- Learning Objectives
- Evolution of the Supply Chain Concept
- Total Systems Approach and Boundary Spanning
- Conceptual Foundations of Demand Chain, Value Chain, and Supply Chain
- Strategic Alliances and Partnerships
- Organizational Learning from Strategic Alliances
- Interfaces among Purchasing, Production, Logistics, and Marketing
- Theory of Constraints (TOC) for Supply Chain Management
- Change Management for Supply Chain Management
- Chapter Summary
- Study Questions
- Zara's Rapid Rise as a Cool Supply Chain Icon
Total Systems Approach and Boundary Spanning
A traditional business paradigm intends to react to unforeseen customer demand on a “push” basis by building buffers such as inventory that mitigate forecasting errors and hide distribution/production planning problems. The traditional business paradigm is also characterized by the sequential flow of information from one business function to another. Because the sequential information flow does not give an organization the opportunity to synchronize its functional activities and will impair its visibility throughout the planning processes, the same hidden problems will recur and the vicious cycle of inefficiency will continue without the problems ever being addressed. The best way to break this vicious cycle is to create a system that allows the organization to see the big picture of the business processes and then analyze the impact of the whole business processes on the organizational-wide goals rather than the departmental/functional goals. In other words, to continuously improve business processes, the traditional business paradigm should be replaced by the total system approach, which can create a whole greater than the sum of its parts. Therefore, the total systems approach is considered a major foundation for the supply chain concept.
The total systems approach regards the supply chain as an entity that is composed of interdependent or interrelated subsystems, each with its own provincial goals, but which integrates the activities of each segment so as to optimize the system-wide strategic objectives. To elaborate, the total systems approach is referred to as a “holistic, integrated approach” whereby all the business processes involving demand planning, purchasing, production, transportation, warehousing, and marketing are coordinated to make the best tradeoffs within them so as to achieve the optimal outcome for the whole system. For instance, the decision to increase inventory to make products more readily available to customers will help promote sales, but it would incur higher inventory carrying costs and warehousing costs. Without understanding such interdependence of the decision-making processes within the supply chain, the organization as a whole will continue to suffer from the downward spiral of declining productivity. That is to say, the total systems approach recognizes the fact that a decision made in one of the business functions can impact other functions of the organization. As such, the total systems approach enables the firm to assess how changes in business strategy and decisions affect the firm’s across-the-board total costs and benefits.
The total systems approach to supply chain integration is often predicated on the five essential attributes displayed in Figure 1.3 (Miller and Berger, 2001, p. 13). As shown in this figure, collaboration is at the center of the total systems approach.
Figure 1.3. The five essentials of the total systems approach to supply chain integration
As the extended enterprise perspective brought by the total systems approach has become the important foundation of supply chain thinking, we have witnessed increasing boundary-spanning activities across the supply chain. Typically, these boundary-spanning activities have played three different roles:
- Gatekeeping—They single out potential suppliers and third-party logistics providers through a request for proposal (RFP) and then help the firm to make an informed decision as to who will be selected as the supply chain partner among a managerial list of candidates.
- Transacting—They develop all aspects of business trading opportunities with the potential supply chain partners on an equal footing.
- Protecting—They ensure conformance with contract terms and conditions, delivery schedules, product/service quality, and other partnership agreements (see Davis and Spekman, 2004, for details of boundary spanning roles).