Pr oblem analysis and study domain

In this section, the ‘supply chain’ is defined first. The objectives and strategies of a firm’s supply chain adjustments is also be stated. By reviewing previous studies, the potential relationships between product development characteristics and the supply chain changes may be described. At the end of the section, the propositions for investigation are developed.

2.1. Supply chain of manufacturing industry

In recent years, much research has focused on the performance, design, and analysis of the supply chain as a whole and the effects of the rising costs of manufacturing, the shrinking resources of manufacturing bases, shorten product lifecycles, and the globalization of market economies (Beamon, 1998). The supply chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services (Christopher, 1998). ‘Supply chain management’ introduces managerial components (such as planning and controls, organizational structure, information process) to the processes of supply chain operation, handling the mutual interrelationships between upstream and downstream processes with suppliers and customers to provide lower costs and better services. Figure 1 illustrates the conceptual framework of the manufacturing industry supply chain. In the figure, each node is an event of supply chain activities, and the links among nodes represent the supply chain processes. Together, the nodes and links comprise the entire supply chain network. For example, the main supply chain activities of the manufacturing industry include: raw materials procurement and storage, parts manufacturing, storage of the work-in-progress, assembling for semi-finished and finished products (labeling and packaging), warehousing for finished products, retailing/distributing to customers. The semi-finished products have to be gathered at one location and assembled to become final products. This operation may take place in one factory, or in the distribution centre/regional warehouse, midstream or downstream along the supply chain. The point of final assembly depends on the manufacturer’s individual supply chain organization.

Moreover, logistics is defined as the process of managing the procurement, movement and storage of materials, parts, and semi-/finished products through the organizing and distributing channels. The Council of Logistics Management (1993) defines logistics as ‘the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements’. Distribution of freight from one or more origins to one or more destinations is the core of logistics. This paper segmented logistics into the activities of supply chain. Logistics can be segmented into several parts: 1) inbound

logistics, i.e., the processes related to the raw material procurement; 2) manufacturing logistics, i.e., the processes covering the raw material/parts processing and the assembly for finished products; 3) outbound logistics, i.e., the processes that deliver the finished products to the customers as soon as the orders received. No matter what it is, inbound, manufacturing and outbound logistics demonstrate the demands toward transportation services. The paths they take are the transportation networks. The focus of this study is the downstream flow of the supply chain, from factory to end customer.

[Insert Figure 1 about here.]

2.2. Supply chain adjustments 2.2.1. Purposes of supply chain adjustments

The supply chain adjustments mentioned in this article include adding, removing, relocating activities (nodes) in the supply chain. These activities’ rearrangement will alter the processes of the supply chain.

In general, two purposes are important in adjusting the supply chain of a manufacturing firm. One, decreasing the cost, requires that manufacturers look for inexpensive input factors to obtain comparative cost advantages, or that manufacturers obtain benefits of scale economies by concentrating the supply chain activities. Two, the enhancement of the level of customer service requires that manufactures offer customers more options by providing differentiated and customized products as well as faster display by delivering products to markets as early as possible.

2.2.2. The basic principles of supply chain adjustments

To meet needs, firms usually rearrange their supply chain activities by means of

‘centralization’ or ‘diversification’ in space and ‘speculation’ or ‘postponement’ in time.

‘Centralization’ concentrates the activities of the supply chain at one site to obtain the economy of scale in manufacturing and the economy of cluster caused by the geographic proximity of upstream and downstream production. This approach reduces manufacturing logistics by concentrating manufacturing activities. Firms usually apply the ‘centralization’

approach in laying out manufacturing activities, for example, one factory may take care of the operation from raw materials procurement to finished products, or several production lines design within a close area for mass production.

As to ‘diversification’, firms move some activities upstream to obtain cheaper input factors for reducing the production cost. Some may move downstream to respond to customer’s needs quickly. As manufacturing activities become more scattered, manufacturing logistics increases. In recent years, the international division of labor in global business has become an important ‘diversification’ in space for supply chain adjustment.

The logic behind ‘postponement’ is that risk and uncertainty costs are tied to the differentiation (form, place and time) of goods that occurs during manufacturing and logistics operations. To the extent that parts of the manufacturing and logistics operations can be postponed till final commitments have been obtained, the risk and uncertainty of those operations can be reduced or fully eliminated. The notion of manufacturing postponement is to retain the product in a neutral and non-committed status as long as possible in the manufacturing process. This means to postpone differentiation of form and identity to the latest possible point. The notion of logistics postponement is to maintain a full-line of anticipatory inventory at one or a few locations. This means to postpone changes in inventory location downstream in the supply chain to the latest possible point.

The converse concept to postponement is ‘speculation’, which holds that changes in form, and the movement of goods to forward inventories, should be made at the earliest possible time to reduce the costs of the supply chain. Speculation makes it possible to gain economies

of scale in manufacturing and logistics operations, and limit the number of stock outs. At the same time, the firm’s speculations must meet the predicted market demands and customer services. Under this concept, manufacturing and logistics operations are initiated earlier according to the prediction, thus risks and uncertainties increase relatively.

Many previous studies discussed the impacts of supply chain activities’ speculation or postponement adjustments on the manufacturers’ production performance. Cooper (1998) identified four different supply chain postponement strategies for some global brands. Zinn and Bowersox (1998) proposed five different types of postponement strategies. Four different strategies of form postponement (labeling, packaging, assembly and manufacturing) together with time postponement, constitute the five postponement strategies. Pagh (1998) suggested four supply chain adjustment strategies, ‘the full speculation strategy’, ‘the manufacturing postponement strategy’, ‘the logistics postponement strategy’, and ‘the full postponement strategy’, after he decided to combine activities in manufacturing and logistics based on related studies.

Basically, supply chain adjustments rearrange the combinations of activities and processes in the supply chain. The adjustment in ‘space’ varies activity location and the adjustment in

‘time’ varies the operation scheduling of the supply chain. The processes change along with the adjustments in the supply chain activities.

2.2.3. The relationships between product development and supply chain adjustments

Since its initial conceptualization in the early 1950s, the product life-cycle theory has gained significant recognition as a tool for effective marketing strategy formulation and implementation. The product life cycle, as defined by Dicken (1992), is the growth of sales of a product from initial innovation through a series of stages: introduction, growth, maturation, and decline, as illustrated in Figure 2. When a new product has just been introduced on to the market, the total volume of sales tends to be low because consumers are unaware and not confident about the product’s quality and reliability. At this stage, few competitors exist in the market therefore as long as consumers become aware of the product via its own quality and promotion, the product should enter the ‘growth stage’. There is an increase in demand for the product. Other competitors may then enter the market as the demand/sales increase. Next, manufacturing techniques should stabilize under the growing competition among firms, and the manufacturing supply should reach its peak, as market growth hits a ceiling. However, when the product attains maturity demand begins to level out. New products often appear at this stage replacing the current one, and shifting market demand, thus the sales of the old product decrease and enter the ‘decline stage.’ A product’s life cycle is a continuous development. The divisions on the above life cycles at different stages are conceptual.

However the differences in the demands, competition environments, technology developments at various stages are quite distinct.

At different stages of the product life cycle, a firm may have correspondingly different strategic plans for each activity in the supply chain due to the various manufacturing technologies and market needs. The length of each product life cycle is different, the life cycle period is distinct from product to product. However, there is growing evidence that product life cycles are tending to become shorter, industrial customers and distributors require just-in-time deliveries, and end customers are ever more willing to accept a substitute product if their first choice is not instantly available.

Birou et al.(1998) indicated that product life cycle can reflect important characteristics of a product. Thus life cycle can be taken as an adequate tool in determining strategies for logistics, operation and purchasing. Higashi et al. (1994) also presented that the form of corporate alliance used may also depend on what stage of the product life cycle is involved.

[Insert Figure 2 about here.]

2.3. Propositions of this research

When reviewing literature concerning the supply chain, freight transportation, spatial economy and product life cycle theory, many discussions of manufacturing supply chain planning and principles of supply chain adjustments prevail. However, few investigations discuss the following issues: whether globalization will affect the firm’s supply chain adjustments; if the supply chain adjustment strategy should vary with the stage of the product’s life cycle; how supply chain adjustments affect the decision making of firms in modal choice and in freight transportation origin/destination; while the firms adjusting the supply chain, what is the role of the availability of transportation service.

Based on the previous discussion and literature review, the propositions to be investigated are as follows:

Pr oposition 1: Globalization of industr y and changing inter national division of labor will induce Taiwanese fir ms’ manufactur ing activities to shift to over seas countr ies.

Many studies recognize that firms will relocate their manufacturing sites due to cheaper raw materials procurement --- or to respond to customers’ needs quickly. Especially, with the liberalization of international trade and the reduction of trade barriers, firms establish factories in overseas countries to manufacture products to meet local demand. Under this changing environment, whether the Taiwanese manufacturing industry will undergo international collaboration, and if adjustments will follow in the supply chain is the first issue of discussion in this study.

Pr oposition 2A: The stage of pr oduct life cycle will indeed affect the fir m’s supply chain adjustment str ategy in ‘Space’.

Pr oposition 2B: The stage of pr oduct life cycle will indeed affect the fir m’s supply chain adjustment str ategy in ‘Time’.

Since the nature of the production process tends to vary according to stages in the life cycle, each stage will tend to have different production features: of technology, of market demand and of competition. Proposition 2A and 2B would like to depict the fact that for system optimization, the supply chain adjustment strategies in space and time will vary accordingly.

Pr oposition 3: The supply chain adjustments will affect the manufactur er s’ modal choice and change fr eight tr anspor tation or igin/destination.

The manufacturing industry supply chain is incomplete without transportation services delivering raw materials, work-in-progress and finished products. All the adjustments in the supply chain will directly affect the manufacturer’s distribution operations, modal choice, and then freight O-D patterns of a firm’s transportation demand.

Pr oposition 4: The supply chain adjustments depend on the availability of tr anspor tation ser vices.

This proposition intends to depict that transportation service will not only affect the shipping time to the end customers, but also be the important factor manufacturers consider in adjusting their supply chains.

Pr oposition 5: The tr anspor tation cost will affect the fir m’s supply chain adjustment.

This proposition intends to depict that transportation cost will be the important factor manufacturers consider in adjusting their supply chains.