Defining supply chain management

Journal of Business Logistics, 2001 by Mentzer, John T, DeWitt, William, Keebler, James S, Min, Soonhong, Et al

"Management is on the verge of a major breakthrough in understanding how industrial company success depends on the interactions between the flows of information, materials, money, manpower, and capital equipment. The way these five flow systems interlock to amplify one another and to cause change and fluctuation will form the basis for anticipating the effects of decisions, policies, organizational forms, and investment choices." (Forrester 1958, p. 37)

Forrester introduced a theory of distribution management that recognized the integrated nature of organizational relationships. Because organizations are so intertwined, he argued that system dynamics can influence the performance of functions such as research, engineering, sales, and promotion. He illustrated this phenomena utilizing a computer simulation of order information flow and its influence on production and distribution performance for each supply chain member, as well as the entire supply chain system. More recent replications of this phenomenon include the "Beer Game" simulation and research covering the "Bullwhip Effect" (Lee, Padmanabhan, and Whang 1997).

Discussing the shape of the future, Forrester (1958, p. 52) proposed that after a period of research and development involving basic analytic techniques, "there will come general recognition of the advantage enjoyed by the pioneering management who have been the first to improve their understanding of the interrelationships between separate company functions and between the company and its markets, its industry, and the national economy." Though his article is more than forty years old, it appears that Forrester identified key management issues and illustrated the dynamics of factors associated with the phenomenon referred to in contemporary business literature as Supply Chain Management (SCM).

The term supply chain management has risen to prominence over the past ten years (Cooper et al. 1997). For example, at the 1995 Annual Conference of the Council of Logistics Management, 13.5% of the concurrent session titles contained the words "supply chain." At the 1997 conference, just two years later, the number of sessions containing the term rose to 22.4%. Moreover, the term is frequently used to describe executive responsibilities in corporations (La Londe 1997). SCM has become such a "hot topic" that it is difficult to pick up a periodical on manufacturing, distribution, marketing, customer management, or transportation without seeing an article about SCM or SCM-related topics (Ross 1998).

There are many reasons for the popularity of the concept. Specific drivers may be traced to trends in global sourcing, an emphasis on time and quality-based competition, and their respective contributions to greater environmental uncertainty. Corporations have turned increasingly to global sources for their supplies. This globalization of supply has forced companies to look for more effective ways to coordinate the flow of materials into and out of the company. Key to such coordination is an orientation toward closer relationships with suppliers. Further, companies in particular and supply chains in general compete more today on the basis of time and quality. Getting a defect-free product to the customer faster and more reliably than the competition is no longer seen as a competitive advantage, but simply a requirement to be in the market. Customers are demanding products consistently delivered faster, exactly on time, and with no damage. Each of these necessitates closer coordination with suppliers and distributors. This global orientation and increased performance-based competition, combined with rapidly changing technology and economic conditions, all contribute to marketplace uncertainty. This uncertainty requires greater flexibility on the part of individual companies and supply chains, which in turn demands more flexibility in supply chain relationships.

Despite the popularity of the term Supply Chain Management, both in academia and practice, there remains considerable confusion as to its meaning. Some authors define SCM in operational terms involving the flow of materials and products, some view it as a management philosophy, and some view it in terms of a management process (Tyndall et al. 1998). Authors have even conceptualized SCM differently within the same article: as a form of integrated system between vertical integration and separate identities on one hand, and as a management philosophy on the other hand (Cooper and Ellram 1993).

Such ambiguity suggests a need to examine the phenomena of SCM more closely in order to clearly define the term and concept, to identify those factors that contribute to effective SCM, and to suggest how the adoption of a SCM approach can affect corporate strategy and performance. The purpose of this paper is to examine the existing research in an effort to understand the concept of "supply chain management." Various definitions of SCM and "supply chain" are reviewed, categorized, and synthesized. Definitions of supporting constructs of SCM and a framework are then offered to establish a consistent means to conceptualize SCM. Antecedents and consequences of SCM are identified, and the boundaries of SCM in terms of business functions and organizations are proposed. A conceptual model and definition of SCM are then presented that indicate the nature, antecedents, and consequences of the phenomena. The model is accompanied by a series of managerial and research implications.