Supply chain discontent

The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-7154.htm Supply chain discontent Supply chain discontent Togar M. Simatupang and Ramaswami Sridharan Institute of Information Sciences and Technology, Massey University, Palmerston North, New Zealand 349 Abstract Purpose – This study was conducted to examine supply chain discontent in an integrative way. Design/methodology/approach – The organisational economics view is adopted as an approach to reveal multiple sources of discontent which consist of incongruent objectives, disintegrated performance measures, unsynchronised decision-making, information asymmetry, misaligned incentives, and fragmented business processes. All these sources separately or collectively contribute to reduce the potential of total profits arising from collaboration. Findings – It is argued that to effectively mitigate supply chain discontent, the chain members need to collaboratively design antidotes for discontent. In this paper six antidotes to discontent are proposed, namely mutual strategic objectives, appropriate performance measures, decision synchronisation, information sharing, incentive alignment, and streamlined intercompany business processes. It also shows that previous studies have not addressed supply chain discontent in an integrative way. Originality/value – This study, therefore, provides a new insight for managers to understand multiple sources of discontent as well as its antidotes. Keywords Supply chain management, Information disclosure, Business environment, Economic cooperation Paper type Conceptual paper Introduction A supply chain usually consists of multiple players, starting from multi-tier suppliers, and including manufacturers, distributors, retailers, and end customers. More fierce competition has driven most companies to seek means of enhancing performance beyond their four wall boundaries (Bowersox, 1990). The ability of a firm in collaborating with its upstream and downstream partners determines its success in attaining better performance (Christopher, 1992; Jap, 2001; Spekman et al., 1998). With collaboration, a firm is able to serve fragmented markets in which end customers require more product varieties and availability with shorter product life cycle and at the same time lower supply chain costs. Companies – such as Wal-Mart, Hewlett-Packard, IBM, Intel, Saturn, Procter & Gamble, McKesson, and Starbucks – have achieved better profitability as a result of supply chain collaboration (Fisher et al., 2000; Kalakota, 2000; Lee et al., 1997). A supply chain is designed to achieve a chain goal that is the result of optimising total profits through functional differentiation and business process interdependence in offering products to customers (Chopra and Meindl, 2001). The main concern of supply chain management (SCM) is to create seamless and agile supply chain processes that enable the chain members to meet customer needs at the lowest costs The authors would like to thank Majed Al-Mashari, Karen Stanley, Alan Wright, and the two anonymous reviewers for their helpful commentaries and support for earlier versions of this paper. Business Process Management Journal Vol. 11 No. 4, 2005 pp. 349-369 q Emerald Group Publishing Limited 1463-7154 DOI 10.1108/14637150510609390 BPMJ 11,4 350 (Kopczak and Johnson, 2003). However, the overall goal of optimising chain profitability is difficult to achieve because of conflicting interests such as specific wants, perceived needs, and expectations amongst chain members (Sabath and Fontanella, 2002). The participating members are goal-seeking entities that also need to attain their individual goals (Eliashberg and Michie, 1984). Supply chain discontent thus occurs when two or three parties working together along the same supply chain perceive differences in organisational settings that affect their ability to perform better. In this situation, actions taken by one party are often beneficial to it but have detrimental effects on other players. Supply chain discontent leads to inefficiency loss such as high logistics costs and unnecessary costs of demand uncertainty including surplus inventory, markdowns, and stock-outs (Buzzell et al., 1990; Fisher, 1997). Examples of chain discontent are prevalent in various industries such as electronics (Lee et al., 1997; Zarley, 1997), toys (Kravetz, 1999), and apparel (Fisher et al., 2000). Each player in the examples often shifts financial risks associated with demand uncertainty – for example, either shortages or surplus stocking costs, to other players. Although supply chain discontent devastatingly reduces overall performance, previous studies have paid little attention to comprehensively characterising sources or causes of supply chain discontent (Moberg et al., 2003). Lee and Billington (1992) first highlighted several pitfalls of collaborative inventory management. They categorised them based on observations and interviews. After conceptualising the enablers, impediments, and benefits, Mentzer et al. (2000) provided survey results about the barriers to successful implementation of supply chain collaboration. Most recently, Moberg et al. (2003) have identified seven barriers that consistently block chain members from supply chain success, including lack of trust, little commitment to SCM principles, fear of relinquishing control, different goals and objectives, inadequate information systems, a short-term “Wall Street” focus on outcomes, and involvement in too many supply chains. This study was based on observations, surveys, and anecdotal evidence. While these studies provide a fine-grained analysis of supply chain discontent, none of them explicitly justified the basis for identifying and categorising sources of supply chain discontent. There is a consequent need for a research approach that addresses sources of discontent from a structural view before initiating appropriate ways for remedying the unfavourable situation. Motivated by the shortcomings of previous studies, the purpose of this current research is to conceptually examine multiple sources of supply chain discontent. It is argued that the main responsibility of the chain members is first to identify sources of discontent and then to find its antidotes, which help the chain members to maximise the total profits of their collaboration efforts. Consequently, the purpose can be broken down into three objectives: (1) to categorise different types of discontent behaviour; (2) to identify multiple sources of supply chain discontent; and (3) to propose an integrative framework of antidotes to discontent. This research departs from the organisational economics view in which interorganisational settings influence the behaviour of actors at the boundary-spanning interfaces of their companies (Brickley et al., 1995; Jensen and Meckling, 1992). The emphasis is on conceptual modelling and the use of anecdotal evidence from the real world as secondary data to illustrate and clarify the concept (Stablein, 1999). Secondary data were commonly used in previous studies on business process management and SCM (Barua et al., 1996; Lee, 2002; Lee et al., 1997). Drawing on the organisational economics view (Jensen and Meckling, 1992), six sources of supply chain discontent are identified in this study: incongruent objectives, disintegrated performance measures, unsynchronised decision-making, information asymmetry, misaligned incentives, and fragmented business processes. All these sources separately or collectively contribute to reduce the potential of total profits of collaboration. Furthermore, it is argued that to effectively mitigate supply chain discontent, the participating members need to collaboratively design antidotes for discontent, which consist of mutual objectives, appropriate measures of performance, information sharing, decision synchronisation, incentive alignment, and streamlined intercompany business processes. This integrative framework is based on the value creation path model and adopts the complementarity theory to ensure that antidotes or interorganisational design variables contribute maximally to the overall success of collaboration (Milgrom and Roberts, 1990). This study thus provides a novel conceptual model to understanding design variables in supply chain collaboration. The remainder of the paper proceeds as follows. The next section presents four styles of dysfunctional behaviour of supply chain discontent. The subsequent section discusses multiple sources of supply chain discontent that prevent players from optimising chain profitability. Furthermore, an integrative framework of antidotes for mitigating discontent is presented. The discussion section provides invaluable insights about implications of the study for managers and researchers, and recommendations for future research. The paper concludes with a summary of key ideas. Dysfunctional behaviour of supply chain discontent Although chain members have a common interest in expanding mutual advantage by collaboration, a chain member may perceive its individual goal attainment as being impeded by other members. Supply chain discontent is defined as a situation that occurs when two or three parties working together at the same supply chain perceive organisational differences that affect their ability to perform better to maximise potential profits. Supply chain discontent may involve issues such as pricing control, inventory control, operations control, control over the channel structure, and information control, task completion, risk/reward splitting, and policy interpretation (Munson et al., 1999; Simatupang and Sridharan, 2002). Supply chain discontent is often characterised by a zero sum orientation that means one player wins, another chain member must lose (Nalebuff and Brandenburger, 1996). Detrimental effects of supply chain discontent can be inefficiencies in both operational and commercial sides of the supply chain. Operational inefficiencies include task duplication, long lead-times, unwanted stocks, and distorted information. Commercial inefficiencies may be pricing distortion, unnecessary inventory costs, lost sales, and disputed risk pooling. Supply chain discontent is manifested in dysfunctional behaviour that can be observed during the ongoing relationship. Supply chain discontent behaviour refers to decisions and actions – in the areas of forecasting, inventory, transportation, and pricing – taken by individual chain members that prevent the achievement of the chain goal. As the chain processes are interdependent, a particular action taken by one member often affects both the operational and commercial performance of other chain members. Individual actions such as adding a new distribution channel, reducing Supply chain discontent 351 BPMJ 11,4 352 Figure 1. Different behavioural styles of supply chain discontent a wholesaler’s territory, changing the discount structure, requiring existing trading partners to perform additional services, and changing the terms of a distribution agreement without considering the impacts of such changes on the achievement of the chain goal are examples of chain discontent behaviour. Chain discontent behaviour can be examined by adopting the dual concern model (Blake and Mouton, 1964) that explains how the needs of the self and the other interact in approaches to discontent as shown in Figure 1. The vertical axis measures one member’s concern for its own interest on a scale from low to high. The horizontal axis measures its concern for other members’ interests. Each player can be seen as both a buyer and a seller; a buyer with respect to its suppliers and a seller with respect to its buyers. A combination of these two axes posits four general styles of supply chain discontent behaviour: avoidance, forbearance, rivalry, and compromise. Each style leads to dissatisfaction in the relationship because it prevents each player from improving the performance of the chain as a whole. An avoiding style means one player has low concern for the interests both of self and of the other (cell A in Figure 1). The typical behaviour of the avoiding style involves changing terms of trade agreements, cannibalism of the current channel by establishing direct selling to end customers, and speculative purchases. This behaviour often contributes to additional costs and thereby prevents the chain members from optimising supply chain operations. For example, Buzzell et al. (1990) observed two common phenomena of the avoiding style exhibited by retailers during trade promotions, namely diverting and forward buying. Diverting is a manoeuvre of retailers to purchase goods from manufacturers at promotional prices in one region and sell them to another region at normal prices. Forward buying is an effort of a retailer to accumulate goods at promotional prices and sell at normal prices after the promotional period. Both actions increase unnecessary stocking costs and provide no promotional benefit for manufacturers to increase sales (Buzzell et al., 1990). A forbearing style (cell B in Figure 1) refers to a party with low concern for its own interest combined with high concern for the other party’s interest. This player may have a vulnerable position. Some examples of forbearing behaviour in industry include players often perceiving some costs in contending with their partners’ threats (Anderson and Narus, 1990) and punishments generally decrease the chain members’ income (Scheer and Stern, 1992). A rival style (cell C in Figure 1) occurs when one player has high concern for its own interest coupled with low concern for the other parties’ interests. The rival style often stresses the use of market power to impose unequal exchanges on other players and thereby gain surplus from trade deals (Munson et al., 1999). The prevalent characteristic of the rival style includes the ability of one chain member to shift the risk of demand uncertainty – either shortage or surplus stocking costs – to other players. For example, the retailers of the personal computer (PC) industry tend to reduce the stock level of new products in order to avoid unsold inventories when prices drop during the product life cycle (Zarley, 1997). This typical action dissatisfies the vendors, who thereby fail to push more products to end customers. A similar behaviour occurred when Compaq forced its suppliers to pay the cost of warehousing (McCartney, 1994). Betts (1994) also reported that dominant retailers were suspected of transferring their ordering costs and inventory risk to their suppliers. A compromising style (cell D in Figure 1) occurs when one player emphasises on give-and-take bargaining during the relationship (Stalk et al., 1996). By compromising, a player bargains to split cost savings because it assumes that the amount of savings is fixed and needs to be divided amongst all players. The achievement of overall optimisation is not expected because of sacrificing quality and delivery time. For instance, the apparel industry experiences high fluctuations in demand due to seasonal trends (Fisher, 1997). The retailers place orders with their manufacturers long before the selling season begins in order to take advantage of lowered-buying expenses, but they have to bear risks of markdowns for unsold stocks after the selling season. On the other hand, the manufacturers cannot quickly overcome a surge of demand during the selling season due to long procurement lead times. Mattel, the toy maker, could not push a lot of merchandise to Toys “R” Us during the 1998 Thanksgiving weekend (Kravetz, 1999). The retailers stopped ordering new toys from Mattel because of a shortage of shelf space for all new products and high costs of adding a new product. This typical decision upset the entire chain as Mattel could not replenish new products and the retailers could not meet the demand during the peak season due to late ordering. The chain members need to encounter the pervasiveness of four behavioural types of supply chain discontent as it frequently generates unnecessary inefficiencies. Supply chain discontent not only erodes revenues and increases costs but also diminishes trust amongst members. Consequently, the detrimental effects of supply chain discontent on the overall performance should be mitigated by first identifying underlying factors influencing the behaviour and then finding effective antidotes for improvements. The next section presents sources of supply chain discontent. Sources of supply chain discontent The critical question of how to resolve supply chain discontent should begin with identifying sources that influence supply chain discontent behaviours, namely avoidance, forbearing, rivalry, and compromise. Extensive research has appeared to identify sources of supply chain discontent. However, little attention has been given to identifying linkages of various sources and their interactions on profitability. For instance, the rational behaviour of chain members in optimising their own performance instead of that of the overall supply chain is often viewed as a source of supply chain discontent (Fisher, 1997; Lee et al., 1997). Fisher (1997) identified the fact that a lack of coordination in dealing with demand uncertainty contributes to unnecessary costs of markdowns and lost sales. Lee et al. (1997) discovered that the bullwhip effect as Supply chain discontent 353 BPMJ 11,4 354 Figure 2. Identifying multiple sources of supply chain discontent the primary source of inefficiencies amongst chain members in the supply chain was an example of supply chain discontent. This current research goes further to provide an alternative to previous research by applying the view of organisational economics in identifying multiple sources of supply chain discontent. This view assumes that interorganisational settings can influence participating actors, actors are rational and self-interested, and information is costly to produce and transfer among actors (Jensen and Meckling, 1992). A number of researchers have highlighted the importance of organisational settings that influence the behaviour of the participating members in making decisions and taking actions (Brickley et al., 1995, 2003; Simatupang and Sridharan, 2002; Smith, 2001). This view can be adopted to explain that poorly designed boundary-spanning interfaces contribute to the failure of supply chain collaboration. As an independent entity, each participating member has its own strategic objectives, performance measures, decision authority, private information, internal costs and revenues structures, and business processes. When the chain members collaborate with each other, any misfits in these structural elements can contribute to lost profits (Brickley et al., 1995). Furthermore, changes in one element without considering its effect on other elements can result in failure in attaining potential benefits (Milgrom and Roberts, 1990). Based on this conception, Figure 2 provides a model of identifying multiple sources of supply chain discontent. The multiple sources of discontent include: incongruent strategic objectives, disintegrated performance measures, misrepresentation of decision authority, misaligned incentives, information distortion, and fragmented intercompany business processes. Incongruent objectives and disintegrated performance measures indicate a lack of shared commitment amongst the participating members. A lack of coordination incorporates factors that influence individual players to take decisions that deviate from supply chain profitability, namely unsynchronised decision-making, information asymmetry, and inappropriate economic incentives. Fragmented intercompany business processes indicate a lack of collaborative attention to reducing wastes and inefficiencies from sourcing to selling activities across organisational boundaries. The remaining section discusses each source of supply chain discontent. An incongruent strategic objective is a situation where chain members have different emphases on strategic options to enhance competitive positions (Bowersox, 1990; Eliashberg and Michie, 1984). This is because each player in the supply chain has a different position and role in the supply chain that leads to different strategic priorities. For example, the strategic objective of a supply chain to maximise a profit margin can be perceived differently by a supplier and a retailer. For the supplier, maximising a profit margin can be achieved through reducing product lines in order to lower set-up costs. On the other hand, the retailer translates such an objective as providing more product lines to customers. Disintegrated measures of performance mean that the performance measures are based on individual metrics isolated from the entire goal because each player has been managed as a single entity (Simatupang and Sridharan, 2002). There are several reasons for this disintegration. First, the chain members simply do not have performance measures of the entire supply chain. Second, there is a bias toward internal measures rather than overall measures. Any action directed at improving individual metrics, without appreciation of the overall system, is likely to have a detrimental effect on at least one of the other chain members (Goldratt, 1994). Internal measures of performance often mislead the individual members because the overall performance also depends on the performance of other members outside the individual member’s four walls. Bain’s survey found that only 44 per cent of the sample tracked performance outside the company’s four walls (Cook and Tyndall, 2001). Third, performance measures are often based on cost reductions rather than revenue enhancement for the entire chain. Cost reductions are often translated as cost shifting to other members rather than cost elimination (Betts, 1994). Unsynchronised decision-making – known as misrepresentation – refers to differences in decision-making procedures that lead to counterproductive decisions (Lee et al., 1997). This is because the chain members have different decision authorities and different perspectives of responsibilities. In this situation, the player – who is responsible for making decisions in a particular stage – optimises only its local objectives without considering the impacts of such actions on other stages. Consequently, the chain members suffer from task duplications, lack of tacit knowledge, and delays in decision-making. Total profits are thus less than what could be achieved through synchronisation (Lee et al., 1997). For instance, in the context of a seller-buyer relationship, independent order decisions lead to suboptimal solution. The normative literature recognises unsynchronised decision-making between a retailer and a supplier as double-marginalisation. The retailer chooses to under stock inventories lower than the optimal order number, whereas the supplier insists on supplying above the optimal number. Information asymmetry occurs when one player has better access to certain information sources compared to other players (Lee and Whang, 2000). The member with superior information can take advantage from either hidden information and hidden action or both (Jensen and Meckling, 1992). The manufacturer, for instance, has superior knowledge about its own operations including product quality, production capacity, and delivery lead-time. The retailer, on the other hand, has better knowledge of product demand and customer preferences in the market, but not of individual Supply chain discontent 355 BPMJ 11,4 356 goods. The problem of hidden information occurs if either the manufacturer or the retailer is reluctant to share relevant information – with the result that neither party can resolve conflicting decision criteria in inventory, transportation, lead-time, capacity, product variety, and quality (Simchi-Levi et al., 2000). The problem of hidden action means that one party cannot observe actions taken by another party. For instance, a car manufacturer may depend on its dealers if its product sales depend on the dealer’s level of efforts to serve customers. Inappropriate economic incentives refer to assigning rewards and punishments incompatible with optimising the performance of the supply chain as a whole (Simatupang and Sridharan, 2002). Misaligned incentives induce the individual players to intentionally make decisions which deviate from the satisfactory solution because the local solution provides more benefits – even though individual parties know the optimal solution (Lee et al., 1997). It is often believed that incentive to reduce the costs of each part of a supply chain can optimise the overall profitability. However, since the chain members are interdependent, cost reduction for one member might be revenue reduction for others. Furthermore, any cost reduction has a lower bound (i.e. the theoretical limit is zero) because the individual member cannot produce outputs without incurring costs. Such perverse incentive of cost reduction motivates an individual member to suboptimise its own economic interests instead of striving to achieve overall profitability (Gjerdrum et al., 2002). For example, a retailer prefers to maintain a low level of a particular brand on store shelves because there is no incentive to avoid lost sales for that particular brand (Raman, 1998). A similar misaligned incentive situation occurs across departments in many retailing companies. A buyer, for instance, wants to reduce purchasing costs including better quantity discounts with large order sizes. On the other hand, a warehouse manager has an incentive to minimise inventory-holding costs including receiving, unloading, and put-away costs. Similarly, a manufacturer of cell phones – dictated by full truckloads in order to minimise transportation costs – lost market value as high as 20 per cent (Cook and Tyndall, 2001). Fragmented intercompany business processes often contribute to various wastes along the supply chain that lead to unnecessarily high operating costs and considerable unnecessary costs of supply-demand mismatch, which lead to poor profitability. Indicators of undesirable situations include long lead-time, unreliable delivery, overlapping ordering processes, considerable expediting costs, high transportation costs, high process variability, markdowns, and high levels of inventories (Goldratt, 1994; Lee et al., 1997; Simchi-Levi et al., 2000). Kurt Salmon, for instance, estimated that an apparel retailing industry incurred over $16 billion of efficiency loss per year due to markdowns, out-of-stock items, and the cost of carrying excess inventory (Blackburn, 1991). The reason was simply fragmented apparel pipeline processes, which result in a long time-to-market from the production stage to the consumer’s buying decision. Antidotes for supply chain discontent The common feature of supplier-retailer relationships is a mutual understanding that the success of each player depends, in part, on other players (Frankel et al., 2002; Sabath and Fontanella, 2002). The chain members need to understand which are flawed assumptions that prevent them from making further improvement. One prevalent example of a flawed assumption that allows supply chain discontent to persist during a relationship is that the participating members believe that the sum of local optimisation taken by individual members is equal to the total improvement. The current practice of the relationship overlooks the facts that a supply chain consists of interdependent processes that serve the same customers and total profits are not fixed. It is not surprising that chain members behave either to diminish total profits (e.g. avoidance and forbearance) or split total profits (e.g. rivalry and compromise). In fact, the total profits are not fixed and can be enlarged through collaboration (i.e. we all win). Supply chain collaboration occurs when the participating members work together for solutions that maximise the gains for all parties. The total improvement thus depends on how the chain members diminish common constraints that prevent them from attaining better profitability (Goldratt, 1994). In this study, antidotes for supply chain discontent are recommended. Each antidote is designed to mitigate the detrimental effects of a corresponding source of supply chain discontent. It is derived from the logic of identifying “what to change from” that represents a typical source of unwanted discontent to finding “what to change to” that represents effective solutions that lead to desirable effects. Figure 3 shows antidotes that operate at two different levels: a shared commitment and collaborative business drivers. At the level of a shared commitment, the chain members need to agree on developing and communicating mutual strategic objectives and appropriate performance measures of mutual success. At the level of business drivers, the chain members should collaboratively design appropriate business drivers of their collaborative efforts that mostly contribute to supply chain profitability. These business drivers include information sharing, decision synchronisation, incentive alignment, and streamlined intercompany business processes. Having stated the antidotes of discontent, three important characteristics of the framework warrant further examination. First, each type of antidote serves as a design variable for intervention that can have profound effects on overall performance because this chosen antidote affects the behaviour of the chain members in pursuing overall profitability. Therefore, the redesigning of interface variables or antidotes should stem from mitigating the core problem that prevents the chain members from getting more profits. Supply chain discontent 357 Figure 3. Antidotes for supply chain discontent BPMJ 11,4 358 Second, Figure 3 provides a framework for designing more effective boundary-spanning interfaces amongst the chain members. Based on this framework, the chain members are able to analyse the connections between one antidote and others and the likely consequences of changes across multiple antidotes to overall performance. This integrative framework allows them to take advantage from redesigning combined antidotes that accelerate the increase of total profits. This logic is consistent with the complementarity theory, which postulates that if two antidotes are complements then the marginal contribution of one increases as the level of the other one increases. Milgrom and Roberts (1990) have used it to explain that modern manufacturing firms adopted coordinated innovative activities rather than the traditionally separate activities of design, engineering, manufacturing, and marketing. Additionally, Barua et al. (1996) have developed a theoretical model to explain that the reengineering project should consider coordinating reengineering activities rather than isolated activities in order to obtain the complementarity effects of activities. Third, the framework implies that the four business drivers ultimately affect total pay-offs. The interactions between antidotes serve as input variables that determine operational outputs and ultimately contribute to overall performance. Figure 4 shows the interrelation between intercompany business drivers that affect intermediate measures, which in turn impact financial outputs (Simatupang et al., 2002). This value creation path model allows the chain members to identify a set of collaborative business drivers that impact overall pay-off including intermediate performance measures of their collaboration. They are also able to coordinate choices of the levels and improvement directions of the business drivers in a complementary manner. The model in Figure 4 is akin to business value modelling represented as a two-stage model developed by Barua et al. (1995) in explaining that the economic benefits of information technology (IT) investments can be assessed through recognising that choice variables such as IT and other input investments affect intermediate measures such as capacity utilisation and inventory turnover, which in turn contribute to financial performance measures such as return on assets and market share. The remaining section describes each antidote for mitigating supply chain discontent. Mutual strategic objectives Strategic objectives are specific targets of competitive positions that the chain members can apply in order to create competitive advantage through collaboration such as accurate response, inventory deployment, customer loyalty, target costs, rapid Figure 4. A value creation path model: from intercompany business drivers leading to financial outcomes product development, and so on (Frankel et al., 2002; Simchi-Levi et al., 2000). The chain members need to specifically determine their strategic objectives that impart survival reasons for creating competitive responsiveness to market changes. Appropriate performance measures Appropriate measures of performance can be defined as a set of measures used to evaluate participating members’ performance and overall performance. The measures should allow the chain members to judge the impact of every action on overall pay-off (Figure 4). The effectiveness of individual members in contributing to strategic objectives can be evaluated using intermediate or operational metrics that span across companies such as customer service, perfect order, new product introduction, speed, and operating costs (Banker and Snitkin, 2003; Lapide, 2000). Overall collaborative business outputs are usually measured in terms of net profit, cash flows, return on investment (ROI), market growth, and market share (Grey et al., 2003; Simatupang and Sridharan, 2002). Coordination structure At the level of coordination, chain members need to harmonise distributed decisions, information, and incentive amongst themselves in supporting their interdependent business processes that contribute to mutual objectives. As the chain members need to share decision authorities, each individual member is responsible for different decision variables and makes those decisions based on different information. The outcome of the supply chain depends jointly on the separate decisions taken by the members and on some environmental uncertainties. As mentioned before, information asymmetry, when combined with a divergence of interests of the individual decision makers, leads to inefficiencies of decision-making. Therefore, addressing the problem of coordination means recognising that there are three kinds of diversity amongst chain members: (1) a diversity of decision rights; (2) a diversity of private information; and (3) a diversity of incentive. The problem of coordination thus can be summarised as: to choose a coordination structure which energises the chain members to pursue competitive outcomes, recognising the constraints imposed by the diversity of decision rights, private information, and incentives among the chain members. In this study, a coordination structure is defined as a strategic choice of shared responsibility of decision right, level of information sharing, and level of incentive alignment in order to enhance the overall mutual benefits of the collaboration such as increasing customer value and lowering total supply chain costs. Initiatives that can be taken to mitigate supply chain discontent include decision synchronisation, information sharing, and incentive alignment. When combined, the intensity of decision synchronisation, information sharing, and incentive alignment determines the spectrum of the coordination structure, as shown in Figure 5. This spectrum level indicates the degree of collaboration at interface level amongst chain members. The chain members need to cooperate with each other to determine the appropriate spectrum level of coordination structure that enables them to effectively realise mutual Supply chain discontent 359 BPMJ 11,4 360 Figure 5. Displaying the spectrum of a coordination structure advantage. For ease of description, each component of the coordination structure can be generally divided into three levels. Decision synchronisation can be defined as the degree of cooperative decision-making amongst chain members that jointly determine areas of responsibilities and allocation of decision rights (Jensen and Meckling, 1992; Simatupang et al., 2002). The allocation of decision rights (who decides what) should be accompanied by a set of rules or contracts to ensure that the recipient of decision rights exercises its rights in a way that results in collective mutual advantages such as better customer service and lowered costs. The intensity of decision synchronisation ranges from independent decision-making (i.e. no allocation of decision rights), consultative decision-making (i.e. joint exercise of decision rights and responsibilities), and synchronised decision-making (i.e. redesigning decision rights and responsibilities). The chain members should be able to choose which type of decisions they need to synchronise in order to ensure direct impacts on chain performance. Decision-making along the supply chain relates to three general levels: strategic, tactical, and operational decisions (Simchi-Levi et al., 2000). The strategic level is concerned with decisions that have strategic importance and involve the long-term game plan for a firm. This type of decision includes capability building (product design and technologies) and network configuration. Tactical decisions are concerned with short-term resource allocation such as collaborative product planning, forecasting, inventory planning, and distribution planning. These decisions are affected by customer service, inventory, product pricing, and transportation costs. For example, a retailer gives the stocking decision right to a supplier like a vendor-managed inventory (VMI) system because the supplier knows better about its product characteristics, production capacity, and distribution system (Simchi-Levi et al., 2000). Operational decisions must resolve all the issues of controlling daily activities on chain operations. Examples of this type of decision are routing vehicles, developing and modifying a production schedule and replenishment schedule, and filling customer orders on time. Information sharing refers to a description of the range of each firm’s private information (who knows what) and information dissemination among the members (Simatupang and Sridharan, 2002). The chain members need to determine information requirements that can be used to make effective decisions. Information sharing enables the chain members to consider a bigger picture in optimising supply chain operations. Previous studies demonstrate that information sharing leads to lowered inventory levels, effective allocation of resources, lowered operating costs, and improved total profits (Fisher, 1997; Lee et al., 1997). For example, Thonemann (2002) showed that all participating members benefit from sharing advance demand information in a supplier-installer supply chain. The supplier mainly benefits from reduced inventory-holding costs and installers benefit from lowered shortage penalty cost and better product availability. Information sharing facilitates data collection, documentation, computation, transfer, and access to various kinds of private information. It ranges from one-way communication to data exchange, and exclusive visibility. One-way communication means the chain members communicates with each other through transactional data such as purchase orders, order and delivery status, product catalogues, and price quotation (Lee et al., 1997). Data exchange allows sharing private data in two-way communication such as points-of-sale data, delivery schedules, inventory levels, forecasts, capacity planning, and performance status (Lee and Whang, 2000). Exclusive visibility includes sharing proprietary data such as strategic planning, market research, product blueprint, and sensitive costs-related data (Fisher, 1997). This enables chain members to carry out mutual optimisation of business process that enhances a distinct competitive edge (Konsynski and McFarlan, 1990). Incentive alignment reflects various inducements (i.e. reward and penalty schemes) to sharing costs, benefits and risks to be applied by the chain members during the collaboration (Simatupang and Sridharan, 2002; Simatupang et al., 2002). Since each member may bear a portion of the total chain costs, the agreement to optimise the chain performance may not automatically minimise individual member costs. Incentive alignment thus means to design proper incentives that motivate players in aligning individual decision-making more closely to the overall goal by sharing costs, distributing risks, and sharing benefits. If the incentive scheme is not designed properly, the individual member will be tempted to deviate from the agreement in order to maximise its short-term gain. How should one take into account the private economic interest of the individual decision maker? Incentive alignment assumes that the individual member bases decision-making on the compensation it receives from others. This compensation depends on the actions of the various decision makers, either directly (e.g. actions may be audited to see if they are correct, and incorrect actions may lead to penalty), or indirectly (e.g. profit sharing, bonuses based on sales, splitting the savings, and so forth). The intensity of incentive alignment ranges from elementary, to professional and sophisticated schemes of inducements. An elementary scheme consists mainly of transfer payments based on current market mechanisms – such as zoning, quota, rebates, warranties, price discount, quantity discount, and so on – necessary to move products swiftly to end customers (Buzzell et al., 1990). A professional scheme attempts Supply chain discontent 361 BPMJ 11,4 362 to share costs and benefits tied to mutual objectives. Options can be made more economically attractive by applying inducements – such as accurate forecast, quick response (e.g. on-time or responsiveness related payment), shared cost-savings, and gain sharing – based on improved performance (Chopra and Meindl, 2001). A sophisticated scheme is a change of priorities within the partners’ decision framework of risk sharing (Billington et al., 2003). It clearly spells out obligations, expectations, and remedies. The calculation of this scheme often requires complex algorithms. Sophisticated schemes for risk sharing include flexible quantity contracts, returns policies, price protection, real options, and dynamic pricing (Billington et al., 2003; Lee, 2002). For example, a manufacturer can offer two options of order delivery to a retailer in an attempt to share risks associated with demand uncertainty: lower unit price with long lead-times and higher unit price for production and delivery but with short lead-times. Both options enable the retailer to improve the right product availability during a short selling season. The spectrum of the coordination structure is useful to specify who the players are and what kind of coordination structure they might operate. For example, tight collaboration occurs when the chain members operate in a synchronised decision-making process with exclusive visibility and sophisticated incentives. A clear picture of the whole coordination spectrum enables the chain members to identify the sources of supply chain discontent and devise initiatives to remove problems. Initiatives for decision synchronisation, information sharing, and incentive alignment should be carefully selected in order to ensure that they have direct impacts on total profits. Streamlined intercompany business processes The chain members need to collaboratively eliminate waste across their supply chain processes in order to create the flexibility required to respond to constant market changes. Initiatives of intercompany business process reengineering can be in the forms of product redesign, process redesign, reducing on-time variability, reducing demand variability, lead-time reduction, improving forecast accuracies, cross-docking, and postponement (Blackburn, 1991; Christopher, 1992; Kalakota, 2000; Kopczak and Johnson, 2003). For example, Dell collaborated with its main suppliers to adopt various types of postponements and process improvements in order to create a flexible and lean supply chain with a minimum level of inventory pipeline to a few days (Dell and Fredman, 1999). As a result, Dell had a significant advantage in cash collection time and an increase of profit margin. Discussion This paper contributes to the literature of SCM by providing a conceptual model for identifying and mitigating discontent as shown in Figure 6. The model begins with recognising the pervasiveness of four types of behaviour of supply chain discontent that lead to scepticism about collaboration. The responsibility of the chain members is to identify potential sources of discontent that could have a detrimental impact on overall pay-off. Revealing multiple sources of discontent helps the chain members to determine where their strategic objectives are not compatible; pinpoint performance problem areas; build consensus around joint decision-making, information visibility, and incentive issues; and set priorities for streamlining intercompany business Supply chain discontent 363 Figure 6. The discontent model: identifying and mitigating discontent processes. Eroding revenues and increasing costs must be prevented through applying the integrative framework of six antidotes for mitigating supply chain discontent. The chain members need to engage in dialogue and use the value creation path model and the complementarity theory to devise appropriate directions and levels of improvements. This dialogue ensures that time and resources are dedicated to implementing only those initiatives which will truly contribute to overall pay-off (Grey et al., 2003). The framework of antidotes (Figures 3-5) provides several managerial implications on how to apply this concept in supply chain collaboration. First, the chain members need to determine an interorganisational business value of collaboration. The value creation path model suggests that all antidotes must be directed to supporting the goal of supply chain profitability. A top-down analysis can be carried out to firstly specify overall measures of success such as profitability, market share, and market growth, secondly identify intermediate measures of performance which contribute to overall measures, and at the lowest level identify collaborative business drivers (Figure 4). Second, the chain members should identify and validate complementarity relationships amongst the business drivers. This means, for instance, assigning decision rights to a particular member should encourage this member to use its private information to make better decisions. If the chain members decide to redesign a performance system, they must ensure that they also redesign appropriate incentive schemes to motivate individual members to make decisions that support overall performance. A scenario analysis can be conducted to assess the combined effects of changing the levels of business drivers on profitability. Finally, the chain members need to devise how to effectively cause the change. They also need to identify a catalyst for the change such as choices of technologies that are suitable to the selected design variables of antidotes. This study provides the first conceptual model that comprehensively incorporates elements of interorganisational designs used to mitigate detrimental impacts of supply chain discontent on overall pay-off. Previous approaches have tended to focus on a single antidote, or on two antidotes such as information sharing and streamlined business processes (Kalakota, 2000; Lee et al., 1997). Little attention has been given to explicitly exploiting the complementarity effects of antidotes in the process of attaining BPMJ 11,4 364 profitability. The first antidote is often called strategy making that specify mutual strategic objectives of collaboration, whereas the last five antidotes constitute interorganisational elements designed to fit strategy. Table I compares the five design elements of collaboration to other common approaches used to mitigate supply chain discontent. Game theory, for example, provides a systematic way of developing strategies when one player’s pay-off depends on what other players do (Nalebuff and Brandenburger, 1996). Although this approach can be used to determine appropriate policies that maximise overall performance and ensure a Pareto optimal solution for all chain members (Gjerdrum et al., 2002), there is little guideline for determining what factors drive the collaborative pay-off. To enhance the analysis of game theory, Figure 4 provides a more comprehensive approach for the chain members to understand and identify appropriate interorganisational business drivers that could affect overall pay-off. Another example is business process reengineering, which is defined as the fundamental rethinking and radical redesign of business processes to improve business performance and to stay competitive (Hammer and Champy, 1993). Reengineering changes often involve a large amount of IT investments and the reassignment of decision rights. However, the reengineering approach pays little attention either to guidelines for tracing and measuring the engineering changes on overall pay-off (Barua et al., 1996) or to redesigning incentive and performance systems. Study aimed at promoting an integrative framework of antidotes for mitigating supply chain discontent has recently emerged. The first stages of this new research are necessarily description and classification (Kerlinger, 1973). Simatupang and Sridharan (2004) provide empirical evidence of applying this approach to a study of benchmarking in supply chain collaboration. Nevertheless, several issues of further extensions, mathematical modelling, and empirical evidence of the framework proposed in this paper warrant further research. While this study focuses on dyadic collaboration, future research can be extended to include more than two participating members (Blackburn, 1991). Another extension of this research is to develop a portfolio of collaboration because not every business relationship in the supply chain is collaborative but varies in its intensity. Future research is also required to develop mathematical foundations to ensure the complementarity conditions (Topkis, 1995) of intercompany business drivers and the strong supermodularity conditions (Barua et al., 1996) of the value creation path model. Finally, the integrative framework of antidotes proposed in this paper uses a normative approach, which allows researchers to scrutinise how the chain members ought to manage collaboration given particular objectives. However, this approach must be balanced with the findings from descriptive research, which focuses on what managers actually do in the collaborative efforts. The remaining section provides directions for descriptive research. Changing the mind-set from the competitive supply chain (i.e. avoidance, forbearance, rivalry, and compromise) to the collaborative supply chain (i.e. a win-win relationship) is a vital prerequisite to understanding the mutual benefits of improvement initiatives. Identifying sources of supply chain discontent provides a starting point to recognising deficiencies in the current practice of the relationship. The main trigger that drives the chain members to redesign their interorganisational structures is deficiency – indicated by the fact that realised outcome is much lower Selected approaches (influencers) Description Quick response (Blackburn, 1991; Kurt Salmon Associates) A consumer-driven strategy that promotes pulling things through the pipeline and letting the consumers decide what they want Business process reengineering (Hammer and Champy, 1993) The fundamental rethinking and radical redesign of business process to achieve overall pay-off The choice of optimal strategy that combines competition and collaboration Game theory (Nalebuff and Brandenburger, 1996; Gjerdrum et al., 2002) Accurate response (Fisher, 1997; Fisher et al., 2000; Raman, 1998) Appropriate performance system A successful collaboration means higher inventory turns and improved ROI for each member. Little guidance is given to develop cross-boundary performance measures except time related measures Little attention is given to redesigning intercompany performance measures The pay-off is the outcome of each strategy. Little attention is given to restructuring cross-boundary measures Fitting the nature of The focus is on measures such as the demand of contribution margin, products to the forecast error, appropriate supply chain design strategy stockout rate, markdowns, and because of lead-time. Little differences in production costs and attention is given to the costs of a supply- restructuring cross -boundary measures demand mismatch The five elements of collaboration proposed in this paper Decision Information sharing synchronisation Incentive alignment Streamlined business processes Each link in the chain shares data about sales, orders, and inventories with others via electronic data interchange (EDI) Quick response involves reassignment of decision rights and joint decision-making in planning and execution Little attention is given to restructuring rewards, costs, and risks Quick response involves process improvements such as modular manufacturing, lead-time reduction, and smaller and more frequent orders Reengineering involves high investments in IT Reengineering involves reassignment of decision rights Little attention is given to restructuring rewards and punishments Reengineering involves radical redesign of business processes The focus is on fair sharing of risks, costs, and profits No guideline is given about improving business processes Guidance is given about rewarding responsiveness and sharing markdown costs Physical efficient process involves minimising inventory and shortens lead-time. Market-responsive process aggressively reduces lead-time and uses modular design Each player makes This approach assumes visibility on strategic decisions to gain advantage over costs and revenues a rival. Little attention is given to reassignment of decision rights Accurate response Accurate response involves data sharing involves reassignment of about advance demand information, decision rights and joint decision-making sales, inventory levels, capacity, and in planning and control lead-time Supply chain discontent 365 Table I. Comparisons with selected approaches for mitigating supply chain discontent BPMJ 11,4 366 than might be expected. Future research is needed to elaborate upon methods for measuring deficiency and its linkage to sources of supply chain discontent. This includes how and why supply chain discontent exists amongst participating members. Since boundaries of the context and the phenomenon of supply chain collaboration are not obvious and investigators have little control over events, case study research is recommended as an appropriate method to better understand collaborative efforts (Yin, 2003). The people factor plays a key role in the success of supply chain initiatives. However, little research has been dedicated to pinpointing the mental models of people who actually carry out the improvement process (Akkermans et al., 1999; Covington, 1996). Further research is required to capture mental models of participating managers about interorganisational redesigns as an integrative way of improving overall performance. Cognitive mapping, for instance, can be used to elicit and describe mental models (Akkermans et al., 1999). Conclusion The difficulty of creating collective advantage from adopting supply chain collaboration as a strategic initiative is strongly related to supply chain discontent. Supply chain discontent occurs when the chain members cannot realise their potential due to differences in interest, and thereby the realised outcome is much lower than expected. This research has identified four styles of discontent behaviour: avoidance, forbearance, rivalry, and compromise. Where supply chain discontent is prevalent, the individual member cares only about its private agenda instead of about enlarging total profits. As a result, inefficiency loss such as excessive inventories, stockouts, markdowns, and resource misallocations are prevailing undesirable symptoms in many supply chains. The research reported herein has revealed sources of supply chain discontent that include incongruent strategic objectives, disintegrated performance measures, unsynchronised decision-making, information asymmetry, misaligned incentives, and fragmented intercompany business processes. Each source of chain discontent provides an opportunity for identifying a remedy or antidote. This study has also proposed the integrative framework of antidotes for mitigating supply chain discontent. Antidotes for supply chain discontent incorporate initiatives to resolve shared commitment and collaborative business drivers. Gaining shared commitment involves setting mutual strategic objectives and defining appropriate measures of performance. Collaborative business drivers incorporate decision synchronisation, information sharing, incentive alignment, and streamlined intercompany business processes. Furthermore, the value creation path model provides directions for improvements, whereas the complementarity theory serves as a basis for choosing the right levels of improvements among intercompany business drivers, which contribute maximally to the overall pay-off of collaboration. In this paper, a new alternative for interorganisational redesigns is proposed, which is based on the organisational economics view and the complementarity theory and thereby contributes to a novel understanding of supply chain collaboration. This new alternative explicitly conceptualises the complementarity effects of antidotes on intermediate performance measures, which in turn determine overall financial outcomes. Only when the chain members discuss and design coordinated antidotes can the real pay-off of collaboration be traced and measured. Finally, in this paper is provided a set of agendas for further research including developing mathematical foundations for ensuring complementarity conditions, the case study for identifying multiple sources of discontent, and the use of the integrative framework of antidotes to capture the cognitive models of participants. Supply chain discontent 367 References Akkermans, H., Bogerd, P. and Vos, B. 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