellent operations nor excellent performances unless they fit to the business’s top level strategies. Hence, we saw a growing discussion of strategic direction in defining and achieving business excellence during the 1990s by many leading thinkers including Peter Senge, Henry Mintzberg and Michael Porter.

Dawei Lu : 30 Sep 2011 14:16 |  Comments (0) |  Close comments |  Report a problem

Book review

The book reveals its distinctive genre right from the first chapter, which is characterised by a highly pitched academic rigour and an epistemological approach, and it remains so consistently throughout. The literature reviews in every chapter has been without doubt aptly constructive to the topical theme and is comprehensive and thorough in nature. Considering that the book is accomplished by 24 contributors, the level of duplicated literatures cited by different chapters are extremely low, thus represents a high degree of coordination effort. Each of the three sections or even each of the 12 chapters can serve as a standalone reading and may be studied independently for a specific purpose. However, when one chose to work through the book systematically some discourses do appear to be overly lengthy and even duplicated occasionally, not verbatim, but in contents (e.g. even in Chapter 11, there is still a section on “What is Knowledge” whilst the book is drawn to close). The value of the book lies in the great coverage in the latest thinking and large collection of the developed frameworks in the area not to mention the highly sophisticated conceptual debates and in-depth exploration. However, one would prefer some more real-world case studies or just short case examples that lived the theory and engaged the real concerns. There is only one short case study presented in chapter 8. Also, on a much trivial note, a couple of diagrams and their text (e.g. the one on page 118, and Figure 3 on page 264) are too small to read.

Being an academic, I personally quite liked the book in that it addresses many intriguing theoretical under pinning on KM at the level that is intellectually challenging enough. It is, by usual academic standards, a well written and edited book in many respects. There is a consistent and high standard of subject language and rigorous approach in discourses and consistent logical structure employed across the12 chapters and 5 extended readings. The extensive coverage on the exploration of theories, strategic thinking, management frameworks and the analysis based on widely gathered factual data can be patently appreciated. The book is edited cohesively and the well structured logic flow through the subject areas can be easily grappled and it attained the richness and depth that any single author will find it daunting. The advantage of having multiple contributors, hence, has been appropriately harnessed. On the flipside of its strength, one may find it too notional to attempt for a quick grasp of the subject matter.

Based on the retailing price of £95, the book is not a cheap one, but it dose not take long to feel that it has a good value for the money. The extensive coverage and the level of the detail it carries offer a one-store-for-all collection. Along with the volume, it provides a comprehensive list of contemporary literatures in the subject area published around the world with in-depth reviews. It is also packed with benchmark-able information, data, and new models collected through countless research activities reported throughout the book.

The book is not suitable for any beginner, nor for reading through from cover to cover. It could be a highly valuable reference for library. Academics and consultants in this specific area will undoubtedly find it informative and mind-opening. PhD students or some Master level students may also find it valuable in some of their related research projects. But it would not be suitable for undergraduate students or any body lower than that level. I also doubt that the vast practitioners in real-world businesses will find it palatable, nevertheless one can never categorically exclude that case that with some help and guidance parts of the material could still be useful to them

Dawei Lu : 27 Sep 2011 19:49 |  Tags: Book Review |  Comments (1) |  Close comments |  Report a problem

Thoughts on World Class Organisation – Operational Excellence

As one of my key research areas, I would like to start a discussion on world class excellence, what it is, and how to achieve it. My thoughts are predominantly constructed around the "World Class Diamond Model" that I created during a major consulting project in 2006. Since then there are many valuable contributions made from my colleagues. In short I believe that all truly world class organisations demonstrate their excellence in four dimensions: operational excellence, strategic fit, capability to adapt, and unique voice. Today I start sharing some of my thoughts on the "operational excellence" and will follow it up with more discussions soon after. Comments, suggestions or questions are always delightfully received.

Operational Excellence

There is a strong body of evidence in the literature to support that world class organizations embrace operational practices that focus on right first time, high efficiency (productive) and effectiveness (customer/market oriented) of processes. These traits are captured in the dimension of Operational Excellence. As operations fulfil the customer requests, they become directly visible to the external environment. Thus in almost all excellence frameworks, measuring operational excellence is included. Because operations execute and deliver the strategic planning, they become the most immediately concerned and measured part of business.

What constitute the detailed measures in the Operational Excellence may vary significantly, and is better to be left open in the model, but for the managers to determine in their specific situations. There are many factors that will determine and change the concept of what is an excellent operation, such as, product categories, market competitive conditions, customer categorizations, and so on. Therefore in the assessment of world class excellence in operations dimension, it is vital that one adopts a situation-sensitive and firm-specific means of evaluation, and the World Class Diamond Model accommodates that.

Operational excellence has been discussed extensively in the classical school of business excellence. The mass-production systems herald by the Taylorism and Fordism in 1920s and 1930s were examples of classical business excellence, in which operational efficiency is the centre piece. Its objectives were to define the “scientific” organization by measuring cost, productivity, throughput time, volume, speed and etc. most of which are still used in today’s measurement system. Such excellence was achieved through specialization and “division of labours” and was driven by Adam Smith’s idea of value-maximization, which pervades economic and management theory. It is very much a “result-driven” excellence, which still has resonance in today’s excellence theories. Amongst the many great thinkers who theorized the concepts of operational excellence, were Adam Smith, Frederick W. Taylor, Henry Ford, Taiichi Ohno and Genichi Taguchi, to name just a few.

Dawei Lu : 27 Sep 2011 16:30 |  Tags: Excellence Operational |  Comments (0) |  Close comments |  Report a problem