AN EVALUATION OF PROCESS-ORIENTED SUPPLY CHAIN MANAGEMENT FRAMEWORKS

Journal of Business Logistics, 2005 by Lambert, Douglas M, Garc�a-Dastugue, Sebasti�n J, Croxton, Keely L

Intra-company connectedness may be achieved by focusing on information dissemination across corporate functions or by pursuing organization-wide cross-functional integration. Information dissemination is the first step in achieving cross-functional integration. It is important to recognize that business processes will not replace traditional business functions because it is in the corporate functions where activities are performed and functional knowledge is developed, systematized and deployed throughout the organization (Womack and Jones 1994).

Inter-company Connectedness

The purpose of a for-profit organization is to conduct business transactions in the markets that management is targeting. Consequently, managers should be concerned about transactional efficiency. Transactional efficiency refers to the efficiency of workflow such as order entry, purchaseorder generation, delivery, and payment of invoices.

When a buyer and a seller perform a series of transactions, a relationship is developed. Initially, this is an arm's-length relationship and the focus of both parties is on each transaction. An arm'slength relationship can be maintained for long periods of time. Eventually, the buyer and seller may decide to work more closely by tailoring the relationship. The decision to strengthen the relationship should be based on the value that both parties perceive from working closer by jointly managing some activities. The benefits from maintaining long-term relationships are for both customers (Janda, Murray, and Burton 2002) and suppliers (Kalwani and Narayandas 1995).

Extensive management time and commitment is required to develop and maintain long-term relationships (Blois 1997). Management needs to be selective when deciding which relationships should be developed into partnership-style relationships and which ones should be considered transactional-based relationships (Lambert, Emmelhainz, and Gardner 1999).

In summary, the literature prescribes two approaches to managing inter-company connectedness. One is based on transactional efficiency and the other is based on relationship management. However, these two approaches are not mutually exclusive because transactional efficiency should be an outcome of good relationship management.

Drivers of Value Generation

The value of any firm can be measured in terms of economic value added (EVA) (Stern 1990). The detailed steps in the calculation of EVA are documented by Ste wart ( 1991 ). A firm's value can be increased in four ways: increasing revenue, reducing operating cost, reducing working capital, and increasing asset efficiency.

In general, initiatives based on cost reductions and efficiency improvements are easier to support. For example, if an initiative focuses on reducing inventories and the same level of sales is achieved with less inventory, then the benefits from that initiative are easy to measure. It is more difficult to demonstrate the extent to which profit is affected by service improvements such as increased responsiveness, accuracy, or product availability. However, long-term growth requires revenue enhancement and managers need to focus on all four ways to increase value. The two supply chain management frameworks are assessed to identify the drivers that each include as sources of value generation.