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A LITERATURE REVIEW ON SUPPLY CHAIN MANAGEMENT EVOLUTION

Conference Paper · May 2016

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Agricultural University of Tirana
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A LITERATURE REVIEW ON SUPPLY CHAIN MANAGEMENT EVOLUTION

Gentjan Mehmeti
Agricultural University of Tirana, Albania
Email: gmehmeti@ubt.edu.al

ABSTRACT
The purpose of this paper is to create a better understanding of what Supply Chain
Management (SCM) is how it has evolved and the factors that have influenced its evolution.
Through examining the literature, this paper will highlight the evolution history of SCM and
the factors that have affected it. According to this paper, the evolution history of SCM can be
segmented into four stages: 1) the pre SCM stage, 2) the creation stage, 3) the integration
stage and 4) the globalisation stage. In the last part of the paper will be discussed the factors
that have affected the evolution process of SCM. Some of these factors are: the firms focus on
cost reduction; increased global competition; the firm focus on increase efficiency and
performance; consolidation of trade liberalisation policies and the globalisation movement;
increasing retail concentration - centralisation and power; and increased companies focus
on customer satisfaction.

Keywords: Supply Chain, Supply Chain Management, Supply Chain Management evolution

1 INTRODUCTION
Over the past decade, the traditional purchasing and logistics functions have evolved into a
broader strategic approach to materials and distribution management known as SCM. This
paper aims to review the SCM evolution and the factors that have influenced it. By
identifying these factors, we will get more insights on SCM.

Various definitions of SCM have been offered over the past 20 - 30 years, but none of these
definitions is universal. The lack of a universal definition of SCM is in part due to the way
the concept of supply chain has been developed (Croom et al, 2000). The concept of supply
chain has been considered from different points of view in different bodies of literature. Such
a multidisciplinary origin makes it difficult to come up with a universal definition of SCM.
Despite of the barriers to make a universal definition of SCM, Mentzer et al (2001) attempt’s
to synthesize two definition, one for supply chain and one for SCM, by extensively examine
various definitions of the terms ‘‘supply chain’’ and ‘‘Supply Chain Management’’. Their
definitions are:
A supply chain is a ‘‘set of three or more entities directly involved in the upstream and
downstream flow of products, services, finances, and information from a source to the
customer’’ (Mentzer et al., 2001, p. 4).
Supply chain management is “the systematic, strategic coordination of the traditional
business functions and the tactics across these business functions within a particular
company and across businesses within the supply chain, for the purpose of improving long-
term performance of the individual companies and the supply chain as a whole” (Mentzer et
al., 2001, p. 18).

In the first part of this paper, is given the SCM evolution history, where the latest concept
introduced is the Global Supply Chain Management (GSCM). Firms are much bigger than
they used to be, and they have achieved economies of scale and with the establishment of
trade liberalisation policies they are internationalising their businesses to find the lowest
sources of inputs and growing markets to sell their products. The concept of SCM is not
enough for being efficient and competitive in the new environment that is why new concept
and management strategies are emerging. By looking at the evolution history of SCM, we
clearly can see that there are huge changes in the way firms used to operate in the chain and
the way they are operating now. What are the factors that have contributed to SCM
evolution? In the last part, this paper aims to answer to this question, by reviewing the SCM
literature and by deducting conclusions from the above evolution history. It should be noted
that, there are linkages between the factors that have influenced the evolution of SCM and the
factors that affect the supply chain performance because with the evolution of the SCM the
performance of supply chain has increased.

2 SUPPLY CHAIN MANAGEMENT EVOLUTION


During 1950s and 1960s the concept of SCM was unknown, and in this period, new product
development was slow and counted only in the firm own technology and capacity. Inventory
cushioned bottleneck operations in order to maintain a balanced line low, resulting in huge
investment in work in process (WIP) inventory (Tan, 2001). Furthermore, issues concern
with purchasing was neglected by managers at that time, since purchasing was considered as
a service to production (Famer, 1997). Increasing production was the main objective of this
period; little emphasis was on cooperative and strategic buyer supplier partnership.
According to Tan (2001), sharing technology and expertise with customers or suppliers was
considered too risky and unacceptable.

Tan (2001) argues that, in the 1970s, managers became aware of the huge WIP on
manufacturing cost, new product development, quality, and delivery time. One of the factors
of this increased awareness was the introduction of Manufacturing Resource Planning
(MRP). The focus in this period changed; it was not just increase production through
spreading the fixed cost to a bigger output (economies of scale), rather, to increase
performance. The introduction of IT (MRP) in planning the resources of the firm proofs this.

During the 1980s and early 1990s, firms dealt with increased demands for “better, faster,
cheaper logistical service”. As a result, many manufacturers outsourced logistics activities
and their focus transferred to core competencies (Daugherty, 2011). According to Daugherty
(2011), the outside specialist presented an economically viable means of achieving
productivity and efficiency. Therefore, many manufactures went more for a relationship –
oriented approach with their supplier and customer. They understood the benefits of
cooperative relationship with the other firms in the different chain levels (Stank et al, 1999).
Stank et al (1999), show in their paper some of the advantages and benefits that this
cooperative relationship had: synergy gain through shared expertise and resources, better
planning and support, exchange of information, and joint problem solving. Another reason
that influenced the partnership between supplier – buyer was the increased global competition
(Tan, 2001).

The introduction of Enterprise Resource Planning (ERP) in the 1990s, gave a boost to the
evolution of the SCM and buyer - supplier relationship. Movahedi et al (2009) argues, while
EDI - Electronic Data Interchange systems were concerned mainly with inter – organizational
integration, ERP systems were concern mainly with intra - organizational integration. The
evolution continues in the 21st century with the development of more sophisticated IT
systems (internet - based solution systems), which are concerned for both inter-organizational
integration and intra-organizational integration. Moreover, the relationship buyer – supplier
in this period have gone one-step forward, from normal partnership to long-term relationship
and strategic alliances. Manufacturers and retailers now commonly exploit supplier strengths
and technology in support of new product development, distribution channels, cost reduction
etc. (Morgan and Monczka, 1995).

The latest trend of evolution in the SCM is the movement towards systems of supplier
relations over national boundaries and into other continents (Movahedi et al, 2009). GSCM is
the latest concept introduced to the literature of SCM. Firms are much bigger than they used
to be. They have achieved economies of scale and with the establishment of trade
liberalisation policies they are internationalising their businesses to find the lowest sources of
inputs and growing markets to sell their products. The concept of SCM is not enough for
being efficient and competitive in the new environment that is why new concept and
management strategies (i.e. GSCM) are emerging. An integrated supply chain gives
considerable competitive advantage to the individual actors participating in the chain. In the
developed economies, there is a switch from firm – firm competition to chain – chain
competition (Koh et al, 2007; Lummus et al, 1998, Morgan and Monczka, 1996, Anderson
and Katz, 1998).

Some authors have segmented the evolution of supply chain management into stages
(Movahedi et al, 2009; Ballou, 2007). Movahedi et al, (2009) segmented SCM evolution into
three stages:
1. Creation era, starts (1980s) when the buyer – supplier understood the benefits that a
cooperative relationship offers. In this period, we encounter for the first time the term
SCM.
2. Integration era, starts (1990s), the IT systems (ERP, EDI etc.,) are introduced. These
systems focus not only in managing the resources of the individual firm but also the
resources of the integrated supply chain.
3. Globalisation era starts with the creation of the trade liberalisation policies and the
establishment of institution such as World Trade Organization (WTO) and other
international institutions that deal with global/regional trade policies.

According to Ballou (2007) SCM is not new; it is an evolution of purchasing and distribution
function. The integration of these two functions has generated what we call SCM. Figure
1shows the evolution of SCM as described by Ballou (2007). He has segmented the evolution
of SCM into three stages.
 Activity fragmentation – 1950s and 1960s
 Activity integration – 1960s to 2000
 Supply chain management – 2000+
Figure 1: Supply Chain Evolution (Ballou, 2007)

As it can be seen from the Figure 1, in the first stage the activities (from purchasing raw
materials to finished product in the shelf of a retailer) are fragmented, there is no integration
between them. As a result, the cost of finished products (transportation cost, inventory cost
etc.) are high. In the second stage, there is some integration between the activities but still not
fully integrated. The SCM 2000+ is the last stage where all the activities are fully integrated
leading to cost reduction, shortening of the new product development process, better flow of
information, improved cash flow, faster order fulfilment, and increased customer satisfaction.
From the SCM literature, it comes out that customer satisfaction is one of the key driving
factors of SCM evolution.

3 FACTORS THAT HAVE AFFECTED SCM EVOLUTION


This part of this paper tries to identify the factors that have affected the SCM evolution by
reviewing the SCM literature. Three factors emerge from the papers of Porter (1994), and La
Londe and Masters (1994) for their influence on the SCM evolution. These factors are:
1. The focus of firms to reduce cost
2. The increased global competition
3. Firms objective to increase efficiency and performance

By looking at the evolution of SCM described above, the author deducts that these three
factors have influence the evolution during the 1980s and early 1990s. During that period,
firms faced increased global competition. Furthermore, the firms’ main objectives in those
years were how to reduce cost, increase efficiency and performance. By experimenting with
strategic partnership, manufactures realized the benefits of an integrated SCM (Tan, 2001).
Another factor that has influenced the evolution of SCM is the implementation of IT systems
like EDI and ERP in the process of SCM (Movahedi et al, 2009). According to Ellram et al.,
(1989) IT systems like EDI have a critical role in SCM. The evolution in these IT systems
clearly has an impact on the evolution of SCM.

Also the consolidation of trade liberalisation policies has led to the evolution of SCM to
GSCM. Manufacturers are establishing their factories in countries, which have low inputs,
cost (global sourcing). As well, they are expanding their markets into developing countries.
These countries have growing markets not saturated one like the developed countries.

The above factors are those that have shaped the SCM that exist now days. In the author’s
opinion the factors that are affecting the SCM evolution now days in developed countries are:
 Increasing retail concentration – centralisation and power
 Changes in customer needs
 Increased companies focus on customer satisfaction
 Concentration of manufacturing sector and absorption into multinational companies

4 CONCLUSIONS
This paper reviewed the evolution of SCM and the factors that have influenced it. From this
came out that the SCM evolution history can be segmented into four stages:
1. The pre SCM stage
2. The creation stage
3. The integration stage
4. The globalisation stage

In the last part of this chapter were discussed the factors that have affected the evolution
process of SCM. Some of these identified factors were:
 The firms focus on cost reduction
 Increased global competition
 The firm focus on increase efficiency and performance
 Consolidation of trade liberalisation policies and the globalisation movement
 Increasing retail concentration – centralisation and power
 Increased companies focus on customer satisfaction

5 BIBLIOGRAPHY

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