Dividing the supply chain into demand, production, and delivery components enables companies to assemble an effective supply channel configuration. As illus-trated in the supply chain attribute matrix (Table 1.2), the depth and complexity of the supply network will be determined by several critical attributes [9]. The first, and most critical, is the choice of process method. Depending on the nature of the product and competitive strategy, producers can choose between project, jobbing, batch, line, or continuous processing (or a combination). A short definition of the process choices can be seen in Table 1.3. Once the process choice has been made, the most critical decision in the process value chain resides in determining supply channel complexity. This attribute is concerned with how the process choice impacts the scope and depth of the integrative partnerships existing between primary and secondary suppliers and the producer. Supply chain partnerships can be described as cooperative alliances formed to plan for and access channel capabilities that will enable the smooth flow of components and materials across the process value network.
The actual intensity of supplier collaboration will vary by the type of process deployed. For example, project producers normally form relatively loose, intermittent
partnerships, depend on a wide variety of suppliers, negotiate contracts focused on short-term objectives such as price and delivery, and clearly demarcate boundaries of responsibility for quality and cost management. In contrast, at the other end of the matrix, continuous producers develop deep collaborative relationships with a small number of suppliers centered on contracts specifying quality, cost reduc-tion, mutual benefit sharing, and joint responsibility. Continuous producers want supply organizations that are highly networked and synchronized to provide agile responses to rapid changes in production requirements.
The selection of process method will also impact choices in the value delivery network. As detailed in Table 1.2, three attributes can be identified. The first, mar-ket penetration intensity, describes the depth/tiers in the delivery network producers and/or intermediaries must pursue to satisfy market objectives. The desired level of penetration will require the formulation of strategies associated with capabilities and costs (executing delivery activities), channel power (distribution of influence among channel players), and competitive actions (presence of competitors and buy-ing alternatives). As indicated in the matrix map, since project producers create highly customized, unique products, they normally have fairly shallow delivery chains. Line and continuous producers, on the other hand, are constantly searching to expand penetration of commodity-type product/service offerings in an effort to gain an ever-increasing market share.
The second delivery network attribute can be described as integrative inten-sity. This characteristic determines the level of integration backward, forward, or horizontally a producer chooses to pursue in the delivery channel. Backward/
forward integration identifies how much control a company seeks over predeces-sor supply (backward) or downstream customer-facing (forward) delivery agents.
Table 1.2 Supply Chain Attribute Matrix
Jobber
Process Value Chain Value Delivery Network Process
Horizontal integration refers to a level of control whereby a company acquires a linked channel intermediary. According to the matrix map, the more a product/
service is customized, the more intense will be a company’s control over channel delivery functions. For example, a producer of highly configurable plant heating and cooling equipment will most likely control the entire channel from market-ing, to production, to actual delivery. On the other hand, an electronics commod-ity producer like Sony will depend on a complex delivery network that assumes
Table 1.3 Process Choices
Process Type Description
Project Products produced in a project environment are unique and one of a kind, matched to an individual customer’s requirements. This process produces a wide range of custom products very high in cost and price.
Jobbing Jobbers are normally focused on the processing of a range of product models characterized by complex, often non-repeated configurations of features and options. These products tend to be low in volume while high in cost and price.
Batch Batch production consists in processing products in large lot sizes. While a range of products is offered, economies of scale in conversion usually lead producers to offer several basic models with a limited variety of features. Batch production enables
producers to migrate from a job shop to a flow pattern where lot sizes of a desired model proceed irregularly through a series of processing points or even possibly a low volume assemble line.
Line In a line environment a limited number of products with no or an extremely limited number of features are produced. Line production is often characterized by connected, mechanized processes, such as a moving assembly line. Key attributes of this process model are volume manufacturing, delivery, and concern with cost. Product design and quality are determined before the sale occurs.
Continuous Producers utilizing this method sell a very narrow range of highly standardized, commodity products produced in high volumes utilizing dedicated equipment. Price and low cost are the key determining factors for this type of production.
the responsibility for a wide range of functions, from promotion and pricing to delivery, merchandizing, and retail.
The last delivery network attribute, distribution intensity, is concerned with the number of intermediaries to use at each channel level. There are four strategies that can be deployed. In the first, single source distribution, a producer performs all delivery network activities. This strategy is chosen by producers who wish to retain exclusive control over elements such as brand, delivery, price, promotion, and service. In the second strategy, intensive distribution, a company seeks to utilize a broad and deep dis-tribution network to reach as many customers as possible. The third strategy, exclusive distribution, is pursued by companies who want to limit the number of intermediaries who deal with customers. This strategy can take two forms: exclusive distribution, in which a producer authorizes exclusive distribution rights to a select group of inter-mediaries, and exclusive dealing, where a producer requires intermediaries to sell only its products. The final strategy, selective distribution permits select groups, but not all possible intermediaries, to handle and sell the producer’s products.
The supply chain attribute matrix provides an easy format to use in determin-ing the structure of a supply chain. For example, line and continuous process-based producers (such as foods, low-cost electronics, and basic services) normally produce commodity goods or raw materials and seek as many outlets to sell to as possible. On the other hand, batch and line producers, who produce, assemble, and make-to-order goods (such as major appliances, automobiles, and designer apparel) often seek exclusive or selective distribution in order to retain control over pricing, promotions, and market image as well as to prevent the inroads of competitors.
Finally, capital goods producers will normally use the single source distribution strategy. Makers of highly customized project-oriented products either purpose-fully (to eliminate any form of competition) or unintentionally (due to the unique nature of the product/service) will pursue this strategy.