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1. INTRODUCTION OF THE TOPIC

In the early 1980s, U.S. co!an"es #raat"cally "ncrease# the o$tso$rc"n% o& 

an$&act$r"n%, ra' ater"als, co!onents, an# ser("ces to &ore"%n co$ntr"es. )ro$n#

that t"e, the ter supply chain 'as co"ne# to reco%n"*e the "ncrease# "!ortance o& a

(ar"ety o& +$s"ness #"sc"!l"nes that 'ere no' $ch ore challen%"n% to ana%e as a

res$lt o& the ne' %lo+al econoy. Pr"or to that, &$nct"ons s$ch as !$rchas"n%,

trans!ortat"on, 'areho$s"n%, an# so on 'ere "solate# an# at &a"rly lo' le(els "n

or%an"*at"ons.

S"nce that t"e, 'e(e seen the creat"on o& the Internet an# (ar"o$s +$s"ness

technolo%"es s$ch as enter!r"se reso$rce !lann"n% -ERP systes, a#(ance# !lann"n%

systes -)PS, an# ra#"o &re/$ency ID -RFID, to nae a &e', 'h"ch ha(e hel!e# to

s!ee# $! the &lo' o& "n&orat"on an# !ro#$ct l"&ecycles as 'ell as "ncreas"n% the nee#

&or +etter co$n"cat"on, colla+orat"on an# ("s"+"l"ty.

To#ay, lo%"st"cs alone acco$nts &or ore than 9. o& U.S. %ross #oest"c !ro#$ct

-2DP. O(er 31.4 tr"ll"on "s s!ent on trans!ortat"on, "n(entory, an# relate# lo%"st"cs

act"("t"es. The conce!t o& the s$!!ly cha"n has no' r"sen "n "!ortance to the e5tent that

coerc"als on T6 e5tol the ("rt$es o& lo%"st"cs -&or e5a!le, UPS 7I o(e o%"st"cs

coerc"als to the !o"nt 'here "t "s no' !art o& the coon le5"con an# (ery

a"nstrea. )s a res$lt, ost $n"(ers"t"es no' o&&er s$!!ly cha"n an# lo%"st"cs co$rses,

"& not a:ors, an# ost or%an"*at"ons ha(e a ("ce !res"#ent o& s$!!ly cha"n an# lo%"st"cs

ana%eent -or s""lar t"tle.

Ho'e(er, +eyon# s$!!ly cha"n an# lo%"st"cs e!loyees, not any "n +$s"ness or the

!$+l"c &$lly $n#erstan# the role an# "!ortance that the s$!!ly cha"n !lays "n %a"n"n%an# a"nta"n"n% a co!et"t"(e a#(anta%e "n to#ays 'orl#.

;e are at the !o"nt to#ay 'here ost !eo!le are &a"l"ar '"th the ters supply 

chain an# logistics +$t #ont really

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technolo%y to hel! "!ro(e yo$r $n#erstan#"n% so that yo$ can $se "t as a co!et"t"(e

tool "n yo$r +$s"ness.

=eca$se s$!!ly cha"n an# lo%"st"cs costs can ran%e &ro 0 to >0 o& a co!anys

sales -'"th tr"ll"ons s!ent on "t 'orl#'"#e, or%an"*at"ons o& all s"*es +oth !er&or an#

are "ntereste# "n th"s &$nct"on. There&ore, $n#erstan#"n% an# "!leent"n% an e&&"c"ent

s$!!ly cha"n strate%y can !ro(e cr"t"cal to +oth an e!loyees an# a co!anys

s$ccess.

Supply Chain Defined

The &"rst th"n% 'e nee# to #o "s %et soe #e&"n"t"ons o$t o& the 'ay. The ters supply 

chain an# supply chain management  -SC? sho$l# +e se!arately #e&"ne# +eca$se they

are soet"es -"sta

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• Warehousing: P$+l"c an# !r"(ate

• Materials handling and packaging: ?o(eent, !rotect"on, stora%e, an# control

o& ater"als an# !ro#$cts $s"n% an$al, se"@a$toate#, an# a$toate#

e/$"!ent

• Facility netork: ocat"on #ec"s"on "n an or%an"*at"ons s$!!ly cha"n net'or<

S$!!ly cha"n ana%eent "s also "ntert'"ne# '"th o!erat"ons ana%eent, 'h"ch

cons"sts o& act"("t"es that create (al$e +y trans&or"n% "n!$ts -that "s, ra' ater"als "nto

o$t!$ts -that "s, %oo#s an# ser("ces. =oth act"("t"es s$!!ort the an$&act$r"n% !rocess.

SC!" Model

 )nother 'ay to ("e' the s$!!ly cha"n "s thro$%h the SCOR o#el, 'h"ch 'as

#e(elo!e# +y the S$!!ly Cha"n Co$nc"l -SCC -01 to teach, $n#erstan#, an#

ana%e s$!!ly cha"ns. It "s a o#el to +oth #e&"ne an# eas$re the !er&orance o& an

or%an"*at"ons s$!!ly cha"n.

F"%$re 1.1 SCOR o#el

The SCOR o#el "s or%an"*e# aro$n# the &"(e a:or ana%eent !rocesses

-see F"%$re 1.1 

• Plan: )l"%nent o& reso$rces to #ean#

• Make: Con(ers"on or (al$e@a##e# act"("t"es '"th"n a s$!!ly cha"n o!erat"on

• Source: =$y"n% or ac/$"r"n% ater"als or ser("ces

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• Deliver: )ll c$stoer "nteract"on, &ro rece"("n% or#er to &"nal #el"(ery an#

"nstallat"on

• "eturn: )ll !rocesses that re(erse ater"al or ser("ce &lo's &ro the c$stoer 

+ac

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• 'gility: The a+"l"ty to chan%e -the s$!!ly cha"n to s$!!ort chan%"n% -ar

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. INTRODUCTION OF THE CO?P)NG

About Setco

“To be the preferred clutch of choice in 1 out of 3 commercial vehicles and 1

out of 5 farm tractors globally”

Incorporated in May 1982, and listed on the BSE, Setco is the largest manufacturer of Premium

Quality Lipe brand clutches for commercial vehicles in India. The company employs more than

1200 people globally. It is a Tier I supplier of clutches to all the prominent Indian commercial vehicle

manufacturers such as Tata Motors, Bharat Benz, Ashok Leyland, Man India, Mahindra & Mahindra,

Volvo – Eicher Commercial Vehicles and Asia Motor Works amongst others. Setco has all the

required global quality certifications such as TS 16949, ISO 14001, OSHAS 18001 and VDA 6.3.

Setco has a strategic global footprint with 4 manufacturing facilities, 2 in India, and 1 each in the UK

and USA, with its corporate base in Mumbai, India. While Setco’s major manufacturing is in Kalol,Gujarat, it has a fast expanding facility in Sitarganj, Uttarakhand. Setco has set up a state of the art

R&D centre at Kalol certified by the Department of Scientific and Industrial Research, Government of

India to design, develop and validate full clutch systems. It also has a research and development

centre in UK.

In addition Setco also manufactures clutches for hydraulic products for the construction equipement

industry and precision engineering components like complex and deep drawn pressings forgings and

castings that are machined and heat treated.

Setco Automotive is the flagship company of The Setco Group which also includes Lavacast Pvt

Ltd, TransStadia Pvt Ltd and its CSR wing, the Setco Foundation.

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Co"tent

Growth and change are a constant in any organization. As we strive to become bigger we would like

to emphasize on excellence and tradition in the organization and build a synergistic work ethic.

Harnessing the passion of an employee is critical towards value addition. Employee satisfactionthrough training and investments in better facilities is a focus area.

Our commitment lies towards : –

•  Excellence

•  Growth

•  Innovation

•  Integrity

•  Community Support•  Tradition

•  Training and Support

•  Technology

•  Value Addition

Environment, Health & Safety Policy

Setco Automotive is engaged in the manufacture and service of automotive products.

Setco Automotive emphasies its commitment towards the development and

manufacturing of products and services in a manner that minimally impacts the

Environment! "ealth and Safety! directly or indirectly.

 To ensure this we will strive to

• #raft and comply with an exemplary Environment! "ealth $ Safety %olicy.

• %rotect the environment &y prevention of pollution' conservation of resources'

careful handling $ disposal of haardous wastes in a eco friendly manner and re(use

recycle material wherever possi&le.

• %rovide continual training to employees $ associates for up(gradation of

awareness and s)ills for a &etter environment.

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• *uild an environment where there is consciousness towards using and ma)ing

products manufactured $ distri&uted strictly adhere to the local and international

standards $ regulations as speci+ed.

• Adhere to all legal and other re,uirements concerning the Environment and

-ccupational "ealth $ Safety.

• Continually improve performance &y aiming for clearer $ &etter! o&ectives $

targets.

• /e ensure that this policy is communicated to every employee and is availa&le

for the viewing of the pu&lic 0 sta)eholders and that it will &e reviewed periodically.

"arish 1 Sheth

Chairman $ 2anaging #irector

Key Milestones

1982

3 4ear of incorporation

1984

3 Commercial production

1995-96

3 Commenced exports

1999-2000

3 Crossed 5s.677 million turnover mar)

2000-01

3 Signed a technical colla&oration with 8I%E 91! a division of #ana Corporation! 9SA3 %ioneered ceramic metallic clutch technology and o:ered to Tata 2otors as an import

su&stitute

2002-03

3 Commenced commercial supplies to Eicher 2otors

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2003-04

3 #eveloped the ;ational +eld service networ)

2004-05

3 Crossed 5s. 91? from #ana Corporation >9SA? and esta&lishes Setco

Automotive >91? 8td.

3 ;ame changed to Setco Automotive 8td. from Guarat Setco Clutch 8imited

3 Crossed 5s.6 &illion turnover mar)

3 Esta&lishes a wholly owned su&sidiary Setco Automotive ;A Inc. >SA;AI? in %aris!

 Tennessee for distri&ution

3 Ac,uires 9S facility from "aldex A* Sweden for @.B million through SA;AI

3 Esta&lished SETC- oundation

2007-08

3 Set up Assem&ly operations in 9ttara)hand >India?

2009-10

3 Crossed 5s. D &illion turnover mar)

3 Commenced state(of(the(art %ress Shop in 1alol! Guarat for developing clutches

suita&le to international vehicle manufacturers such as Volvo and 2ercedes

3 Invested in ro&ust 2IS SA%F

2010-11

3 Crossed 5s. &illion turnover mar)

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3 orayed into newer mar)ets in Central Asia! 2E;A 5egion! Africa! 8atin America and

South Asia

3 Extended SA% to glo&al su&sidiaries

2011-12

3 Crossed 5s. &illion turnover mar)

3 Invested heavily in upgrading 5 $ # capa&ilities

2012-13

3 Inauguration of state(of(the(art 5$# centre

3 #epartment of Scienti+c and Industrial 5esearch >#SI5? in India recognied 5 $ #

centre

2013-14

3 8aunched Independent Aftermar)et in India

3 8aunched 8CV clutches

3 Started dou&ling capacities in 9ttara)hand

3 Invested in &ac)ward integration

Quality Objective

• Improving customer Huality 5ating &y reducing customers line reections.

• Improving customer delivery rating.

• 5eduction in warranty level.

• 2aintain $ improve In house process capa&ilities through improved

process audit results.

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• Improving suppliers process capa&ilities.

• 5eduction in cost.

• Implementing continual improvement proects on

• %roductivity( Huality

• Cost

• #elivery

• 2orale

•  Safety

Vision, Mission & Values

Vision

 To &e a mar)et leading &rand in our chosen sphere of wor) with ,uality products and

services! cost e:ective manufacturing! state of the art technology and environment

friendly practices! creating value for our sta)eholders.

Mission

To &e the preferred clutch of choice in 6 out of commercial vehicles and 6 out of <

farm tractors glo&allyF

Values

Excellence

Integrity

 Team Spirit

Customer ocus

Environmental Consciousness

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Clients

Setco manufactures clutches and precision components for commercial and military

truc)s! the "eavy(medium commercial vehicle sector! the marine industry and o: 

highway and agricultural e,uipment sector.

Setco is a Tier I supplier of clutches to prominent Indian commercial vehicle

manufacturers such as Tata 2otors! *harat *en! Asho) 8eyland! 2an India! Volvo =

Eicher Commercial Vehicles and Asia 2otor /or)s amongst others.

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&+ #IT,"'T-", ",.I,W+

#uring the 6BB7s! many manufacturers and service providers sought to colla&orate

with their suppliers and upgrade their purchasing and supply management

functions from a clerical role to an integral part of a new phenomenon )nown as

supply chain management. Since this aspect of supply chain management primarily

focuses on the purchasing and supply management functions of industrial &uyers!

we have classiJed it elsewhere as the purchasing and supply perspective of supply

chain management >Tan et al.! 6BBB! 6BBK&?. Correspondingly! many wholesalers

and retailers have also integrated their physical distri&ution and logistics functions

into the transportation and logistics perspective of supply chain management to

enhance competitive advantage. -ver the last 67 years! these two traditional

supporting functions of corporate strategy evolved along separate paths and

eventually merged into a holistic and strategic approach to operations! materials

and logistics management! commonly referred to as supply chain management

>SC2?. This article reviews the literature &ase and development of supply chain

management along these two separate paths and integrates the two &odies of 

literature in the uniJcation of supply chain management into a commonly accepted

terminology that includes all the value creating activities along the value chain. In

addition! this article attempts to descri&e supply chain management clearly! since

the term has &een used very li&erally in the literature. This article also discusses

various supply chain strategies and the conditions conducive to supply chain

management.

D. Supply chain management de+ned

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 The literature is replete with &uwords such as' integrated purchasing strategy!

integrated logistics! supplier integration! &uyerLsupplier partnerships! supply &ase

management! strategic supplier alliances! supply chain synchroniation and supply

chain management! to address elements or stages of this new management

philosophy >Tan et al.! 6BBKaM ;ew! 6BBNM 8a 8onde and 2asters! 6BB?. /hile each

terminology addresses elements of the phenomenon! typically focusing on

immediate suppliers of an organiation! supply chain management is the most

widely used >&ut a&used? term to descri&e this philosophy. 9nfortunately! there is no

explicit description of supply chain management or its activities in the literature

>;ew! 6BBN?. or example! "arland >6BBO? descri&es supply chain management as

managing &usiness activities and relationships >6? internally within an organiation!

>D? with immediate suppliers! >? with Jrst and second(tier suppliers and customers

along the supply chain! and >? with the entire supply chain. Scott and /est&roo)

>6BB6? and ;ew and %ayne >6BB

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chain $integrateP and act as a single uniJed entity! performance is enhanced

throughout the system of suppliers. ig. 6 shows the activities and Jrms involve in

such a value chain as portrayed &y ;ew and %ayne >6BB

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emerges from the transportation and logistics literature of the wholesaling and

retailing industry! emphasiing the importance of physical distri&ution and

integrated logistics. There is no dou&t that logistics is an important function of 

&usiness and is evolving into strategic supply chain management >;ew and %ayne!

6BB

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product development and delivery lead(time. 2anufacturers resorted to new

materials management concepts to improve performance within the $four wallsP of 

the company. The intense glo&al competition in the 6BK7s forced world(class

organiations to oQer low cost! high ,uality and relia&le products with greater design

Rexi&ility. 2anufacturers utilied ust(in(time >IT? and other management initiatives

to improve manufacturing e@ciency and cycle time. In the fast(paced IT

manufacturing environment with little inventory to cushion production or scheduling

pro&lems! manufacturers &egan to realie the potential &eneJt and importance of 

strategic and cooperative &uyer(supplier relationship. The concept of supply chain

management emerged as manufacturers experimented with strategic partnerships

with their immediate suppliers. In addition to the procurement professionals!

experts in transportation and logistics carried the concept of materials management

a step further to incorporate the physical distri&ution and transportation functions!

resulting in the integrated logistics concept! also )nown as supply chain

management. The evolution of supply chain management continued into the 6BB7s

as organiations further extended &est practice in managing corporate resources to

include strategic suppliers and the logistics function in the value chain. Supplier

e@ciency was &roadened to include more sophisticated reconciliation of cost and

,uality considerations. Instead of duplicating non(value(adding activities! such as

receiving inspection! manufacturers trusted suppliersP ,uality control &y purchasing

only from a handful of ,ualiJed or certiJed suppliers >Inman and "u&ler! 6BBD?. 2ore

recently! many manufacturers and retailers have em&raced the concept of supply

chain management to improve e@ciency across the value chain. 2anufacturers now

commonly exploit supplier strengths and technology in support of new product

development >5agat et al.! 6BBNM 2organ and 2onc)a! 6BB

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seamlessly integrate their physical distri&ution function with transportation partners

to achieve direct store delivery or cross doc)ing without the need for receiving

inspection >St. -nge! 6BBO?. A )ey facilitating mechanism in the evolution of supply

chain management is a customer(focus corporate vision! which drives change

throughout a JrmPs internal and external lin)ages.

. Two alternative perspectives on supply chain management

ig. presents a summary framewor) of the evolution of supply chain management

along two separate paths that eventually merged into a common &ody of literature.

/hile it is not an exclusive nor distinctive classiJcation of literature! ig. illustrates

the evolution of supply chain management from the purchasing and supply

activities! as well as the transportation and logistics functions! with a focus on

integration! visi&ility! cycle time reduction! and streamlined channels >Tan et al.!

6BBK&?. The purchasing and supply perspective literature relates to the previously

disparate functions of purchasing and supply management functions of the

industrial &uyers! whereas the transportation and logistics perspective of supply

chain management literature evolves from the transportation and physical

distri&ution functions of the wholesalers and retailers. "owever! there are other

means of classifying supply chain management literature. or example! "arland et

al. >6BBB? and "arland >6BBO? classify research in this area according to the levels of 

integration >i.e.! internal chain! dyadic relationship! external chain and networ) of 

suppliers and customers? among supply chain mem&ers.

.6. %urchasing and supply perspective of the industrial &uyers In general! most of 

the recent literature on supply chain management addresses the purchasing and

supply perspective >e.g.! armer! 6BBNM 2organ and 2onc)a! 6BBOM 8amming and

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"ampson! 6BBOM 1ralic! 6BK?. This perspective of supply chain management is

synonymous with supplier &ase integration that evolves from the traditional

purchasing and supply management functions. It emphasies that purchasing and

materials management represents a &asic strategic &usiness process! rather than a

narrow specialied supporting function to overall &usiness strategy >5ec) et al.!

6BBD?. It is a management philosophy that extends traditional internal activities &y

em&racing an inter(enterprise scope! &ringing trading partners together with the

common goal of optimiation and e@ciency >"arwic)! 6BBN?. Supply chain

management creates a virtual organiation composed of several independent

entities with the common goal of e@ciently and eQectively managing all its entities

and operations! including the integration of purchasing! demand management! new

product design and development! and manufacturing planning and control. This

perspective on supply chain management focuses on the manufacturing industry

and has little to do with the wholesaling or retailing industry. Its short(term o&ective

is primarily to increase productivity and reduce inventory and cycle time! while the

long(term strategic goal is to increase customer satisfaction! mar)et share and

proJts for all mem&ers of the virtual organiation. To realie these o&ectives! all

strategic partners must recognie that the purchasing function is the crucial lin)

&etween the sources of supply and the organiation itself! with support coming from

overlapping activities to enhance manufactura&ility for &oth the customer and

supplier. The involvement of purchasing in concurrent engineering is essential for

selecting components that assure the re,uisite ,uality is designed into the product

and to aid in collapsing design(to(production cycle time. Suppliers participate at the

earliest stage of product design to render cost(eQective design choices! often

leading to innovation in process and material technology to compete in the glo&al

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mar)et >2onc)a et al.! 6BB?. *y involving suppliers early in the design stage!

manufacturers may &e a&le to develop alternative conceptual solutions! select the

&est components and technologies! and solicit help in design assessment >5agat et

al.! 6BBNM *urt and Sou)up! 6BK

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chain management is a theory grounded in the Jeld of logistics. Interestingly!

Eloranta and "ameri >6BB6? note that research in logistics tend to &e separated into

in&ound and out&ound logistics! with a primary focus on in&ound logistics.

According to this perspective! supply chain management incorporates logistics

focus into the strategic decisions of the &usiness >"ale! 6BBBM "oulihan! 6BKK?. The

once narrow focus of logistics &ecomes a comprehensive topic that spans the entire

value chain from suppliers to customers >Shapiro et al.! 6BBM 8angley and "olcom&!

6BBD?. It ena&les channel mem&ers to compete as a uni( Jed logistics entity instead

of simply pushing inventory &ac) along the value chain. In such a setup! 8a 8onde

and 2asters >6BB? suggest that most of the &eneJts of forward and &ac)ward

vertical integration can &e o&tained &y coordinating the logistics operations of 

independent Jrms in the value chain. In this respect! supply chain management is

synonymous with integrated logistics systems! and the literature &ase is extensive

>ohnson et al.! 6BBBM 8am&ert et al.! 6BBKM *owersox and Closs! 6BBOM Coyle et al.!

6BBO?. *roadly deJned! an integrated logistics system encompasses the integration

of processes! systems and organiations that control the movement of goods from

the suppliers to a satisJed customer without waste >Ellram! 6BB6?. /here logistics

once meant saturating warehouses with inventory! an integrated logistics system

includes inventory management! vendor relationships! transportation! distri&ution!

warehousing and delivery services. The role of eQective physical distri&ution is a

critical component of the logistics process. 2erchandise must &e replenished ,uic)ly

and arrived where and when it is needed in smaller lot sies! especially in a IT

system >"andJeld! 6BB?. The goal is to replace inventory with perfect information.

EQective coordination of logistics activities! &y means of excellent information

technology processes! is essential to organiational performance >8ewis and

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 Talalayevs)y! 6BBN?. The advancement of electronic interchange! &ar coding and

radio fre,uency scanning technologies has greatly aided the evolution of the

integrated logistics concept. Evidence of wor) in this area includes /hiteoa) >6BB?!

who traces the evolution of the retail grocery distri&ution practice in the 6BN7s into

the current supply chain management concept. The current research extends the

supply chain management concept &eyond the conJnes of one company to include

other organiations in the value chain! including the carrier! which plays a crucial

role in an e@cient supply chain >Carter and errin! 6BB

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/hen supply chain management was integrated from the two perspectives into a

common &ody of )nowledge that encompasses all the value(adding activities on the

value chain! researchers realied the importance of incorporating supply chain

management in overall &usiness planning process >"arland et al.! 6BBB?. "owever!

Carter and ;arasimhan >6BB? note that it is not widely practised. *usiness process

reengineering literature >*urgess! 6BBKM liedner and Vo)ur)a! 6BBN? supports the

notion of closely integrating the operations across functional areas &etween

manufacturers! suppliers and customer. In an empirical survey! Ellram and %earson

>6BB? also discover that despite the increased emphasis of integrating purchasing

into overall corporate strategy! the primary function of purchasing remained a

clerical role of negotiating price0items. /hile many strategic models have &een

proposed >for example! 5ec) and 8ong! 6BKK? to lin) the crucial role of supply chain

management in overall strategic corporate planning! they failed to suggest any

action model that is useful to practitioners. 2ore recently! rohlich et al. >6BBN?

have utilied rigorous statistical analyses of survey data and suggested that there

are three diQerent types of supply chain strategies! and the process of fulJlling

customerPs orders is of paramount importance to all three types. The three supply

chain strategies are $innovatorP! $mar)eteerP and $careta)erP strategies. /hile

$innovatorsP emphasie rapid new product introduction and design changes!

$mar)eteersP oQer &road product lines and $careta)ersP focus on oQering the lowest

price. The goal of the integrated supply chain strategy is to create manufacturing

processes and logistics functions seamlessly across the supply chain as an eQective

competitive weapon that cannot &e easily duplicated &y competitors >Anderson and

1at! 6BBKM *irou et al.! 6BBKM 8ummus et al.! 6BBKM 8ee and *illington! 6BB

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information &etween suppliers! manufacturers and customers >/hite et al.! 6BBBM

;arasimhan and Carter! 6BBKM Trent and 2onc)a! 6BBK?! and implementing product

postponement and mass customiation in the supply chain >8ee and Tang! 6BBKM

%agh and Cooper! 6BBKM Van "oe) et al.! 6BBK?. "igher level of integration with

suppliers and customers in the supply chain is expected to result in more eQective

competitive advantage >ohnson! 6BBBM "ines et al.! 6BBKM 8ummus et al.! 6BBKM

;arasimhan and ayaram! 6BBK?. 2ost recent research that addresses supply chain

management strategy emphasies the critical role of purchasing in formulating

corporate level strategies. or example! reeman and Cavinato >6BB7? propose a

fourstage supply chain management model and descri&e the purchasing

characteristics necessary in each stage. This conceptual wor) is useful in matching

purchasing with the strategic process of the Jrm! &ut it does not provide a

framewor) for strategically lin)ing purchasing to the other functional areas.

Su&se,uently! /atts et al. >6BBD? develop a conceptual framewor) for lin)ing

purchasing to corporate competitive strategy and to functional level strategies. This

framewor) is a crucial step in stimulating more active purchasing involvement in

developing and implementing corporate competitive strategy that will improve an

organiationPs performance.

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traditional culture that emphasies see)ing good! short(term! company(focused

performance appears to &e in conRict with the o&ectives of supply chain

management. Supply chain management focuses on positioning the virtual

organiation in such a way that all contri&utors in the value chain &eneJt. EQective

supply chain management rests on the twin pillars of trust and communication

>Grieco! 6BKB?! and procurement and logistics professionals must &e e,uipped with

the necessary expertise in the critical functions of their own enterprise and fully

understand how it aQects the entire value chain. A &uyersP mar)et is an ideal

situation in which to develop long(term strategies with )ey suppliers &ecause

&uyers have leverage in negotiating cost! ,uality! certi( Jcation of processes!

ac,uisition and sharing of new technology and production competence! especially

for recurrent transactions that re,uire specialied processes >Ellram! 6BB?. In

response to the intense glo&al competition! mergers and ac,uisition that create

redundant logistics capa&ility! and new information technology! Jrms may adopt

supply chain management to move &eyond mere cost reduction into the domain of 

real manufacturing e@ciency >8a 8onde and 2asters! 6BBM %orter! 6BB?. In recent

years! the rapid development of client0server supply chain management software

that includes a completely integrated supply chain management and electronic

commerce component also aids in the evolution of supply chain management >1ing!

6BBOM Semich! 6BB?. Sharing information with supply chain partners through

Electronic #ata Interchange >E#I? is also a critical component of supply chain

management >Ellram et al.! 6BKB?. E#I is not ust an electronic ordering systemM it

can integrate stoc)ing! logistics! materials ac,uisition! shipping and other functions

to create a more proactive and eQective style of &usiness management and

customer responsiveness >2ische! 6BBD?. The direct transfer of information &etween

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retailers and vendors aids in improving logistics e@ciency and supporting increased

customer service levels. *esides the a&ility to increase accuracy and timeliness of 

information transferred! E#I may improve cycle relia&ility and help to decrease cycle

time. Superior logistics management aids in successful supply chain management

adoption. /hen coupled with an information system such as E#I! the transportation

system &ecomes the warehouse. -rders can &e consolidated in the computer and

carriers can &e coordinated for IT delivery. Successful application of IT principles in

supply chain management re,uires agreements that strengthen &uyerLsupplier

cooperation so that supply strategy is directly lin)s to the JrmPs overall strategy

>%ola)oQ! 6BBDM 5omero! 6BB6?. As discussed a&ove! IT purchasing emphasies

reduction in inventory levels throughout the value chain >Adair("eeley! 6BKK?!

instead of simply pushing &ac) inventories on suppliers. The traditional

&uyerLsupplier relationship that emphasies multiple sourcing! competitive &idding

and use of short(term contracts has &een characteried as adversarial >"ahn et al.!

6BKO?. It tends to focus on the shortterm view of the purchase price and ,uality of a

product instead of the long(term capa&ilities of the suppliers. "owever! there is a

shift to developing long(term supplier capa&ilities in response to escalating

competition! shorter product life cycles! and rapidly changing customer demands

>/atts and "ahn! 6BB! Shepherd! 6BB?. Although much has &een written on

&uyer(supplier relationships >"eide and ohn! 6BB7M Ellram! 6BB6?! there! is a lac) of 

empirical models for esta&lishing a successful &uyer(supplier partnership.

O. Supplier certi

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service suppliers >Schneider et al.! 6BB

certiJcation programme appears is inevita&le for a IT manufacturer that operates

with no excess inventory and needs to deliver to the point of use >2aass! 6BKKM

*urgess! 6BKN?. The ultimate goal of supplier certiJ( cation is ,uality at the source

and to reduce inventory! non(conformance! communication errors! duplicate testing!

receiving inspection! deliver to point of use! cycle time! and the a&ility to shift focus

from process input to output. An early wor) in supplier certiJcation is &y Grieco

>6BKB? who proposes a Jve(phase supplier certiJ( cation process. Eventually!

supplier certiJcation extends to include the logistics function! Gi&son et al. >6BB

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organiations develop in(house certiJcation programmes that com&ine certain IS-

B777 criteria with their own. A related issue in supply chain management literature

is supplier development! which can &e deJned as any eQort of a &uying Jrm with its

supplier to increase the capa&ilities of the supplier >1rause and Ellram! 6BBN?. It

involves a long(term cooperative eQort &etween a &uying Jrm and its suppliers to

upgrade the suppliersP technical! ,uality! delivery and cost capa&ilities and to foster

ongoing improvements. "ahn et al. >6BB7? propose a conceptual model to descri&e

the organiational decision process associated with a supplier development

programme to serve as a guideline for designing such a program that can lin)

purchasing strategy with a JrmPs overall corporate competitive strategy.

Su&se,uently! /atts and "ahn >6BB? have concluded that formal supplier

evaluation is crucial to the supplier development process.

N. Conclusion The development and evolution of supply chain management owes

much to the purchasing and supply management! and transportation and logistics

literature. As such! the term $supply chain managementP is used in many ways! &ut

three distinct descriptions dominate prior literature. irstly! supply chain

management may &e used as a handy synonym to descri&e the purchasing 1.C.

 Tan 0 European ournal of %urchasing $ Supply 2anagement N >D776? BLK < and

supply activities of manufacturers. Secondly! it may &e used to descri&e the

transportation and logistics functions of the merchants and retailers. inally! it may

&e used to descri&e all the value(adding activities from the raw materials extractor

to the end users! and including recycling. "owever! it should &e no surprise that the

various descriptions overlap in some cases. Genuinely integrated supply chain

management re,uires a massive commitment &y all mem&ers of the value chain.

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or example! the &uyer may have to overhaul its purchasing process and integrate a

supplierPs engineering teams and product designers directly into its own decision(

ma)ing process. Since the cost of changing a partner can &e huge! the purchasing

Jrm can &ecome a captive of its suppliers. %oor supplier performance is not the only

ris)M the purchaser needs to worry a&out the possi&ility of a supplier passing trade

secrets to competitors or with its new(found a&ilities! venturing out on its own.

 Trusting suppliers may &e good &usiness sense! &ut for many Jrms hostility may still

&e more proJta&le! even in the long run. There are many other pitfalls of supply

chain management! such as conRicting o&ectives and mission! inade,uate

deJnition of customer service! and separation of supply chain design from

operational decisions >8ee and *illington! 6BBD?. Integrating the purchasing and

logistics functions with other )ey corporate functions can create a closely lin)ed set

of manufacturing and distri&ution processes. It allows organiations to deliver

products and services to &oth internal and external customers in a more timely and

eQective manner. To further exploit the competitive advantage associated with

integrated processes! some leading organiations adopt a strategic approach to

managing the value chain! such as forming strategic alliances with suppliers and

distri&utors instead of vertical integratingM inter(company competition is elevated to

inter(supply chain competition. Although supply chain management developed

along two separate paths! it has eventually merged into a uniJed &ody of literature

with a common goal of waste elimination and increased eciency.