Supply chain complexity and risk have both increased to unprecedented levels in the past few decades. According to Murray, et al. (2011), "Market evolutions and increasing worldwide demand for products and services mean that supply routes will remain complex and ever-changing" (2011:2). As trade has become more global, the scope and reach of partnerships in many industries has expanded. Value chain complexity has increased bringing about a greater need for deeper understanding of the contexts in which these entities carry out their work Firms have become more specialized and -- de facto -- more interconnected. In the course of its quotidian work, a multinational firm may find that it has also swept a wide variety of working conditions, infrastructures, and philosophies into the value chain formula. A new term for this sort of loosely coupled and self-organizing network of independent firms is extended enterprise.
The firms in an extended enterprise may function cooperatively through contractual arrangements or through market mechanism. Regardless, the point of the network they have formed is to accomplish combined economic output in the form of services or products offered to the market. The term "supply chain" implies a level of permanence between the partners that may not be evident across all connections in the value chain. Conceptually, the term extended enterprise opens up the concept of value chain to include different degrees of permanence and different types of connectivity. The scope of relationships in an extended enterprise includes alliances, trade agreements, partnerships, public tariff arrangements, and open market exchanges.
The term "enterprise" is particularly applicable to a multinational firm, in that, it includes reference to a conglomerate made up of several organizations -- such as in a partnership or a joint venture -- and a business operation that is multiply outsourced. An enterprise is thought to include the entire socio-technical entity of a firm, including people, information, technology, and business operations. The complexities of an extended enterprise are expressed in terms of its enterprise architecture. The concept of enterprise architecture goes beyond the information technology (IT) architecture to include the structural organization, the standard operating procedures (SOP) and policies, and the mechanisms that are used to exchange goods and services, information, and money.
There has been a tremendous push to standardize processes in order to enable supply chain partnerships. Efforts to bring about standardization have been significantly challenged in cases where the supply chain includes agreements and contracts with vendors in developing countries. According to Oakden and Leonaite (2010), "The complexity of planning is heightened because countries are at different levels of development, with very different standards of infrastructure. Having an understanding of the region and its challenges, makes for a more knowledgeable and informed logistician" (2010: 46).
Yet outsourcing can yield significant savings to a firm, and create opportunity for the firm to concentrate resources in support of their core competencies that define the unique value proposition offered by the firm. It is the unique value proposition that generates the best return on investment to the company and its investors.
Key Supply Chain and Logistics Parameters
The Supply Chain Council uses SCOR -- a widely recognized model -- with a "unique structure designed to align a critical web of business processes, metrics, best practices, and technology" (Murray, et al., 2011). The Supply Chain Council is an independent, nonprofit global corporation with a mission to advance the state of the art in supply chain management systems and practices. SCOR specifies parameters for supply chain management and identifies an array of key performance indicators that may be used to track the functioning of a supply chain. These measures include supply chain management costs, order-fulfillment lead time, forecast accuracy, material costs, and delivery performance. A principle advantage of using SCOR is the metrics framework that unpacks enterprise-level goals into department-level metrics. Using dashboards and benchmarking, business analytics can provide insight into on-time delivery, order processing time, and plant utilization (Murray, et al., 2011). The metrics hierarchy used in SCOR supports a supply chain logistician to drill down to identify the root causes and key drivers of performance, such as the cost of express freight, fuel costs, and returns or outstanding invoices Murray, et al., 2011).
Figure 1. SCOR Framework Levels
Source: Supply Chain Council. Copyright 2007.
As a result, visibility is increased, accountability is enhanced, and performance is improved (Murray, et al., 2011). The SCOR model is based on a standardized set of metrics, which facilitates the identification of the most efficacious changes to a supply chain. Also, because the metrics are standardized, communication is simplified and replication is made possible (Murray, et al., 2011). Advocates of the SCOR model argue that "for even the most complex organization: the ability to better manage an ever-changing supply chain in a highly volatile world" (Murray, et al., 2011: 1).
In order to manage a supply chain, it is critical to be able to translate high level business objectives into supply chain performance metrics (Jain, 2004). The goal, naturally, is to improve the identified performance metrics, but this can generally only be accomplished by balancing conflicting objectives. From a cost-based perspective, the objective is to reduce inventory while maintaining or improving service levels (Jain, 2004). A rule of thumb is that service levels and inventory levels are intrinsically and inversely related. The cost of holding a large inventory must be weighed against the cost of potential lost sales and lost opportunity cost. Other competing objectives must also be factored in, such as keeping transportation costs low while maintaining a responsive level of service. The point at which these multiple and conflicting objectives achieve the best balance is the optimum operating point toward which all adjustments in the supply chain are targeted (Jain, 2004).
Selection Rationale for Asia-Pacific Partner
The practical challenges of partnering with companies in Asia-Pacific are amplified by the sprawling geography, the range of economic development, the diversity of cultures, the spotty regulatory environment, and the fractured infrastructure. A continually changing environment means that operations must deliver rapid, flexible responses. In his book, Living Supply Chains, John Gattorna (2006) identified four types of supply chains: Fully flexible, agile, lean, and continuous replenishment. The fully flexible supply chain is loose on predictability of demand and low with regard to its relationship with customers, making it basically "unforecastable" (Gattorna, 2006). The fully flexible supply chain responds opportunistically, focuses on providing creative solutions for premium prices (Gattorna, 2006). The agile supply chain is low on predictability of demand and tight with regard to its relationship with its customers (Gattorna, 2006). The agile supply chain experiences many unforeseen demands which it needs more resources to satisfy (Gattorna, 2006). The focus of the agile supply chain is the service-cost equation (Gattorna, 2006). The lean supply chain is loose with regard to its relationship with customers and high on predictability of demand (Gattorna, 2006). The lean supply chain is price sensitive with largely unpredictable demand (Gattorna, 2006). The lean supply chain focuses on efficiency (Gattorna, 2006). The continuous replenishment supply chain is high on predictability of demand and tight with regard to its relationship with customers (Gattorna, 2006). The continuous replenishment supply chain is managed through close collaboration with customers (Gattorna, 2006). The continuous replenishment supply chain focuses on maintaining customer relationships (Gattorna, 2006).
Supply chain strategy must determine how to maximize value while connecting with suppliers and customers (Bolton, et al., 2006). There are two critical attributes that enable supply chains to be responsive: Capacity and capability (Bolton, et al., 2006). Capacity is inherently flexible and can adjust response (Bolton, et al., 2006). Capability is the dynamic that permits a supply chain to manage to the unexpected (Bolton, et al., 2006).
Even though SCOR and other organizations have worked to establish and standardize supply chain metrics, the evolution and science of the processes continue. The evaluation criteria for service providers is shifting from a reliance on traditional key performance indicators, such as error rate, on-time delivery rate, cost reduction rate, and cycle time. New metrics are looking at total processing time reduction, total cost reduction, and new part development rate. For providers, performance measures include cost, lead time, timely delivery, reliability of delivery, and quality. For buyers performance measures, many of the same criteria are used (delivery, cost, and quality), but flexibility is also emphasized.
Collaborative Supply Chain Metrics
It is still common to see performance management studies that focus on the tasks and activities of a simple company or an outsourcing from the perspective of the client company (Lee, et al., 2011). The fundamental problem with this outlook is that a picture of the collaborative work cannot be developed from performance indicators that show conflicts between the clients and the service providers. Lee, et al. (2011) propose a method for measuring the collaborative effect of key performance indicators, and a synthetic measure of collaborative satisfaction of manufacturing. The metrics, termed cKPIs, are derived from the KPIs of each partner in the extended enterprise (Lee, et al.,…