Guidelines for Collaborative Supply Chain System D

SCHOOLOFOPERATIONSRESEARCHANDINDUSTRIALENGINEERINGCOLLEGEOFENGINEERINGCORNELLUNIVERSITYITHACA,NY14853-3801February2001GuidelinesforCollaborativeSupplyChainSystemDesignandOperationJohnA.MuckstadtCornellUniversityDavidH.MurrayCollegeofWilliam&MaryJamesA.RappoldUniversityofWisconsinDwightCollinsAspenTechnologyCOPYRIGHT20011GuidelinesforCollaborativeSupplyChainSystemDesignandOperationJohnA.MuckstadtCornellUniversityDavidH.MurrayCollegeofWilliam&MaryJamesA.RappoldUniversityofWisconsinDwightCollinsAspenTechnologyFebruary2001ABSTRACTOverthepastdecade,firmshaveadoptedsupplychainmanagementasacriticalelementoftheircorporatestrategies.Despitetheseefforts,itisourobservationthatmanyfirmsdonotrealizetheanticipatedbenefitsofconstructingcollaborativeoperatingrelationshipswithsupplychainpartners.Ourpurposeinthispaperistoestablishasetofguidingprinciplesfortheeffectivedesignandexecutionofsupplychainsystems.Theseprinciplessuggestwhy,what,andhowcollaborativerelationshipsshouldbeconstructed.Whileconstructingandoperatingacompetitivesupplychainistheprimaryobjectiveofsupplychainmanagement,wehaveobservedseveralimpedimentstoachievingthisgoal.First,demanduncertaintyissosubstantialinmostsupplychainenvironmentsthatifitisnotadequatelyaddressed,itcanseverelydegradetheanticipatedperformanceofthesupplychainasmeasuredintermsofunitcost,speed,quality,andresponsivenesstochangingconditions.Second,supplychainswithpoorphysicalcharacteristicsthatoperatewithlongandvariableresponsetimescannottakefulladvantageofcollaborativerelationshipsduetotheirinabilitytorespondtochangesintheenvironment.Third,firmswithpoorinformationinfrastructureslackthecapabilitiesnecessarytoacquire,store,manipulate,andtransmitdataeffectivelyandquickly.Fourth,businessprocessesareoftennotdesignedproperly,bothintra-andinter-organizationally,toadapttoevolvingsupplychainconditions.Finally,decisionsupportsystemsandoperatingpoliciesthatguideday-to-dayoperatingdecisionsmaynotbeadequatelydesignedtocontendwithsupplychainuncertainty.Wealsosuggestthatthestrategicandtacticalmodelingparadigmsemployedinsupplychaindecisionsupportsystemsareinadequateinmanyoperationalenvironmentsbecausetheirtreatmentofuncertaintyisinappropriate.Furthermore,collaborativerelationshipsthatfocusonreducingtheuncertaintyinoperatingenvironmentsbyemployingimprovedinformationsystemsandbusinessprocesseswillresultinmoreefficientallocationofkeyresources,fasterresponsetimestomarketforces,andmorereliablesupplychainperformance;however,thesecollaborativearrangementsbythemselvescannotcompensateforfundamentallyflawedandoperationallyineffectivemanufacturinganddistributionenvironments.KEYWORDS:SUPPLYCHAINMANAGEMENT,COLLABORATIVEPLANNING,PRODUCTIONPLANNINGANDCONTROL,OPERATIONSSTRATEGY,MULTI-ECHELONINVENTORYSYSTEMS,CAPACITATEDPRODUCTION.Muckstadt,Murray,Rappold,andCollins21IntroductionTherearemanydefinitionsandinterpretationsofthetermsupplychainmanagement.Wedefineasupplychaintobethesetoffirmsactingtodesign,engineer,market,manufacture,anddistributeproductsandservicestoend-consumers.Equallyconfusing,thetermcollaborationhastakenonseveralinterpretationswhenusedinthecontextofsupplychainmanagement.Weusethetermsupplychaincollaborationtorefertothoseactivitiesamongandbetweensupplychainpartnersconcernedwiththecosteffective,timely,andreliablecreationandmovementofmaterialstosatisfycustomerrequirements.Historically,manyforceshavehadanimpactontheevolutionofsupplychains.Atthebeginningofthetwentiethcentury,theFordMotorCompanycreatedanentirelyverticallyintegratedsupplychainthatincludedmining,steelandglassfabrication;tiremanufacturing,andtheothermanufacturingcapabilitiesnecessarytobuildanddistributeanautomobile.SeeWomack,Jones,andRoos(1990)foracompletediscussion.Whiletoday’shighstandardsofcustomerswerenotinplayintheearly1900’s,thatsupplychainprovedtobeextraordinarilyeffectiveandpermanentlychangedthenatureofbusiness.Withsteadilyincreasingspecializationinmorerecenttimes,therehasbeenashiftinmanagementfocusandstrategytowardtrimmingoperationsinordertofocusonthefirm’scorecompetencies,asproposedinPrahaladandHammel(1990).Inmanyinstances,thisfocushasresultedinadis-integrationofafirm’sowninternalsupplychain.Asfirmscontinuetofocusontheircorecompetencies,theyhaveintegratedtheirinternalbusinessprocessesandinformationflowswell.Firmsareworkingtomakethemostoftheircorecompetenciesinordertomaximizetheircompetitivepositionaspartofalargersupplychain.Thisforcesthefirm’sleaderstounderstandtheneedsofitscustomersmorecompletely.Whatdotheywant?Wheredotheywantit?Whendotheywantit?Howdotheywanttoreceiveit?Whataretheywillingtopayfortheproductsandservices?Webelieveitisessentialtothinkofasupplychainintermsoffiveinterconnectedbusinesssystems,asshowninFigure1.•EngineeringSystems.Inordertocreatetheproductsdesiredbycustomers,boththeproduct,anditsmanufacturinganddeliveryprocess,mustbedesignedandengineeredproperly.•MarketingSystems.Themarketforproductsmustbeunderstoodandtheneedsfortheproductsmustbecreatedandnurtured.Increatingneedsinthemindofthecustomerforthefirm’sproducts,themarketingfunc