Not all supply chains are equal. Not all companies in a supply chain are equal. Thinking strategically, a supply chain executive might ask: "At what level of competence, or what stage of supply chain maturation, are we? What level or stage should we aspire to achieve?" Firms do have a strategic choice, but they must first understand where they are, and then understand what they must do to transition to a more desirable stage. Figure 9.5 portrays a seven-stage model of SCM based upon the increased degree of complexity a firm manages and the degree of integration it has achieved with trading partners. The first three of these stages are within the capability of a single firm, where autonomy and independence are preferred. The fourth stage, partner driven, begins to require collaboration, integration, and interdependence, which dramatically increase with the last three stages.

Figure 9.5. Supply Chain Stages

Supply Chain Stages

Stage 1: Unmanaged, or Managed by Others

In this stage, functions and firms operate independently. They often lack planning and control activities. Unless they are subcontractors for and are managed by others, these firms often have inefficient and costly operations. The overriding strategy is survival. Management is blind to opportunities and threats. Obviously, firms in this stage are competitively and financially vulnerable.

Stage 2: A Low-Cost Production

Firms in this stage are likely to produce commodity-like consumer products or specialized industrial products; some predictability of demand allows the focus to be on manufacturing excellence. Production-driven synchronization of buying and selling activities prevails. Innovation and customer service are subordinate to standardization and cost control. Logistics activities, inventory management, warehousing and transportation, are suboptimized. Supplier relationships are constantly changing.

Stage 3: Project/Initiative Driven

A series of projects drive incremental internal improvements. Management is primarily results, not process, driven. Alignment and focus are concentrated on achieving short-term goals. An alphabet soup of initiatives may exist simultaneously, such as EDI, TQM, ECR, VMI, MRP, DRP, and ERP. While planning and control systems do exist, the focus is on tactical goals and not on strategic opportunities. Limited coordination with trading partners is found in this stage.

Stage 4: Partner Driven

This stage involves an investment in and responsiveness to meeting key customer, supplier, or third-party logistics requirements. Management sees growth from innovation, services, and speed, in response to customer or supplier requirements. Internal cooperation and a shared focus are driven by the external trading partner. Planning is tied to long-term trading partner needs. Close ties are found with a few key trading partners.

Stage 5: Balanced Internally

Management sees the potential strategic benefits from SCM, and is now focused on market-driven, not production-driven, synchronization. Internal physical and informational flows are integrated. With adequate planning and control systems, significant internal coordination considers the total system of inputs, processes, and outputs. A just-in-time and a make-to-order philosophy is possible due to effective coordination with key immediate customers and suppliers. This stage would be highly desirable for most organizations.

Stage 6: Extended Integration

Management now has a strategic and systemic orientation that drives integration from the customer's customer to the supplier's supplier. The whole organization is actively collaborating with outside trading partners. There is extensive asset and resource sharing between firms. Trust and reciprocity exists with trading partners. Relational, technological, and economic embeddedness provide competitive advantage. More control exists with less ownership. Asset ownership will shift to the firms with the lowest cost of capital. This stage manifests a true SCO in that it is a multifirm system. Multifirm governance structures are established.

Stage 7: Real-Time Connectivity

This stage is mainly aspirational, although the enabling technologies exist today. It is characterized by real-time informational connectivity

Figure 9.6. Characteristics and Strategies of Supply Chain Stages

Supply Chain Stage

Characteristics of Relationships Between Firms within This Stage

Strategies for Firms to Employ to Achieve This Stage

1. Unmanaged or Managed by Others

Subcontractor for another firm. Adherence to requirements. No value engineering.

Opportunistic, temporary relationships. Low cost, or responsive.

2. Production Focused

Internally focused.

Optimize manufacturing operations.

Legitimacy, survival. Building correct scale. Efficiency.

3. Project Driven

Change through piecemeal initiatives. Senior functional management sponsor.

Successive suboptimizations of parts of the whole system. Incremental changes.

4. Partner Driven

Responding to important partner. Short-term changes for long-term gains.

Compliance for survival and growth. Shared goals, costs, and benefits.

5. Balanced Internally

Synchronization of inputs and outputs -a process approach. Just-in-time philosophy. Strategic, systemic orientation. Coordination with immediate customers and/or suppliers.

Extensive internal coordination. Elimination of counterproductive behaviors and reward systems. Emphasis on flows, not stocks. Information sharing with trading partners. Make-to-order.

6. Extended Integration

Multifirm trust and cooperation. Shared resources, costs and benefits.

Integration with supply chain flows beyond immediate customers and suppliers.

7. Virtual Network

Information, connectivity and


Minimum asset investments.

Real-time, seamless connectivity. Web-based and hollow corporations.

and pipeline visibility for all members of this supply chain. A high level of postponement and customization exists. The focus is on innovation, speed, and flexibility. Enterprise boundaries are blurred. Shared control and success is achieved through connectivity, shared knowledge, and forged capabilities. Both market-driving and market-creation opportunities abound. The supply chain strategies just described are summarized in Figure 9.6.

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