The Games Suppliers Play
Peter Stannack, Principal Consultant 0 (+44) 1670 815258.
Professor E.E Scheuing
Professor E.E Scheuing, NAPM Professor of Leadership in Supply Management, St John's University 718 990 6770.
82nd Annual International Conference Proceedings - 1997
Background. Supply chain management (SCM) is perceived as a "hot", new area. Research projects are mushrooming. Increasing numbers of job advertisements for supply chain managers at increasing salaries pervade the recruitment pages of the newspapers. And yet, we can perceive almost an 'identity crisis' within the discipline. This paper is an attempt to explore whether supply chain management is any more than 'an academic fantasy' or 'a license for consultants to print money' as a number of respondents within our recent research have noted. Logically, driving 'waste' out of the supply 'chain' seems a worthwhile thing to do. This paper will consider the way in which different interpretations of supply management lead to different strategies. It suggests that these strategies are limited. It also looks briefly at the 'games' which suppliers play in response to these limited supply management strategies. Finally, the paper offers a new interpretative framework for supply management.
Introduction. If we accept the evolution of management systems and theories to be an attempt to deal with increasingly complex and intractable problems, we can identify a number of drivers for supply chain management. In manufacturing it has been driven by the employment of new manufacturing systems which are increasingly "fine tuned" with little spare capacity to cope with defects. This inability of the systems to cope with defects means that increasing emphasis has to be placed upon product consistency and reliability which many authorities interpret as 'quality'(Stannack and Osborn 1997).
Perhaps the most salient examples of this type of supply management system are found in the automotive industry where organisations such as Rover, Ford, Chrysler and General Motors have all implemented extensive "supply chain management" programmes.
These programmes should be seen in the context of the industry in which they take place. Automotive suppliers have often historically been a part of the parent company - Rover and Unipart used to be part of British Leyland, Many automotive suppliers in the United States used to be part of General Motors. This means that suppliers often start with an appreciation of mindset and culture of their customers.
Other factors impact upon the need for supply chain management strategies in the automotive industry. These include the fact that larger firms are increasingly becoming automotive assemblers. Assemblers require much lower tolerances for error than do manufacturers. They also include the increasing expectations of end use customers in the automotive assembly sector. These factors, of course are also true in the electronics assembly sector.
In sectors such as construction where 'adversarial' relationships have often increased waste due to duplication of effort we can see the use of 'partnering' agreements, alternative dispute resolution etc. In process industries and utility companies we can see a rise in the incidence of supply 'management'.
The authors' position is that the objectives of SCM are;
- to effectively predict and control the supply function
- to improve the performance of supply
Although the contexts in which these strategies are used vary widely, the challenges which they face in achieving these objectives are often similar.
The Challenges. In managing supply, we can identify a number of existing challenges and a number of iatrogenic challenges i.e. challenges which arise from the adoption of more active supply management strategies. The existing challenges have been documented elsewhere. This section will consider some of the iatrogenic challenges.
Cost. Andersen Consulting Ltd defines supply chain management as "Managing your suppliers' suppliers and your customers' customers"
Such a venture may well be a target which consultants can promulgate because of its scale. However, for individuals running businesses, the costs of such a venture is prohibitive. One example of the cost if supply management is found where Chrysler, Ford and GM have recently formed an alliance to manage their supplier development in conjunction with AAIG and IASQ. QS9000, which is a variant of ISO9000 adapted to the automotive industry. Although there are no reliable figures available as to the cost of this programme such programmes are likely to be beyond the remit of the vast majority of companies. QS9000 also only addresses so called "first tier" suppliers. If such programmes are extended to so called second tier costs could triple or quadruple.
Targets. Much of the work in supply chain management has involved an emphasis upon quality as consistency or reliability. Other targets which have been addressed have been cost and time. Essentially SCM is forced because of resource issues to address one target after the other. Cost is followed by "quality" which is followed by time. This incremental approach means that performance targets are unidimensional when performance requirements are multidimensional. In addition, research in progress seems to suggest that there are some target dimensions which are simply ignored as being too difficult to manage.
The second issue faced by supply managers are the criteria which might be used to target our improvement efforts. Using tools such as the Boston Consulting Groups. "Grid" which identifies suppliers on two dimensions of value i.e. cost and criticality of supply to decide where to target supply chain management effort can be problematic. An example of this could be the criticality/value being high to the purchaser but the suppliers perception of that value/criticality being low. Resistance to improvement will therefore be high and supply chain management effort become even more demanding of resource. In addition bi-dimensional constructs are rarely satisfactory as a basis for action planning, as the fewer constructs the worse representation of reality the model represents.
Applicability. As noted above, programmes such as QS9000 are well beyond the remit of the vast majority of purchasers. SCM seems, at the moment to be limited to large companies and smaller suppliers. During the research, a number of respondents pointed out the difficulties of applying SCM to larger suppliers.
These challenges seem to spring from the limited range of supply management strategies which SCM professionals can avail themselves of. We will argue in the next sections that this limited range of strategies is predicated upon a limited paradigm.
Stepping Back from Supply Management. In beginning this section, we must be careful to differentiate between the actual world of purchasing and the world described by academics. Academic texts have often rested upon an unstated or 'ACR/OCR' framework to express relationships between purchasers and their suppliers (Ferguson and Macbeth 1991, Sako 1992). It is, however, incumbent upon us to suggest that the epigram inscribed above the entrance of the Woods Hole marine biological research station (Sargent 1986)- 'Study Nature, Not Books' is of use to us here. Purchasers, do actually seem to have a wide range of relationships with their suppliers and yet, the majority of supply management strategies seem to rest upon moving adversarial relationships toward an ill conceived model of partnership.
In achieving these objectives we can see the adoption of Japanese SCM practices in which Supply chain management is something that is "done to" the supplier by the "purchaser". Japanese models of supply management which was designed to create obligation or dependency in their suppliers. This "audit and manage" approach has a great deal of currency in companies ranging from Caterpillar in the USA through to Yorkshire Water in the UK.
Management, like any other activity, costs money. The more management we do, the more it will "cost". The "Japanese" answer to this is to reduce the number of suppliers in order to reduce these management costs. This means that supply managers must enter into longer term relationships with suppliers in order avoid, and therefore reduce the costs of replacement. This strategy can leave purchasers at risk as they can become vulnerable to the relative state of their reduced supply base.
Within the Japanese framework and it's variants we can identify two broad approaches. The first of these we can label the structural/directive approach (S/D).
Within the "structural/directive" approach we can identify a focus on the management of supply through methods such as supplier evaluation and audit. Within this range we can identify single and dual sourcing strategies, supplier "tiering" and other trappings of what might also be labelled "dependency sourcing" Drawbacks with S/D are those noted above. Increasing costs may force supply managers to focus increasing efforts on smaller proportions of their supply base, or may lead to the reduction of supply bases and eventual dependency as the balance of power shifts.
The second approach we can label the "cultural/facilitative" (C/F) approach to supply management. Here the focus is more developmental and seeks to gain control of the supply base by means of cultural change programmes such as the initiation of TQM programmes within supplier sites. In many cases, however C/F approaches are employed unwittingly as a substitute for poor selection or management and attempt to drive diversity out of the supply base.
These two approaches are not, of course, mutually exclusive. We can find elements of both S/D and C/F approaches in many SCM programmes. At the beginning of this paper we suggested that the objectives for any supply chain management strategy were to predict, control and improve the performance of suppliers. In volatile environments, predictability becomes increasingly difficult. Suppliers will be faced with a choice between improving their supply management strategies or As well as these terminal objectives we can also identify a number of instrumental objectives which would allow the supply manager to achieve these. Here, we can include:
- Gaining supplier commitment to the supply performance improvement process.
- Identifying and acquiring the types of information we require from suppliers.
- Managing the effective communication of information to suppliers.
- Ensuring that the improvement of performance is carried out equitably with all parties bearing responsibility for the improvement process.
In common with Deal and Borland (1994) we can see that perspectives, 'mental models' (Senge 1993,Johnson Laird 1984) will dictate approaches to the management of supply. In the paragraphs above, we have seen that there are two common perspectives which direct supply management strategy. Before we consider the weaknesses of these approaches, and the 'games suppliers play' in response to such approaches, we will outline a new supply management perspective which may avoid these games.
Supply Management as an Information War. Thomas Kuhn (1961) has noted the way in which science is dominated by 'paradigms' or ways of seeing the world. In his lexicon, scientific progress can be explained by the replacement of one paradigm with another. This theory has been employed inaccurately by a number of management thinkers to explain the need for a new way of looking at management. Holt (1964) has noted that 'information' is an increasingly popular concept in deriving our existing world view. He also notes, however, that 'energy' was a similarly popular concept in both looking at and explaining the world in the late Nineteenth century.
Nonetheless, despite treating such catch-all explanations with care, we would suggest that information is a crucial issue in the management of supply. Information asymmetries (Williamson 1974) are seen as crucial in economics, information seeking behaviour is seen as an element in the growing study of cognitive science (Wiczniewski 1993), and information is a commodity which IT and IS professionals sell the tools to manage.
In such a model the seller needs information with regard to the needs, expectations and wants of the buyer. This information is not generally available, and so the seller employs a series of hooks and influencing strategies ranging from rejection then retreat through to scarcity (Cialdini 1986). Here, the interaction between the buyer and the seller will rely heavily upon the skill of the seller in obtaining the requisite organisational information or, failing this, obtain personal information with which to influence the buyer. The role of the buyer here, knowing the skills of the seller, is to deny the seller information in order to induce the seller to commit first, and end up with a 'better deal'. Here the entity obtaining the best information most quickly will 'win'. This information will guide the optimum management strategy.
In the "partnership" relationship model (DTi1995), the information gathering picture has changed dramatically. Purchasers are advised to reduce supply bases dramatically and to enter into long term agreements with suppliers. Both of these strategies increase the quantity of information available to the purchaser. Such strategies are often coupled with vendor assessment and supplier certification programmes, open book costings and 'visiting engineer' placements in supplier companies. In such scenarios, the information war is being won by the purchaser. They have an increasing knowledge of supplier capability and systems, and need give little information away in return. Here the entity producing the best information has 'won'. Unfortunately, there seems to be little evidence that so called 'partnership' sourcing works when small purchasers are requesting information from large scale suppliers.
The next sections of this paper will identify some supplier responses to both the S/D and the C/F strategies.
The Games Suppliers Play. Initial research into what really happens 'beyond partnership' has revealed some interesting facts. Strategies used by suppliers when supply management is disguised as partnership or even collaboration, are often extensive and multidimensional. The issues here seem to rest upon the way in which the partnership strategy is interpreted by the supplier.
Responses to S/D Strategies. Concept Isolation - Here, partnership is isolated through bureaucratisation. Suppliers request that everything is written down so that flexibility goes out of the window and the whole point of the exercise is lost. Closely related to this strategy is that of;
Passive Resistance - Where suppliers follow the customers lead blindly. Suppliers ask no questions and give no feedback. The customer is left to wander in ignorance until, in frustration, collaboration is abandoned. The third strategy, we have labelled;
Overhead Magnification - This involves adding to the energy needed to run the programme. Here the customer is plagued with notes, reports and copies which link everything with partnership. Eventually the momentum of the programme slows and comes to a stop. Overhead magnification is linked closely to;
Feigned Paranoia - which the supplier acts as a lamb sacrificed upon the alter of QS 9000 or RG2000. All failures are blamed on the programme until it eventually becomes humanised. The blame then tends to snowball and the communication needed for effective working is blocked. The final strategy which we have been able to identify is.
Responses to C/F Strategies. Lampoon-isation - This strategy reduces the importance of new ways of working by renaming them. Partnership becomes 'Partner-shaft' and network sourcing 'nitwit sourcing'. The supplier may often also personalise collaborative initiatives as 'Frank's folly' or 'Mike's madness'.
Prophetic Self Fulfilment - where the supplier starts rumours about collaborative working which fill the system. "Do you really think that they know what they are doing with Ten(d) to Zero? I've heard that they are going to revamp it again to come up with seventeen points" Such rumours divert energy and attention from the real purpose of SCM.
Building an Information Strategy for SCM. We have argued throughout this paper that SCM strategies are limited by the conceptualisation of suppliers as potential 'adversaries' and that Japanese SCM is culturally specific, and both unsuitable and unwise for Western practitioners. In the last section of the paper we will consider the ways in which information strategies might be designed and implemented to support effective SCM. These include the following;
- Do not treat the supplier as one entity. Be aware of the different groups and stakeholders within the supplier organisation. Tailor message and research strategies for each of these groups.
- Be aware that as a customer, your motives for giving information will be suspect. Develop mechanisms to 'sanitise' your message giving, including third party involvement.
- Develop a range of communicative methods to both gather and disseminate information.
- Create a safe environment in which suppliers can respond appropriately to the learning which new information will bring
- Develop methods which will help you evaluate the effectiveness of your communication strategies
- Ensure that, as a buyer, you are clear in the objectives for the communication process
- Be aware that large organisations often give out contradictory messages, and that equally large organisations can inadvertently play at 'Chinese Whispers'. Develop methods which will encourage everyone in contact with the product or service to give the same message. Identify channels within the supplier which will help pass the message on. Develop those channels.
Marketing and supply management can be seen as similar in a number of ways. They can be interpreted as making entities behave in a way which they would not normally behave. Perhaps more accurately, they might both be interpreted as helping entities behave in ways which will make them more effective and efficient. In taking on responsibility for ensuring the accuracy of information which reaches and is gathered from the supplier, supply chain management can continue to develop as a discipline.
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