The Extended Enterprise: Gaining Competitive Advantage through Collaborative Supply Chains

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9780130082749: The Extended Enterprise: Gaining Competitive Advantage through Collaborative Supply Chains

You can't compete and win alone. Today, constellations of firms ally against each other--and the firm that stands alone, may fail alone. Now there's a start-to-finish guide to the opportunities and challenges facing today's extended enterprise. In The Extended Enterprise, authors Edward W. Davis and Robert E. Spekman show why extended enterprises demand radically new buyer-supplier relationships, why traditional business structures inhibit alliances and partnerships, and how to develop the competencies your company needs right now.

Drawing on extensive research and new case studies, you get realistic strategies for planning, building, and managing the extended enterprise. You'll learn how to decide when to partner and who to partner with; align processes to improve information flow; and especially, develop people who'll work well across organizational boundaries. Above all, the authors offer deep insight into the attitudinal and behavioral changes that are needed in order to rapidly achieve results and sustain them for the long term.

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About the Author:

EDWARD W. DAVIS, Oliver Wight Professor of BusinessAdministration at University of Virginia's Darden Graduate School ofBusiness Administration, specializes in supply chain management,manufacturing strategy, global sourcing, and developing high-performanceorganizations. He has authored more than 100 case studies and authoredor co-authored three books on project and production management. He hastaught at Harvard Business School, Sloan School of Management at MIT,and the University of North Carolina.

ROBERT E. SPEKMAN is Tayloe Murphy Professor of BusinessAdministration at Darden. He is a globally recognized authority on B2Bmarketing, supply chains, channel management, and strategic alliances.His consulting experience ranges from competitive analysis to strategicmarket planning, distribution design and implementation to strategicpartnering. He has written or edited seven books, and authored orco-authored over 80 articles and papers. Before joining the Dardenfaculty in 1991, Spekman taught at the University of SouthernCalifornia, University of Maryland, and the Norwegian School of BusinessAdministration and Economics.

Excerpt. Reprinted by permission. All rights reserved.:

Preface

The extended enterprise has been discussed for a number of years,beginning, we believe, with Tom Stallkamp, former purchasing head atChrysler. He transformed supplier relationships at Chrysler by buildingbridges to its suppliers, and he changed the adversarial model that hadruled the U.S. auto industry for decades.

The term extended enterpriseconnotes the collaborative relationships among supply chain members.Buyers and sellers work toward a shared vision--gaining a competitiveadvantage and achieving greater end use customer satisfaction, relativeto other supply chains. Chrysler and its suppliers competed againstFord, GM, and the non-U.S.-based OEMs and their supply chains. It isinteresting to note that since the Daimler merger, the collaborativemodel at Chrysler has slowly been supplanted by a different approachto procurement that, we believe, has done very little to foster thetenets of the extended enterprise as put forth under Stallkamp.

Some ofthe alleged gains from a more collaborative supply chain are easy todocument, whereas others require a leap of faith. For instance, it iseasy to point to purchase price reduction, lower inventory costs, orquality improvement. We can show, albeit with slightly more work togather data, how the total cost of ownership has been reduced or howcycle times have improved. We have a more difficult time demonstratinghow customer satisfaction, market share, or customer retention can beattributed to closer ties with our supply base. Statements of how OEMshave learned from their suppliers and improved their processes, and howthese gains have led to better supply chain-wide performance are likelyto be met with some skepticism.

Yet the extended enterprise is reallyabout creating a defensible long-term competitive position throughstrong supply chain integration, collaborative behaviors, and thedeployment of enabling information technology. Herein lies the challengewe face in writing this book. We advocate close ties among supply chainpartners and argue the importance of the extended enterprise as thepreferred business model for the new millennium. If we look at thecurrent state of affairs, most companies fall short of our normativeparadigm. Our observation is that most firms are not even close todeveloping the requisite mindset; they lack the skills and competenciesneeded and cannot implement the processes that lie at the heart of theextended enterprise.

We are open to criticism that we have created anideal world and that we are naive. Our objective is to share our visionof how supply chains should be. We acknowledge that most firms struggleto transform their supply chain relationships. We are aware that thereare obstacles that must be overcome. At the same time, there are a smallnumber of exemplar companies that are much farther along this path.These companies do demonstrate extended enterprise behaviors and arereaping the benefits of cross-company integration or an ability toinstitute design product and process changes with suppliersinstantaneously and on a global basis. We will document thesebest-of-breed examples and use them to support our vision. Theseexamples demonstrate that the time for extended enterprise thinking isnow. To wait is to jeopardize the future competitive position of yourcompany.

We advocate that extended enterprise thinking forces thecompany to consider supply chain-wide effects for actions taken andstrategies developed. Concurrently, such thinking also encourages thedevelopment of evaluative criteria that examine cost savings and revenuegrowth. Metrics for evaluating supply chain-wide performance cannotemphasize one to the exclusion of the other, although we admit that thecost-focused measures are more prevalent. Despite the acknowledgednascent state of metrics that examine extended enterprise performance,we believe that valid and reliable measures are being developed and thatany attempt to measure these benefits is a step in the right direction.If not measured, the hard work will never be done. For the extendedenterprise to be successful, it has to be viewed as an investment. It isan investment in the lifeblood of the firm and is necessary if the firmseeks to attain a sustainable competitive advantage.

In part, supplychain integration begins with goal alignment. The challenge is to aligngoals on two levels: corporate and supply chain-wide. For manycompanies, procurement has come a long way from its lowly origins to nowbeing considered a strategic partner in the planning process. Many of uscan recall the time when purchasing did not enjoy such status. Armedwith an understanding of the corporate mission and strategic plan,extended enterprise managers (purchasing) can initiate and/or facilitatethe requisite cross-functional linkages and cross-discipline dialoguesthat support corporate-wide supply chain initiatives. The truechallenge, however, is to accomplish this alignment across allcomponents of the supply chain to ensure the same level of coordinationand collaboration that can exist within one firm. The challenge ofserving as a catalyst to bring together the skills and capabilities ofindependent companies working together to accomplish mutually achievablegoals is a non-trivial problem.

For too many years, relationships amongbuyers and suppliers have typically been tenuous at best and often lessthan harmonious. Distrust, self-serving/opportunistic behavior, and aconcern for only my objectives have left both buyer and seller quitecautious and, in a number of instances, wary of letting down theirguard. Yet the handwriting is clearly on the wall: Cooperate or fail.

There are benefits to be gained from the formation of alliances andother supply chain relationships that unleash the power of partnersworking jointly to bring value to the marketplace. We are even morecommitted to the idea that a sustainable competitive advantage will cometo those buyers and sellers who master the principles of the extendedenterprise. Charles Fine, in his book Clockspeed, suggests that successwill come to those firms that have a core competence in designing supplychain networks where virtual integration links partners that share acommon vision and are committed to a set of common goals.

This bookbuilds the case for the extended enterprise. Chapter 1 first introducesthe extended enterprise and states the case for its merits. Here, theidea of the extended enterprise is defined, and factors that drive suchthinking are discussed. Chapter 2 traces the development of the extendedenterprise from the 1970s, when corporate purchasing morphed intomaterials management, then into strategic sourcing, and then to supplychain management. Each of these transitions is discussed and comparedwith the principles of the extended enterprise. Chapter 3 discusses therise in technology and the importance of enterprise-level software thatfacilitate the linkages across the supply chain. Technology is theenabler that brings firms together by bridging the boundaries andfacilitating the flows of product and information to each member of thesupply chain. State-of-the-art technology alone cannot ensure thedevelopment of extended enterprise thinking or behavior. People areresponsible for the content of information shared, its richness, and itsdegree of sensitivity.

In Chapter 4, the extended enterprise ispresented in its entirety. Our view of the extended enterprise growsfrom our work in alliances and other collaborative relationships. Here,the criteria for success are developed, and principles by which membersmust abide are delineated. Management must be committed to the concept,and partners must be comfortable with the transparency of informationthat is shared. This new paradigm for how supply chain members interactrequires new rules of engagement. Chapter 5 discusses outsourcing as apotential example of the extended enterprise. We develop the notion ofoutsourcing from the more traditional forms to business process out-sourcing. To some extent, business process outsourcing is a metaphor forthe extended enterprise. To fall within the context of the extendedenterprise, outsourcing must be approached from a core competenceperspective. Merely shifting costs from fixed to variable is no longer aviable rationale. Outsourcing is less about reduced costs and more aboutleveraging capabilities. When selecting an outsourcing partner, firmsnow raise questions that center on how partners can work together tocombine and leverage complementary skills and to improve end usecustomer satisfaction.

Chapter 6 builds on Chapter 3 and talks about theuse of information technology to manage information flows and workflowsacross organizational boundaries more effectively. We describe thedifferences between technology and information technology. Here,technology is presented as a strategic tool to support and empower thetenets of the extended enterprise. Chapter 7 truly differentiates thisbook from more traditional books about supply chain management. In

Chapter 7, we develop the concept of trust. Trust is essential to theextended enterprise because without it, there can be no lastingcollaboration. This chapter describes how trust is built, what itsdimensions are, and what the impact of trust on supply chainrelationships is. Trust lies at the core of the extended enterprise.

Asstated previously, the extended enterprise requires a new approach toworking with suppliers and customers. As such, skills and capabilitiesof managers must adapt to reflect this new world order. Chapter 8 arguesthat the type of procurement manager who was successful in thetraditional role of buyer is not likely to have the skills orcompetencies to survive within an extended enterprise environment. Inthis chapter, the explanation for a new mindset and behaviors is given,and requisite skills are developed. Criteria for selecting extendedenterprise managers are presented.

Chapter 9 focuses on performancemeasurement and presents metrics for the extended enterprise. Here, weextend traditional performance metrics to include both behavioral andenterprise-wide measures that reflect the difference level of analysisrequired, as well as measures that capture the less quantitative andsofter metrics that depict the relationship qualities required by theextended enterprise. This discussion is couched within the BalancedScorecard perspective. Chapter 10 brings the book to a close andhighlights the key points made throughout the book.

This book is adeparture from other books written about supply chain management onseveral levels.

  • We simultaneously build the case for adopting newtechnology and the case for adapting traditional behaviors and attitudes. Devoting chapters to building trust and developing roles and behaviors that enable extended enterprise thinking to transcend the traditional supply chain is not typically done in supply chain management texts.
  • Devoting a chapter to metrics and measures that capture the principles of the extended enterprise extends traditional wisdom.
  • The emphasis given to the kinds of changes in attitudes/behaviors needed to develop extended enterprise thinking brings to the fore the importance of relationships.
  • Our focus on the organizational processes and structures required to support the extended enterprise brings attention to issues that often are neglected in a traditional supply chain text, although structural and process-related obstacles can derail the best collaborative intentions.

The path to the extended enterprise and supply chain integration is notan easy one to follow. Yet the gains are well worth the effort. Thisbook is our attempt to build the case for the hard work that must bedone. Extended enterprise thinking requires a different way of thinking,a different culture, and set of values that for many managers is too farremoved from their life experiences. Over the last 20 years, adaptationsand accommodations have been made. However, we still have a longdistance to travel. Perhaps it is best to think of the extendedenterprise and its principles and precepts more as a journey than as adestination. We will argue in this chapter for the importance ofextended enterprise thinking as we begin our journey. During the courseof the book, we will continue our travels.

As we begin our journey, weare struck by the challenges faced by Lewis and Clark, who began theirjourney in Charlottesville, Virginia, 200 years ago. We are the first toadmit that the magnitude of our challenges pales in comparison. Asfaculty at the University of Virginia, however, we are aware of the factthat Thomas Jefferson was a long-time promoter of the expedition. Hiscuriosity was unencumbered; his mind thirsted for facts. He was drivenby practical knowledge--the chance to contribute to science and improvemankind. Among the directions he gave to Lewis was, "Your observationsare to be taken with great pains and accuracy to be entered distinctlyand intelligibly for others as well as for yourself, to comprehend allthe elements necessary."

It is in the spirit of Mr. Jefferson's thirstfor information and knowledge that we lead the reader from the past tofuture competitive realities and the role of the extended enterprise.

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