SUPPLY CHAIN RELATIONSHIP STRUCTURES AS SCENARIOSFOR SIMULATION

Muriati MukhtarDepartment of Industrial Computing

Faculty of Technology and Informatiuon ScienceUniversiti Kebangsaan Malaysia

43600 UKM, Bangi, Selangor, Malaysiamm@ftsm.ukm.my

Awaluddin Mohamed Shaharoun Mohd Shariff Nabi Baksh

Faculty of Mechanical Engineering,Universiti Teknologi Malaysia

Locked Bag 791, 80990 Johor Baharu,Malaysia.

KEYWORDSSupply Chain, Buyer-Supplier Relationships,Constructs, Simulation.

ABSTRACTA supply chain can be defined as a set ofrelationships among suppliers, manufacturers,distributors and retailers that facilitates thetransformation of raw materials into finalproducts. As such any examination of a supplychain system cannot be divorced from theconsideration of the types of relationships thatexist between the players in the chain. Suchstrategic analysis will also help supply chainmembers in deciding who to partner with andwhat type of relationship would be most usefulfor the player or the supply chain. Althoughsupply chain management principles advocateclose collaboration among all supply chainplayers this is far from the practice especiallywhere resources and trust are scarce and thewinner takes all attitude prevails. The question ofwhether to integrate or not to integrate and withwhom can be discussed by investigating effectsand trade-offs from such a venture. Other factorslike the impact of the existence and position of apowerful player in the chain can also beinvestigated.This paper discusses the issues pertaining to theincorporation of buyer-supplier relationships insupply chain models and the representation ofsuch relationships in the simulation of supplychains.

INTRODUCTION

A supply chain is made up of many players, eachwith specific roles in converting raw materialsinto finished goods to meet customerrequirements. The type of relationship that existsbetween and among these players holds the keyto the success of the supply chain. Hence supply

chain management principles advocates closecollaboration among all supply chain players.The practice however, is far from the theoryespecially where resources and trust are scarceand the winner takes all attitudes still prevails.This atmosphere of distrust and wariness amongplayers in the supply chain is still prevalent evenmore so in a developing economy and in certainindustries (Gules et al. 1997; Mudambi andHelper 1998). Hence the types of supply chainrelationships that exist usually falls in betweenarms lengths negotiation to full collaboration orintegration. Another development is theconsideration of power exerted by certain playersin a supply chain. This type of relationship isespecially prevalent in the automobile industry(Maloni and Benton 2000). As such power isanother variable that gives rise to yet anotherconsideration in supply chain relationships.There is thus a need to explore the impact ofsuch relationship profiles or relationshipstructures on supply chain performance.

SUPPLY CHAIN RELATIONSHIPSTRUCTURES

Utilizing the concept of supply chain structurediscussed in Mukhtar et al. (2001) we will nowdiscuss the concept of relationship structure.There are of course various variables thatcontribute or define the type of relationshipbetween the players in the supply chain. Theseinclude formalization, intensity, frequency,standardization and reciprocity (Chow et al.1995). A combination of these variables willgive rise to various different buyer–supplierrelationship structures be it collaborative or armslength type of relationships. Supply chain management literature aboundswith evidence of how close collaborativerelationships will enhance or benefit the supplychain. (Scott and Westbrook 1991) emphasizethat the scope for supply chain enhancement willdepend on the nature of the supplier relations in

Figure 1: Relationship Profiles

the chain of which the closeness of therelationship is one of two defining factors.(Pilling and Zhang 1992) stated that long-termcooperation appears to produce more net benefitsfor the exchange partners than are available fromtraditional competition-based arrangements.These benefits often enhanced the competitiveposition of both the manufacturer and supplier,resulting in a win-win situation.Recent research (Maloni and Benton 2000; Cox2001) uncovers the role of power and how itaffects the relationship strengths and hence theperformance of the supply chain. Hence, poweris a variable that cannot be ignored in theconsideration of buyer-supplier relationships inthe supply chain. With this in mind, and takingnote of the fact that a supply chain relationshipmight be anywhere in the continuum of armslength to full collaboration, the two variables i.epower and degrees of collaboration, can give riseto particular relationship structures as shown inFigure 1.

RELATIONSHIP MODELLINGCONSTRUCTS

The relationship structures described in theprevious section are abstract qualitativeconcepts. It would be beneficial if such conceptscould be interpreted or expressed in quantitative

terms. the trarelationperformwe willand incsimulatSimulaemploychains.simulat1998;In1999; vthis effcompanto conadditionsimulatcorroboliteratuand Sbenefitsbuyer-sconcepindicatorelationlisted hwith trclose co

Low

d

co

Power

Buyer

ominated

llaboration

ArmsLength

Truecollaboration

BuyerdominatedArmslength

SupplierdominatedArmsLength

Supplierdominatedcollaboration

Buyerdominance

Symmetrical

Supplierdominance

High

Collaboration

This would enable us to then investigatedeoffs or effects of such types ofship structures on supply chainance. With this in mind, in this section propose a stylised method of interpretingorporating the relationship profiles into aion model.tion is one of the most popular toolsed in the operational analysis of supply The existence of various supply chainion studies (Hieta 1998; Bagchi et al.galls and Kasales 1999; Archibald et al.an der Vorst et al. 2000), are testimony toect. This type of analysis is valuable asies and supply chains are always trying

tinually improve their performance. In to this type of analysis we feel that

ion can be used as a tool to investigate orrate the claims made by the conceptual

re for example (Piling and Zhang 1992pekman et al. 1998), purporting the and tradeoffs of the different types ofupplier relationships. In this respect thetual literature can be used as a source forrs that characterize certain types ofship. For example, Spekman et al (1998)igh levels of information sharing togetherust and commitment as indicators of allaborative relationship.

This is utilised for example, by Gavirneni (2001)who used information pertaining to inventorylevels and the willingness of the retailer totransfer its inventories as indicators ofcooperative behaviour. The author consideredthree models, which represented three levels ofcooperation. In the first model of no co-operation, he assumed that, there is noinformation sharing between the retailers and thesupplier. In this case the only informationavailable to the supplier is via the orders placedby the retailers. In the second model the authorassumed that there is some cooperation in thesupply chain. Here, in addition to the ordersplaced by the retailers, the supplier also receivedinformation on the current inventory levels of theretailers. In the third and final model, the authorfurther extends the assumptions made in thesecond model to include the possibility oftransfer of inventory from one retailer to another.This they contend represents completecooperation in the supply chain. Xu et al (2001)contends that a successful implementation of acoordination program means that themanufacturer gains equal access to the retailer’sactual demand information, adopts a one forecastpolicy for both parties and determines the orderreleases for both parties. This is in contrast to thecase where there is no collaboration. In suchcases the manufacturer relies on historical orderdata from the retailer to predict both future

ordering patterns of the retailer and true demandpatterns of the retailer’s customers.However, besides inventory levels and demandinformation, other types of information can beshared in the supply chain. Lee and Whang(2000) described various types of sharedinformation including: Inventory levels, salesdata, order status for tracking, sales forecast,production/delivery schedule, performancemetrics and capacity information. Besidesinformation, speculative and postponementbehaviour can also be considered whenmodelling supply chain relationship behaviour.Postponement and speculative supply chainstrategies (Pagh and Cooper 1998) can be used torepresent power variables in a supply chain(Mitra 1997). In addition we can also considerfive areas where power can be exercised in asupply chain namely pricing control, inventorycontrol, operations control, channel structurecontrol and information control (Munson et al.2000). Incorporating these considerations wecould then develop various constructs torepresent the different relationship profiles. Forexample, we can represent the types ofrelationship in Figure 1 by using sharing ofdemand information as an indicator ofcollaborative behaviour and the choice ofpostponement or speculation strategies as anindicator of power. An example of these types ofconstructs is depicted in Figure 2.

Relationship profile Sample Constructs

• Collaborative (supplierdominance) (*)

• Collaborative (buyer dominance)

• True Collaboration

• Arms Length

• Sharing of demand informationSupplier uses the information toforecast, speculate and pushproducts to buyer

• Sharing of demand informationSupplier forecast based oninformation; makes product;delivers product on signal frombuyer (logistic postponement)

• Sharing of demand information;buyer and supplier conducts jointforecasting and decides jointly ontime and size of delivery

• No information sharing;production based on orders

Figure 2:Relationship Constructs

Figure 3: Supply Chain Structure Scenarios Simulation Framework

The choice of constructs is obviously not uniqueor exhaustive nor is it intended to be. Forexample we would model (*) by furtherassuming that there is a sharing of inventoryinformation as well as demand information andthe supplier would only delivers its products atcertain fixed truckloads at its own convenience.The level of detail or rigour or abstraction inrepresenting a particular relationship wouldcertainly depend on the objectives of the study.The supply chain relationship modellingconstructs, together with the supply chainstructure concept (Figure 3) presents a newapproach in supply chain analysis.

CONCLUSIONS

This work provides a way of quantifying thebuyer-supplier relationship concepts found in theconceptual supply chain literature. Via therelationship constructs we propose a method ofincorporating such concepts into simulationmodels. As the work is preliminary in nature,further refinements in the methodology areneeded in order to make it more comprehensive.However we believe that this approach inmodelling supply chain relationships inparticular and in supply chain analysis in generalis worthy of attention and research.

REFERENCES

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1.Identify the scope of the study:product, product pipeline or

company

Map the physical variables

Map the relationalvariables

Map the spatialvariables

2a. Current supply chainstructure

2b. Identifying Contextual Variables

3. Identify possible strategic options by identifyingchanges to the spatial/relational/physical variables

4. Supply chain structurescenarios

5. Model and simulate supply chainstructure scenarios including originalstructure

Evaluate performance of supplychain structure scenarios

New supply chain structures

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AUTHOR BIOGRAPHY

MURIATI MUKHTAR is a postgraduatestudent currently pursuing her PhD. She holds aB.Sc in Mathematics from UMIST, UnitedKingdom and a M.Sc in Mathematics fromUniversiti Kebangsaan Malaysia. Her researchinterests include supply chain analysis andsimulation.

AWALUDDIN MOHAMAD SHAHAROUNis a professor in the Department ofManufacturing Engineering, UniversitiTeknologi Malaysia. He received his Bachelor ofMechanical Engineering Degree from LiverpoolUniversity in 1979, Masters of Science inIndustrial Engineering and ProductionManagement from Cranfield University in 1983and his PhD from Loughborough University ofTechnology in 1994. His interests includesystems modelling and enterprise integration.

MOHD SHARIFF NABI BAKSH is aprofessor in the department of ManufacturingEngineering, Universiti Teknologi Malaysia. Hereceived his Bachelor of Production Engineeringfrom Aston University in 1974.He then obtaineda Masters of Science in Industrial and SystemsEngineering from the University of MichiganAnn Arbor in 1976. He subsequently graduatedwith a PhD from the same university. Hisresearch interests include systems modelling,simulation and quality engineering.