Managing Towards Supply Chain PDF

Managing Towards Supply Chain Maturity
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Managing Towards Supply
Chain Maturity
Business Process Outsourcing and
Offshoring
Edited by
Maciej Szymczak
Poznań University of Economics, Poland
Editorial content, selection and introduction © Maciej Szymczak 2013
Remaining chapters © Contributors 2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-35965-0
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First published 2013 by
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Contents
List of Figures viii
List of Tables x
Acknowledgements xii
Notes on Contributors xiii
Introduction 1
Maciej Szymczak
1 Supply Chain Management 9

Maciej Szymczak, Mariusz Szuster, Grażyna Wieteska and
Anna Baraniecka
1.1 The essence, structure and objectives of the supply chain 9
1.2 Basic areas of management in the supply chain 16
1.3 Relationships in supply chains 24
1.4 Directions of supply chain development 31
Notes 39
Bibliography 40
2 Supply Chain Development Process 45

Anna Baraniecka
2.1 Integration of the supply chain 45
2.1.1 Nature and significance of supply chain
integration 45
2.1.2 Reasons for and benefits of integration 46
2.1.3 Types of supply chain integration 48
2.1.4 Barriers to supply chain process integration 51
2.2 Concepts, methods and tools supporting supply
chain integration 52
2.2.1 S&OP: essence and purpose 56
2.2.2 VMI: essence and purpose 57
2.2.3 CPFR: essence and purpose 58
2.2.4 ECR: essence and purpose 60
2.3 Supply chain maturity models 63
2.4 Results of research 73
Notes 83
Bibliography 83
v
vi Contents
3 Supply Chain Risk 87

Grażyna Wieteska
3.1 Definition of risk 87
3.2 Internal and external sources of risk for supply chains 96
Note 102
Bibliography 102
4 Outsourcing and Offshoring as Factors Increasing Risk in

Supply Chains 106
Mariusz Szuster
4.1 The essence of outsourcing and offshoring 106
4.1.1 Outsourcing 106
4.1.2 Purpose of outsourcing 107
4.1.3 Scope of outsourcing 108
4.1.4 Differences between outsourcing and offshoring 109
4.1.5 Purpose of offshoring 110
4.1.6 Areas of offshoring application 111
4.2 Application of outsourcing and offshoring in
manufacturing 111
4.2.1 Outsourcing of manufacturing operations 111
4.2.2 Offshoring of manufacturing operations 113
4.2.3 Offshore outsourcing 116
4.3 Outsourcing of logistics functions 116
4.4 Risk related to outsourcing and offshoring 120
4.4.1 Outsourcing risk 120
4.4.2 Offshoring risk 122
4.4.3 International sourcing 124
4.5 Identifying the major sources of risk in manufacturing
companies – results of research 126
Bibliography 129
5 Supply Chain Risk Management 133

Grażyna Wieteska
5.1 Risk management and risk mitigation methods 133
5.2 Security and business continuity management
in the supply chain 142
5.2.1 Supply chain security management 142
5.2.2 Business continuity management
5.3 Risk mitigation methods – results of research 148
5.3.1 Companies using outsourcing 148
5.3.2 Companies using offshoring 153
Bibliography 157
Contents vii
6 Information Management in the Supply Chain 160

Maciej Szymczak
6.1 Data, information and knowledge in the supply chain 160
6.2 Data processing and information management models 166
6.3 ICT solutions for the supply chain 173
Notes 189
Bibliography 190
7 Social Capital Management in the Supply Chain 195

Anna Baraniecka
7.1 The importance and role of social capital in
the supply chain 195
7.1.1 Macroeconomic approach to social capital 198
7.1.2 Microeconomic approach to social capital 204
7.2 Social capital of the supply chain 207
Notes 214
Bibliography 215
Summary 218
Index 223
List of Figures
0.1 Analytical diagram of the fundamental study 7

1.1 Examples of supply chains 12
1.2 Content of the supplier–buyer relationship 25
2.1 Ways of undertaking and executing integration activities
2.2 Application of integration solutions in the supply chain 55
2.3 Responses to the question: does the company manage the
supply chain? 74
2.4 Responses to the question: what is the biggest barrier to
the implementation of the supply chain
management concept? 75
2.5 Responses to the question: what is the objective of supply
chain management? 77
2.6 Responses to the question: which tools are used for supply
2.7 Responses to the question: what is the reference point for
supply chain excellence? 79
2.8 Responses to the question: what is the nature of your
collaboration with your partners? 80
2.9 Responses to the question: who is the supply chain leader? 81
3.1 The disruptive consequences of an adverse event along
the supply chain 100
4.1 Period of using outsourcing-based solutions 127
4.2 Changes in the scope of outsourcing application over
the last few years 127
5.1 Monitoring and control of adverse event risk:
untimely deliveries 140
5.2 Responsibility for the analysis of risk caused by operation
on an international scale 149
5.3 Risk mitigation methods employed by researched
companies in outsourcing activities 150
5.4 Methods used to assess an outsourced logistics services
provider 151
5.5 Methods used by companies to solve problems resulting
from cooperation with an outsourcing company providing
logistics services 152
viii
List of Figures ix
5.6 Managing risk in the area of international business relations 153

5.7 Risk management methods employed by companies in
the area of international relations 154
5.8 Activities carried out by the companies to reduce the risk
in relationship with foreign suppliers 155
5.9 Foreign supplier assessment tools used by the companies 156
6.1 ICT system hierarchy in the supply chain 175
6.2 Positioning ICT solutions for the supply chain in
the range/reach framework 176
6.3 Application of mobile technologies in supply chain
management 178
6.4 Priorities in information management 180
6.5 Areas to which information management is subordinated,
and which display the highest benefits from information
management 181
6.6 The most important information management tools 182
6.7 Key areas of data analysis 183
6.8 Origin of information management models employed 184
6.9 Changes in information management model 185
6.10 Scope of information management outsourcing 186
6.11 The most appropriate supply chain information
management models for the future 187
6.12 Knowledge generation in the supply chain 188
6.13 Main actions in the knowledge management process 188
6.14 Average number of actions undertaken in the knowledge
management process 189
7.1 Responses to the question: is social capital important
for the success of companies? 213
7.2 Responses to the question: do you analyse social capital? 214
List of Tables
1.1 Establishment of an international supply chain 13

2.1 Main barriers to the integration of the supply chain,
their consequences and methods of elimination 52
2.2 Selected CPFR benefits 60
2.3 Benefits of ECR implementation for individual supply
chain links 62
2.4 Supply chain maturity stages according to Ch.C. Poirier 65
2.5 Maturity level of selected supply chain processes in
Poirier’s model 69
2.6 Model of supply chain management
proficiency (processes) 70
2.7 ‘Soft’ conditioning of supply chain management
proficiency 71
2.8 ‘Hard’ conditioning of supply chain management
proficiency 72
2.9 Responses to the question: how do you understand
the supply chain management notion? 74
2.10 Responses to the question: who is responsible for supply
2.11 Responses to the question: who is involved in supply
2.12 Responses to the question: what is the nature of your
alliances? 81
2.13 Assessment of supply chain maturity in Poland according
to Poirier’s model (selected areas) 83
3.1 The relation between threat, adverse event and risk 89
3.2 Definitions of risk 90
3.3 Examples of strategic and operational risk 93
3.4 Examples of manufacturing, commercial and
financial risk 95
3.5 The externally and internally driven factors of strategic,
operational, financial and hazard risks 97
3.6 Risks to subchains in a supply chain 98
3.7 Example of disruption caused by an external event and
wrong decision 102
x
List of Tables xi
4.1 Core and non-core processes 113

4.2 Impact of the outsourcing decision on company
operation 127
4.3 Problems related to outsourcing logistics operations 128
4.4 Negative consequences of outsourcing manufacturing
operations 128
4.5 Threats indicated by companies using offshoring-based
solutions (on a scale from 1 to 5) 129
4.6 Areas of international operation where highest risk
has been identified 129
5.1 Examples of methods and techniques used for risk
identification and analysis 135
5.2 L*C matrix 136
5.3 Examples of the application of supply chain risk
treatment methods 137
5.4 Mitigation of supply chain risk with strategic and
tactical plans 139
6.1 Supply chain data, information and knowledge sources 163
7.1 Reasons for undertaking select ways to collaborate in
supply chains 197
7.2 Selected methods of social capital measurement 203
7.3 Impact of social capital and level of group orientation
on supply chain configuration 211
7.4 Responses to the question: what are the benefits of
high social capital? 214
Acknowledgements
Scientific research and development require a long period of hard,

conscientious work and sacrifice. It is difficult to describe the consider-
able satisfaction of the editor and the contributors – members of the
research project – at seeing this lengthy project draw to a successful
conclusion.
A work like this is seldom the exclusive work of one individual. The
book has truly been a team effort. I have the great pleasure of acknowl-
edging my colleagues and friends, contributors to this work from
different academic institutions in Poland, who were able to create a
marvellous and consistent team whose work provided pleasure, inspi-
ration and hope for the future. I thank Anna, Grażyna, and Mariusz
for their commitment, dedication and assistance that made close and
smooth collaboration a reality. The passionate discussions we held
were themselves of value. I have learned a lot. Many thanks go to a lot
of people without whom this book would not have been created: our
mentors and teachers.
The task of writing the text would be impossible without the support
of our families. On behalf of the contributors I sincerely thank our
parents, wives and husbands, partners, sweethearts and children for all
they have done to make this book possible.
Not forgetting anyone, I wish to thank the people who worked behind
the scenes. I would like to thank the translators for the English trans-
lations and the native speakers for proofreading and improving the
English. Last but not least I would like to thank the publishing team
at Palgrave Macmillan, particularly Virginia Thorp, Lynn Pett, Kiran
Bolla and Sue Hunt for their helping hand throughout, and Vidhya
Jayaprakash at Newgen Knowledge Works for her assistance during
editorial and production activities. I am grateful also to the publishers
who granted permission to use their material.
xii
Notes on Contributors
Anna Baraniecka is Assistant Professor of Business Administration

at the Wrocław University of Economics (WUE), where she received
her PhD in Business Logistics. She has extensive experience in supply
chain management in the pharmaceutical industry as she has engaged
in numerous consulting projects in the field. One of her most impor-
tant research topics is Efficient Consumer Response (ECR). She has
been interested in supply chain maturity issues for several years. She is
co-author of a novel supply chain maturity model tailored to the phar-
maceutical industry.
Mariusz Szuster is Assistant Professor of Business Administration at
the Poznań University of Economics (PUE), where he received his
PhD in Transportation Management. Prior to his doctoral studies,
he worked for the production division of IBP Instalfittings and
Bridgestone Corporation. He gained experience in the areas of produc-
tion, logistics and sales management. His scientific activity covers the
topics of business process outsourcing and offshoring in industrial
organisations.
Maciej Szymczak is Associate Professor of Business Administration at
Poznań University of Economics. He received his MSc in the area of
Computer Science from the Technical University of Poznań, and his PhD
and postdoctoral degree in the area of business administration, majoring
in business logistics management, from PUE. His research focuses on
business logistics, international logistics and supply chain management,
information systems for logistics, and recently city logistics. He is author
and co-author or editor of 12 books published in Poland. His most recent
book, Logistics Decisions with Microsoft Excel (2011), has been recognised
as a valuable managerial guide. He is also an active author of commer-
cial publications: the English–Polish, Polish–English Dictionary of Logistics
Terms (2008) was the first such publication on the Polish market. He is
a member of the editorial board of Eurologistics and a member of the
Innovative Logistics Product award committee. He has over ten years’
experience as a consultant to many companies and local government on
logistics and supply chain management. He has taken an active role in
various research and business projects as well.
xiii
xiv Notes on Contributors
Grażyna Wieteska is Assistant Professor of Business Administration at

the University of Łódź. She has several years’ business experience in the
area of B2B relationship management and risk management. Since 2007
she has been employed at the Unit of Operational Processes Excellence
at her home university. She lectures on supply chain risk management,
business continuity management and logistics audits at a variety of busi-
ness schools in Poland and abroad.
Introduction
Maciej Szymczak
Supply chains have been widely discussed in the academic literature

and have been the subject of numerous monographs. We can there-
fore safely conclude that the topic of supply chain management has
been examined thoroughly and in detail. This does not mean, however,
that all of the avenues of analysis have been explored, or that no areas
of enquiry remain to be uncovered that may considerably expand
our knowledge of supply chains. There will be latitude for additional
exploration for as long as supply chains, which are living economic
structures, continue to evolve and change. Logistics service providers
and those responsible for supply chains at manufacturing and trading
companies are continuously acting to make their operations more effi-
cient, to reduce costs or to improve customer service. This is clearly
visible in the case of world-class market leaders and their supply chains.
Operating in the markets they do, where competition is ever sharper
and customers more and more demanding, they are required to strive
for refinements and improvements in this way.
Over the last dozen or so years outsourcing and offshoring proc-
esses have grown in importance. It is now more and more common for
enterprises to concentrate on their key competences while transferring
operations or specific tasks to external entities and other countries.
The expenditure this demands often accounts for half of the annual
budget of enterprises. Outsourcing and offshoring activities involve
risk (in particular, the speculative risk of making a profit or loss) whose
locus is the reduction or loss of control over the outsourced or trans-
ferred processes. Enterprises are forced to mitigate this risk and, as far
as is possible, to increase control over processes handled outside their
structures or in different countries. As one of the reports shows, it is
the global supply chains of the largest corporations in the world that
1
2 Maciej Szymczak
are especially exposed to the risks of various disturbances in their oper-

ations. It is estimated that these cost each corporation an average of
approximately EUR 140 million a year (Failure to Mitigate Supply Chain
Risk, 2011). According to other research, though, as few as 50% of
organisations have implemented a formalised approach to risk manage-
ment, while over 60% are aware of the need to improve outsourcing
risk management (McDonald, 2010). In this respect, Poland is still
two or three years behind in achieving world-class standards (Reda,
2012). Risk mitigation in a multi-entity supply chain structure requires
proper information resources. Moreover, ensuring access to the neces-
sary information from each link in the supply chain and organising
the proper flow of information help in making better decisions and in
keeping and bolstering partnership relationships, while also contrib-
uting to the creation of a more risk-proof supply chain. The partner-
ships between the entities and their cooperation to achieve common
market targets depend on the development of internal supply chain
capital, whose components include confidence levels, commitment,
loyalty and the values and principles of conduct adopted. Hence there
is a need for conscious and concerted implementation of methods of
managing risk, information and social capital. Because risk and infor-
mation management (which is very important for the efficiency and
competitiveness of the supply chain) are related to social capital, these
issues will be discussed in detail.
The outsourcing and offshoring processes render the supply chains
more complex. The number of entities (links) in the chain increases
as enterprises start cooperating with multiple business partners and as
supply chains evolve to become supply networks. It follows that busi-
ness relationships grow more complex, their functions expand and
their content is enriched. There are many models describing trends of
this nature in the literature, such as supply chain maturity models, the
most popular five-stage model having been devised by Ch. C. Poirier,
who distinguished two levels of internal integration and three levels of
external integration. The transition to the next levels is related to the
transfer of the centre of gravity from the business entity and corporation
to the business environment, that is, to vendors, customers, the supply
chain and the supply network (Poirier, 2002). This model has been taken
as the point of reference for this study. In this context, determining how
risk, information and social capital management methods change when
faced with the evolution of the supply chain assumes particular impor-
tance and, conversely, so does the influence these methods exert on the
direction and rate of that evolution.
Introduction 3
The discussion presented here includes the results of research carried

out by the authors from May 2011 to December 2012 under project
no. 4232/B/H03/2011/40, financed by the National Science Centre,
Poland. In the context of Ch. C. Poirier’s model, the main objective of
the project was to develop guidelines for effective risk, information and
social capital management in relation to the outsourcing and offshoring
of business processes at each level of supply chain maturity. To achieve
this objective it was necessary to determine first the methods of risk,
information and social capital management applied by enterprises in
making decisions on the outsourcing and offshoring of selected busi-
ness processes and second the effectiveness of those methods. We
should expect the methods to differ at each of the five maturity levels,
as the preconditions for decisions on outsourcing and offshoring at the
internal and external integration levels may be different. Also, the risks
underlying such decisions are different; as are the tools applied – or
available – for managing information and social capital. The decision
to outsource will represent a considerably higher risk in an enterprise
striving for corporate maturity and searching for a new outsourcing
partner than in an enterprise which has been operating in an integrated
supply chain with many regular partners that decides to outsource a
specific process to a partner that has the requisite competences. In this
case the capacity to control the outsourced process will also be different,
as the information flow is better in integrated supply chains built on
partnership relationships. What is more, the particular process or oper-
ation to be outsourced or ‘offshored’ influences the methods of risk,
information and social capital management selected, which further
depend on the type of enterprise and the scale of the operation. In this
respect, the experience and practice of the enterprise may be decisive.
Entities that have some (either good or bad) experience in outsourcing
and offshoring are more aware of the risk and this awareness increases
along with the extent and depth of the experience. Hence, they will be
more determined to implement effective risk-mitigation methods and
will have a more specific demand for information and social capital.
The research was carried out in enterprises which operate in supply
chains at various levels of maturity according to Ch. C. Poirier’s model.
The particular strands of the research involved answering several ques-
tions regarding, for example, the expected threats related to outsourcing
and offshoring and their consequences, the level of risk associated with
outsourcing and offshoring and the application and consequences of
methods employed to mitigate the risk of outsourcing and offshoring.
The purpose of the research was to precisely determine the degree of
4 Maciej Szymczak
diversification of answers depending on (i) the operation or process

involved in the outsourcing and/or offshoring, (ii) the experience and
practice of the enterprise in this respect and (iii) the type of enterprise
and its operations.
As analyses have shown, Central and Eastern Europe is a leader in
the provision of outsourcing services. There are approximately 750
outsourcing centres employing between them as many as 158,000 people
(Kosiński, 2010, p. 14). They operate as Business Process Outsourcing
facilities (BPO) and Shared Service Centres (SSC). The latter are usually
the first step for enterprises when outsourcing certain processes. Poland
has become a leader both in the number of outsourcing centres and in
the number of people they employ; it is also becoming a popular target
for offshoring activities. What is more, the processes and functions being
transferred to Poland are increasingly advanced. According to analysts,
the offshoring investments market in Poland was worth USD 17 billion
at the end of 2010 (John Lang LaSalle, 2010). The growth of this market
is still visible, which makes Poland one of the leading destinations for
such investments. These facts represent a further motivating factor for
undertaking such research in Poland.
This research can play a significant role in determining the best risk and
information management methods in the context of the outsourcing and
offshoring of business processes. Bearing in mind the sample selected,
the results are universal and may be used both in Poland and abroad.
However, they may be particularly significant for Polish businesses, espe-
cially those building or extending supply chains due to the development
or internationalisation of operations, and for foreign enterprises trans-
ferring and organising their businesses in Poland through direct invest-
ment, mergers, acquisitions and joint ventures. The results particularly
complement existing knowledge on the operation and development of
supply chains in the case of enterprises making decisions on outsourcing
and offshoring and evaluating them from the perspective of the benefits
of the risk and information management methods applied. The research
presents results of practical, utilitarian value that can be used in enter-
prises to streamline decisions regarding the application of risk, infor-
mation and social capital management methods in the maintenance
and development of their supply chains. In the long run, the results
can be employed in operations as a base for developing highly indi-
vidualised risk and information management methods that will allow
them to excel in the supply chains they operate within. These results
reveal the risk, information and social capital management methods
used in supply chains, which are examined in the light of the chains’
Introduction 5
operational results to provide an overview of the effects of the applica-

tion of these methods. This makes it possible to offer a review of good
practices in this area.
The research involved a preparatory and a fundamental study. The
preparatory study included detailed face-to-face interviews with execu-
tives at a number of the enterprises covered by the research. The selec-
tion of enterprises in the preparatory study was intentional and was
the result of the experience of the research team members. The research
was conducted as participant observation. Its objective was the prelimi-
nary identification of applied methods and procedures of risk, infor-
mation and social capital management in relation to outsourcing and
offshoring and the fundamental problems these entail. The prepara-
tory research made it possible to conduct the fundamental study with
precision. In this way the effectiveness of the guidelines developed for
risk, information and social capital management in the outsourcing and
offshoring of business processes was guaranteed so that the fundamental
study remained focussed on practical value for economic practice. The
preparatory study helped create a questionnaire that included findings
from the interviews. Hence, one may say that the interview subjects
were a group of experts involved in constructing the questionnaire that
was later used to perform the fundamental study.
The selection of enterprises for the fundamental study was informed
by their different levels of supply chain maturity. This, in turn, helped in
dividing the fundamental study into two stages: the preliminary study
and the final study. First, the enterprises were screened to determine
the maturity of their supply chains and only then was the final study
conducted. The studies covered supply chains operating – either in
whole or in part – in Poland. The selection of enterprises was based on
various available lists and registers of enterprises used in Poland, such as
HBI or Panorama Firm. To ensure the proper diversity of the sample, the
size and sector of the enterprises were taken into consideration at this
stage of selection.
Hence, 1,820 companies were contacted and 426 were researched
at the preliminary stage of the study. The preliminary study consisted
of computer-assisted telephone interviews (CATI1) carried out from
January to March 2012. The questionnaire was made up of four parts.
The first part, the introduction, involved establishing whether the
respondent managed a supply chain at all and selecting the scope of
questions. The second part included questions regarding the maturity
of the supply chain and the degree of advancement of the supply chain
management concept. The third part had significant research input. It
6 Maciej Szymczak
was the most important part of the study. Its purpose was to determine
the stage of development of the risk and information management
concept of the respondents, as well as the scale and scope of offshoring
and outsourcing currently undertaken and form of internationalisa-
tion. The potential respondents were sought primarily in the following
departments: purchasing, logistics, and manufacturing, as well as at the
management level of enterprises. The preliminary study questionnaire
played a significant part in gathering the respondents’ data not only
for the purpose of analysing the correlation of attributes, but also for
the contact in the next stage of the study. As early as in the prelimi-
nary study it was necessary to determine which companies would be
willing to participate in further studies, where the questionnaire in the
final study needed to be sent and whether the questionnaire would be
completed by one or more people.
The final study, due to its extended and detailed nature, was carried
out as a CATI and as a direct interview (both personal and online) using
a standard focussed interview questionnaire. The final study covered
four topics (fig. 0.1), which represent the strands of the research. For
the purpose of the telephone interview, the questions were grouped in
three questionnaires for various respondents. The purpose of the study
was used as a criterion; thus questions on outsourcing were not asked of
respondents who did not outsource any processes. The first set of ques-
tions related to offshoring and the risk management related to it, the
second set included questions on risk management in outsourcing and
the third contained questions on information, knowledge and social
capital management. The telephone interview covered a total of 126
enterprises. A more detailed questionnaire was drawn up for the direct
interview, which helped in preparing exhaustive case studies. As many
as 13 case studies were prepared. A total of 139 (126 (CATI) + 13 (direct))
enterprises were included in the final study, which was conducted from
July to October 2012.
The preliminary and the final studies were carried out by a profes-
sional research company. The research team members supervised the
questionnaires and had constant contact with the research company
and, via that company, with the interviewers who were trained in the
research topic. At times, the members of the research team contacted the
respondents directly to obtain detailed explanations. This proved neces-
sary even though the questionnaires used in both studies had solutions
embedded to prevent erroneous or illogical answers.
The research results were analysed for statistical inferences. Analyses
were performed in the sections that were regarded as having the
Introduction 7
Location
Industry
Size
Subject and scope of o/o*
• Screening
Experience with o/o* • CATI
Poirier’s level of the SC • Same questions for all
• 426 companies
Motives and execution of o/o*
Information management
Risk mitigation methods
Impact of social capital

Identification of threats,
• Final study
CATI and direct interview
• Four topics, three sets of
questions
• 139 companies
Analysis of results
objective achieved
*o/o – Outsourcing/offshoring
Figure 0.1 Analytical diagram of the fundamental study

Source: own study.
maximum potential to yield knowledge and understanding. The results

of the preliminary study are presented in Section 2.4 in Chapter 2, and
the detailed results of the final study are included in Chapters 4–7 as the
topics specified in the analytical diagram of the research. Specifically,
the results of the research regarding the outsourcing and offshoring
practices of enterprises in terms of risk factors in supply chains are
presented in Section 4.5 in Chapter 4; the results pertaining to risk miti-
gating methods as risk management measures, in Section 5.3, Chapter 5;
the results on information and knowledge management, in Section 6.4,
Chapter 6; and the results concerning the management of social capital
in the supply chain, in Section 7.3, Chapter 7. Such an approach helps
in comparing the results of the empirical studies with the analysis of
the literature that introduces the specific issues. In this way the reader is
8 Maciej Szymczak
first familiarised with the issue that is researched in detail, which should
help in understanding the approach adopted and the topics and scope
of the analyses performed. While ensuring the monograph’s coherence,
this approach also makes for a swift grasp of its content.
Note
1. Some respondents required the questionnaire be made available for prior
review.
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Buyers Report, September, 6(13), pp. 21–22.
Poirier Ch. C., 2002, Achieving Supply Chain Connectivity, Supply Chain
Management Review, 6(6), pp. 16–22.
Reda Z., 2012, Polska wciąż w tyle w zarządzaniu ryzykiem w biznesie [Poland
Is Still Behind in Risk Management in Business], Rzeczpospolita, 2 February,
p. B11.
1
Supply Chain Management
Maciej Szymczak, Mariusz Szuster, Grażyna Wieteska
and Anna Baraniecka
1.1 The essence, structure and objectives of

the supply chain (Maciej Szymczak)
In the face of the growing rate of globalisation processes, stronger compe-

tition and increased flexibility of business lines, companies have ceased
to focus exclusively on what is happening within their own organisation.
They have abandoned an egocentric approach, which was based on purely
market-related, transactional relationships with their environment. One
may conclude that thinking in categories of a network of dependence
and relationships has unquestionably become one of modern manage-
ment’s key paradigms – justified in the context of the global economy. As
K. Obłój states (2002, p. 64), the time of the ‘lone gunslinger’ is drawing
to an end, the future is not in aligning with single companies as much as
with networks of companies that collectively influence the standards of
market operations. Therefore, the supply chain should be understood as
a network1 of entities delivering the product (or service) to the market,
end-customer or consumer. A variety of entities are involved in delivering
the product to the market; they, either individually or in cooperation,
carry out diverse processes; many flows are recorded within the supply
chain structure itself. A detailed description of the supply chain requires
application of the following approaches (Witkowski 2010, p. 13):
– subjective,
– objective,
– process-based.
The subjective structure of the supply chain covers companies which

obtain certain resources from nature, companies which process
9
10 Maciej Szymczak et al.
resources, trading companies, service providers and waste treatment

and storage plants. These last facilities do not actually ‘deliver a product
to the market’, a process usually referred to as ‘from field to table’, but
recover used or damaged goods or reusable packaging from the market,
referred to as ‘from dust to dust’. Due to the ecological and social impor-
tance of waste treatment, storage and reuse processes, these links in the
supply chain cannot be ignored. The end-customer is also frequently
included in the subjective structure of the supply chain. In other words,
it is end-customers who trigger the flow of resources and the entire
mechanism of the supply chain by making market choices, satisfying
needs and having specific financial means at their disposal. The purpose
of the supply chain is to achieve customer satisfaction (adding value),
which translates into the purchasing and profits of companies operating
within the supply chain (Bovet and Martha 2000, pp. 2–5). Nowadays,
the end-customer often has a much larger influence on what he or she
is offered and provided with by the supply chain.
In the light of the above, the essential object of supply chain manage-
ment is product flow2. However, the term ‘product’ is rather more appro-
priately used in the context of a finished product to be marketed, i.e.
in reference to the final stage of the supply chain, which focuses on
distribution. At earlier stages, we deal with modules, semi-finished prod-
ucts, subcomponents, parts, production materials and work-in-progress
(unfinished products). Therefore, we can generalise and say that mate-
rial flows are the basic object of supply chain management. These are
not, however, the only flows in the supply chain. Flow management
requires information that helps plan, organise and control the flow of
resources, so as to provide the end-customer with the finished product
in the desired place, at the right time, in the right quantity, in proper
condition at a pace that avoids downtimes, bottlenecks and excessive
inventory in individual links of the supply chain. Information must be
fed along the supply chain, between individual links and, occasionally,
some links must be skipped, e.g. between the manufacturer and the
retailer. Therefore, information flow should be included in the supply
chain. Moreover, financial flows occur in the supply chain as a result of
purchase and sales transactions concluded between supply chain links.
These also reflect the value-adding processes that occur in consecutive
links. We may conclude that these flows basically occur in another chain
made up of financial institutions providing services to the supply chain
links, such as banks and factoring and insurance companies, which
should be marginalised3. Hence, three major flows may be distinguished
in the supply chain: material, information and financial flows.
Supply Chain Management 11
Putting a product onto the market involves many actions: research

and development (a concept must be created, a product developed and
designed), market and potential customer research (the manufacturing
of the product and commercialisation of the idea must be justified),
purchase (any necessary resources must be purchased), manufacturing
(the product must be made), marketing (the potential customers must be
informed about the new product), logistics (the product must be deliv-
ered and made available) and sales. Moreover, the processes of waste
collection, segregation, treatment and management should be taken into
account. In addition, all these processes require funding actions. The
literature on the topic specifies various types of supply chain process,
and the different processes have been distinguished. An analysis of the
approaches helps pinpoint eight basic supply chain processes (Cooper,
Lambert and Pagh 1997; Croxton et al. 2001):
– customer relationship management,

– customer service level management,
– demand management,4
– order fulfilment,
– manufacturing flow management,
– procurement management,
– product development and commercialisation
– returns management.
From the perspective of these three complementary approaches, a

supply chain may be defined as mining, manufacturing, trading, service
providing companies and their customers, between which products,
information and funds flow (Witkowski 2010, p. 19). The supply chain
means the integration of key business processes carried out by all consec-
utive suppliers of products and providers of services and information
that add value for customers and stakeholders5 (Lambert, Cooper and
Pagh 1998, p. 1). The supply chain may be understood as an extended
enterprise in which the importance of the boundaries to-date of compa-
nies carrying out its processes is decreasing. The flow of products, infor-
mation and funds in an extended enterprise is strictly coordinated
(Langley et al. 2009, p. 20). Examples of supply chains are presented in
Figure 1.1. Today we often speak about the demand for flexible (Gow,
Oliver and Gow 2002), agile (Christopher 2000), proactive (Smeltzer
and Siferd 1998), responsive (Gunasekaran, Lai and Cheng 2008) and
resilient (Christopher and Peck 2004) supply chains; in other words,
without going into an explanation of the differences between them,
Raw material
traders
Software
Sub-component
developers
suppliers
Pure component
Sub-assemble
suppliers
Electronic device
Distributors Retailers Consumer
final assembly
Pure component
Sub-assemble
suppliers
Sub-component
suppliers
Raw material
traders
Storage Wholesaler or Independent

Consumer
terminal agent reseller filling stations
Crude oil
Petrol
exploration
manufacturer
company Storage Filling station
Distributor Consumer
terminal chain
Figure 1.1 Examples of supply chains

Source: Own study.
supply chains that can dynamically adapt to changes in their environ-

ments and to market trends. Supply chain flexibility is required in five
dimensions (Vickery, Calantone and Droge 1999):
– product flexibility (customisation),

– volume flexibility,
– launch flexibility,
– access flexibility,
– responsiveness to target markets.
The success of the supply chain depends on the integration of the

management systems used by its links, collaboration in the supply
chain, the establishment of long-term relationships, the coordina-
tion of flows, the compatibility of information systems, and mutual
commitment, responsibility and trust (Moberg, Speh and Freese
2003).
Procurement, manufacturing and distribution in a supply chain may be
carried out in various countries. Some of these processes may be carried
out in the home country, others abroad. This applies also to measures
related to waste recycling – Table 1.1. These processes are handled by
Table 1.1 Establishment of an international supply chain
Location
Type of process, stage of supply chain Home country Abroad Both
Product development X
Sourcing of raw materials, parts and X
components
Manufacturing and assembling of final X
products
Distribution and sales X
Customer service X
Returns management and recycling X
Source: Own study.
units of the company or by third parties located in the respective coun-

tries. A company either places its own operation abroad or looks for a
contractor (international sourcing). This does not apply to processes that
do not require a commercial presence in the specific country. The scope
of international collaboration among companies and its intensity depend
most of all on the form of internationalisation (export, licence transfer,
franchise, foreign branch, manufacturing plant abroad) and on the scale
of business (number of export, licence or franchise contracts, number of
branches and manufacturing plants). The scope of international collabo-
ration in a supply chain depends also on the functional strategies of the
company, the sector it operates in and many other factors that make a
varied impact on the company’s presence in foreign markets.
The measures undertaken by companies to deliver products to market
in the complex international environment of a supply chain require
not only the efficient execution of the temporal and spatial transfor-
mation of goods, but also the decomposition of value chains, the isola-
tion of specific measures, and the transfer of their execution to own
units abroad or foreign partners, so as to make the best use of resources,
competences, experience and economies of scale. Supply chain devel-
opment leads to new forms of collaboration. One of these forms is
co-manufacturing (contract manufacturing, co-makership), which
consists in assigning some operations, which have to date been an inte-
gral part of the manufacturing process, to suppliers or purchasers. It
usually pertains to certain pre-manufacturing activities related to the
preparation of production, or post-manufacturing activities in order to
configure the product to the specific market. Another form of collabo-
ration that is becoming increasingly popular is to involve a third party
in the preparation of products for distribution and sales (co-packing,

contract packing). This usually comes down to repacking products
from bulk into unit packages (or vice versa); preparing merchandising,
promotional and seasonal sets; adding product samples; packing in
blister packs; or labelling. Very often, logistics service providers are
involved in co-manufacturing and co-packing.
These forms of international collaboration in supply chains increase
the distance between the product and manufacturer and between the
manufacturer and the point of manufacture. This results in the emer-
gence of own labels, regional labels (e.g. ‘made in the EU’) or no-name
products. The development of this type of collaboration and the growing
specialisation of individual supply chain links cause a division of tasks
based on the objective approach, apart from the division of tasks between
the supplier, manufacturer, distributor, exporter, haulier, seller, etc. In
this case, each entity performs the tasks by contracting complementary
services from partners. Multilateral collaboration results in the opera-
tion of supply chains increasingly often extending beyond the vertical
structure. Horizontal relationships, which are often extended, are being
established at all levels. Supply chains evolve into supply networks. The
dynamic of these processes has attracted the attention of many analysts
and scientists to supply networks; there are also many studies researching
supply networks (Nassimbeni 2004). The hierarchical coordination of
operations in supply chains is being replaced by network coordination.
These transformations are best shown by M. Govil and J-M. Proth (2002,
p. 7), who defined a supply chain as a global network of organisations
that cooperate to improve the flows of material and information between
consecutive entities in order to provide customer satisfaction.
One should realise, however, that aside from the collaboration required
by the increasing demand for recourse to third parties, especially unique
ones, processes of competition also occur. Entities performing the same
functions compete with one another in raising the quality of service and
reducing cycles or costs. The intertwining collaboration and competi-
tion processes, at the level of both individual links and groups, induce
brand new systems in the classical strategic triangle: corporation –
customer – competitor (Ohmae 1982, pp. 91–98). Compared with clas-
sical supply chains, this enriches the inter-organisational relationships
that occur in these systems. A. Sulejewicz (1997, p. 68) suggests that they
be considered under the control – cooperation – competition paradigm
(3C paradigm) that allows him to pinpoint three types of collaborative
relationships typical of entities in a network:
– pure cooperation,
– co-optrol,
– co-opetition.
Pure cooperation is based on a collective strategy with a negotiated

agreement. Co-optrol occurs in integrated asymmetrical systems,
which are dominated by one or more partners over the others. It
occurs in the case of co-making and co-packing and anywhere an
integrator operates, determining the strategy and profile of opera-
tion, distributing tasks and supervising the division of benefits. The
role of the integrator does not have to be concentrated within one
entity (hierarchical networks); there may be a number of integra-
tors (polycentric networks). Co-opetition means a situation in which
two market competitors start cooperating. The relationship that is
established between the entities has the elements of both coopera-
tion and competition. This makes it possible to discuss the relation-
ship in terms of a strategic alliance. In supply networks, co-opetition
most often occurs in the area of manufacturing and distribution. The
cooperation of competitive manufacturers is aimed at the develop-
ment of new, innovative products and then, after starting production
or joining manufacturing potential, at satisfying increased demand
for the product they offer. In distribution, competitors cooperate if
they cannot single-handedly cope with providing services for a large
customer or market. The cooperation protects against losing customers
to third parties, thus raising the bargaining power of the cooperating
companies.
Some inter-organisational relationships are short-lived; long-term
relationships, on the other hand, change over time. This is what makes
supply networks dynamic. Sometimes this dynamism makes it difficult
to determine the arrangement between the organisation, purchaser and
competitor accurately. At one point, a specific organisation is a purchaser
and a competitor; at another, it may not even be a separate entity and
should be considered in a different system – as a part of a new triangle.
Former adversaries become partners, driven by the desire to increase
their own competitiveness or the competitiveness of the supply chains
or networks they operate in. These network-based, multilateral relation-
ships between suppliers, customers and competitors create an environ-
ment modelled on ‘business ecosystem’; company development that
takes this direction has been referred to as co-evolution in the literature
(Kaleta 2000, p. 150).
1.2 Basic areas of management in the supply

chain (Mariusz Szuster)
The supply chain is a network of organisations that are involved, through

upstream and downstream linkages, in the different processes and activi-
ties that produce value in the form of products and services in the hands
of the consumer (Christopher 1998, p. 15). The inter-organisational
structure of the supply chain means that it comprises various business
entities. They constitute supply chain links and their position in the
entire structure depends on the agreed division of tasks. The companies
sourcing raw materials are usually the first links in the supply chain.
The next links consist of processing companies that manufacture parts,
subcomponents, modules, casing elements and finished goods, as well
as intermediary trading companies. Traditionally, most organisations
have viewed themselves as entities that exist independently from others,
competing with others in order to survive (Christopher 1998, p. 15).
However, collaboration in the supply chain requires the reconciliation
of various priorities. For instance, the priorities of manufacturers will
include the flexibility of suppliers, optimum frequency, completeness
and timeliness of supplies, the degree to which production capacity is
used, lack of downtime, the lowest possible unit cost of production and
the accuracy of sales forecasts. Suppliers will stress the largest possible
volume of a single order placed with a proper notice period that would
avoid inconveniences due to time pressure. Distributors will aim at low
storage costs combined with a minimum stock of finished goods, the
time of quick response to a manufacturer’s or intermediary’s changes in
demand, etc. Interactions between these links in the supply chain require
the accurate and multifaceted coordination of the entire process6. The
essential objective is to provide optimum efficiency within the entire
supply chain, the effective management of raw materials, the flow of
semi-finished and finished products through the supply chain, and the
effective management of an inventory with different characteristics and
degrees of processing. The strategic dimension at each stage of a supply
chain is capacity management. Enterprises must develop an organisa-
tional and production structure for meeting actual and future demand.
The integration of operations in the supply chain is aimed at reducing
inventories within the entire structure (at all stages), which helps avoid
focusing actions on selected links in the supply chain7. Decisions on
how to conduct business activities by individual entities in the supply
chain should take into account of their relationships with other enti-
ties in the structure. Integration is possible through an efficient flow of
information among supply chain links. Information exchange among

all collaborating entities is one of the basic conditions for integrating
operations in the supply chain. The flow of information may pertain to
the following, among factors: fluctuations in demand for finished prod-
ucts; sales volume and competitors’ activities; inventories of raw mate-
rials; production materials or intermediate products in individual supply
chain links; information on any changes to raw material or component
specification; defining the required order fulfilment period; the occur-
rence of urgent orders; current priorities; the notification of customers
regarding progress in order fulfilment. Effective inventory management
within the entire structure, the efficient planning of production and
supplies and quick end-customer service are not possible without an
efficient exchange of information. In consequence, suppliers, manu-
facturers, subcontractors, sellers, wholesalers and retailers, as well as
hauliers, forwarders, logistics service providers and entities managing
seaports, airports, cargo handling terminals and logistics centres coop-
erate with one another, thereby creating a logistics system covering
upstream and downstream supply chain operations. Logistics processes
used within such a system include:
● assuring efficient procurement by obtaining raw materials, produc-

tion materials and components (in this area, the key factors include
delivery time and quantitative and qualitative compliance with the
order and specification);
● gaining access to necessary resources across the world, including
production factors, knowledge and know-how (global sourcing);
● production organisation (selection of technology, defining neces-
sary resources, scale of operation, production structure and volume,
making a decision on locating manufacturing sites and the degree of
outsourcing, designing the manufacturing structure based on own
or external resources, assuring flow coordination between manu-
facturing stages, control over the compliance of actions with the
schedule);
● organisation of physical distribution (assuring the availability of
finished products in the distribution channel, adequate packaging,
reverse logistics, after-sales service);
● movements carried out from the raw material source to the point of
transfer of finished goods to consumers;
● collection, warehousing and storage of raw materials, components,
semi-finished and finished products at consecutive stages of the
supply chain;
● selection of packaging, in particular its material, to assure easy

handling, product safety during transport and reloading, as well as
appearance and functionality;
● picking and breaking up of goods and any cargo reloading and
handling activities in the supply chain.
The type of manufactured product is significant in the choice of sourcing

strategy and structure. R. Lamming et al. (2000, p. 685) showed that in
the case of complex product manufacturing, the network of relations in
the upstream supply chain is complex and this complexity applies to the
degree of supply diversity (how many parts are obtained from different
suppliers) and not to technological advancement itself. For example, a
group of car manufacturer suppliers usually comprises approx. 750 enti-
ties, of which 350–400 are direct suppliers (others being subcontractors
or companies supplying the direct suppliers); in the case of many FMCG
or pharmaceutical products, the group of suppliers includes fewer than
a hundred companies (Lamming et al. 2000, p. 685). Despite the fact
that pharmaceutical products are very complex, given their ingredients
and the sophisticated and refined production processes employed, the
companies within the sector use a relatively low number of suppliers.
In this context, the automotive sector is much more highly devel-
oped with respect to sourcing. M. Frohlich and R. Westbrook (2002,
p. 739) and W.W.C. Chung, A.Y.K. Yam and M.F.S. Chan (2004, p. 271)
concluded that the efficiency of the upstream supply chain or network
may be improved through consolidation (reduction of the number of
suppliers), thus facilitating contact and the measurement of operating
effectiveness.
Sourcing strategy should also determine territorial scope. The notion
of international purchasing is understood as the sourcing of raw mate-
rials, components and intermediate products from international sources
to be used in production or assembly and further resale (Kotabe and
Omura 1989, p. 119). In early 1990s, most manufacturing companies
were looking for new purchasing sources across the world, including
in developing countries. This resulted from the need to reduce oper-
ating costs or to search for sources of unique raw materials and compo-
nents. Raw materials in the fashion industry are often delivered from
specific countries, e.g. leather from Italy, cashmere from India (Brun
et al. 2008, pp. 560–561). A poll conducted among Fortune 1000 compa-
nies (more than 200 responded to the questions, mainly manufacturers
and retailers) showed that 31.2 per cent of those polled were ‘heavily
penetrated in emerging markets’ while another 31.2 per cent had
‘already sourced some suppliers in emerging markets and are looking

to expand low-cost country suppliers in the future’ (Berkowitz 2010,
p. 4). In the ‘top-tier products’ segment, the high quality of products
must go hand in hand with the selection of adequate raw materials. In
the clothing or automotive industry, the high quality of raw materials
is considered the inherent trait of ‘top-tier products’ (Brun et al. 2008,
pp. 560–561). Honda, which manufactured its motorcycles in Vietnam,
only sourced parts from suppliers operating within the Keiretsu structure
and from select global brand companies, despite many offers from local
suppliers who wanted to cooperate. Honda did not want to jeopardise
its reputation. Later, under pressure from its competitors, the company
decided to expand its purchasing network to reduce material sourcing
costs (Duc Tiep 2007, p. 304). In 2002, the company began cooper-
ating with Chinese and Vietnamese suppliers. However, these compa-
nies only supplied parts such as lamps or mirrors, which are not key
to the quality of manufacture or performance. The key parts were still
purchased from Keiretsu companies. The positive effect of the interna-
tional purchasing concept was a reduction of sourcing costs and easier
access to unique raw materials; negative effects included the increased
spread or complexity of the supply structure. International purchasing
has translated into a greater distance of suppliers from the manufac-
turing site. This may pose a major problem when transferring opera-
tions to low-cost countries. Large distances are a serious obstacle when
implementing just-in-time solutions. Locating manufacturing opera-
tions in various parts of the world somewhat contradicts the just-in-time
concept, which assumes the minimisation of inventories and fulfilment
of supplies in a specific time. The just-in-time strategy involves ordering
parts just before they are used up in the manufacturing process. The
tendency is to locate suppliers quite close to manufacturing sites. In
some industries, companies require that suppliers be located in their
direct vicinity. In Europe, many industries apply a standard 24–48 hour
period for fulfilling orders (Lemoine and Skjoett-Larsen 2004, p. 794). In
the case of the automotive industry, manufacturers are often followed
by their suppliers when they move their operations to developing coun-
tries. When car manufacturers such as GM, Ford, VW, Toyota and Nissan
increased their investments in production in China, global suppliers of
parts for the automotive industry soon followed: Delphi, Lear, Bosch,
Johnson, Visteon (Tim, Rhee and Oh 2011, p. 33). Another example is
General Electric, whose management board set a target of increasing
the volume and value of components imported from China to USD 5
billion a year in the first decade of the 21st century (Hexter, Woetzer and
Shister 2008, p. 39). The company only managed to meet 60 per cent
of this target. To change that situation, some decision-making compe-
tences regarding sourcing and project approval authority were trans-
ferred from the USA-based headquarters to the branch in China. The
goal was to improve flexibility and integrate the design, sourcing and
production functions. It was assumed that the local designers and the
purchaser knew the local sourcing conditions and opportunities better.
This also helped shorten response times, improve the accuracy of fore-
casts and reduce inventories. American companies, such as Wal-Mart
and Motorola, also established offices in China to source products or
components (Hexter, Woetzer and Shister 2008, p. 39). In the next five
years, Wal-Mart, the largest global retailer, is planning to gain savings of
USD 4 billion from cost reduction in their supply chain from a combina-
tion of purchasing centres, the elimination of intermediate points, and
the acquisition of (global) supplies directly from global manufacturers
(Wal-Mart 2010). Wal-Mart’s long-term objective is to source approx. 80
per cent of goods this way. Global sourcing, which differs from a more
narrow international approach to purchasing, is a solution that adopts
greater openness to external opportunities.
The target of international purchasing is usually to achieve a short-
term cost benefit without regard to sustainable competitive advantages.
Gaining access to global resources has a wider dimension. Global sourcing
has been defined as the worldwide integration of engineering, opera-
tions, logistics, procurement and even marketing within the upstream
portion of a firm’s supply chain (Monczka and Trent 2003, p. 609).
The term ‘global sourcing’ means the integration and coordination of
sourcing needs, covering entities operating worldwide, carried out to
find suppliers and obtain the necessary elements: raw materials, compo-
nents, semi-finished products, resources, processes and technology of
the required standard (Monczka and Trent 2003, p. 609). The process
of establishing international supply chains based on highly special-
ised entities is the result of actions aimed at concentrating on value
adding (activities) and on using resources, expertise and know-how that
a given entity does not possess. The decisions regarding the global form,
structure and distribution of the manufacturing structure are related to
the optimum use of resources and to gaining access to new technolo-
gies developed in other countries. On the one hand, such an approach
creates more opportunities for using external resources, know-how, tech-
nology and manufacturing operations; on the other hand, it requires the
restructuring of the sourcing, production and distribution system. In the
area of manufacturing, decisions on outsourcing have been made that
have translated into growing specialisation and the diversification of

tasks in the supply chain structure. Organisations are now focusing on
their ‘core business’. Everything else is outsourced. Companies may also
subcontract manufacturing (Christopher 1998, p. 15). Such measures
increase the complexity of the supply chain and the number of limi-
tations caused by differences in task performance times at individual
stages.
From the point of view of supply chain design and strategy selection,
the quick operation of the entire supply chain is particularly important.
Taking into consideration the limitations related to the use of worldwide
resources and the increasingly popularity of outsourcing, the choice
between adopting a push or a pull strategy becomes more important.
Zara, the clothing manufacturer and retailer, replaced production to
inventory, i.e. a push strategy (sometimes combined with an order fulfil-
ment period of a few months) with a pull strategy.8 At the moment, it
takes 14 days from design approval to the delivery of products to stores.
The key raw materials are supplied in a lean system, and the finished
products are manufactured in line with an agile strategy (Morgan 2007,
p. 265). The total changeover from push to pull system in the auto-
motive industry’s supply chain yielded savings of approx. 20 per cent
(Parment 2008, p. 252). Another option is to offer modular products.
The term ‘production postponement’ means that modules are manu-
factured on the basis of forecasts but assembled or picked and packed at
a point in the supply chain that is close to the end-purchaser, e.g. in a
logistics centre (Lemoine and Skjoett-Larsen 2004, p. 794). In such a situ-
ation, the sellers have minimum inventories, replenished on an ongoing
basis from the logistics centre. Establishing a distribution structure is
combined with defining distribution channels, their length and breadth,
the intensity of distribution, the number of stores, their arrangement
and size, display of products and the policy of product availability. The
distribution structure may be based on external or in-house resources.
If a company intends to keep full control over activities carried out
abroad, it will use its foreign branches (based on in-house resources)
(Stock, Greis and Kasarda 2000, p. 535). Many manufacturers invest in
the development of their own sales networks; for example, Luxottica, an
Italian company, purchased major retailers to that end in the USA and
Australia (Pederzoli 2008, p. 123). The purpose was the more efficient
flow of information regarding changes in demand.
In competition on lead times, distribution channels often get ‘short-
ened’ or ‘narrowed’. Logistics postponement is an example. This term
is understood as the replacement of a dispersed distribution structure
by a single, central distribution centre, which serves all customers in

a specific region. In some cases, the intermediary stage is abandoned,
and services are provided to customers directly. For instance, Bang &
Olufsen, the Danish manufacturer of audio–video equipment, elimi-
nated 12 domestic distribution centres, while Microsoft reconstructed
its European distribution channel by replacing the supplies handled
by national representatives with direct deliveries from the factory to
customers (skipping one level in the distribution channel) (Lemoine
and Skjoett-Larsen 2004, p. 794). Also, Danfoss reduced the number of
its warehouses after it had outsourced finished goods inventory manage-
ment to a company handling sales and distribution that picked goods in
line with customer orders in its own central warehouse. In consequence,
the lead time in Europe was reduced from three weeks to 24–48 hours
(Lemoine and Skjoett-Larsen 2004, p. 794).
Transport and reloading companies now play a vital role in organ-
ising flows in supply chains. As a result, the issue of selecting the mode
of transport, haulier and forwarder emerges. For short distances, road
transport predominates, as it is the most flexible and allows door-to-
door deliveries. For long distances, maritime transport is used. However,
for several years, air transport has gained importance due to the develop-
ment of international cooperation and the implementation of flexible
production systems based on just-in-time or quick response strategies.
The use of international air connections speeds up operations and
makes them more effective. Such an approach is particularly significant
when organising transport for which time and reliability are the key
factors. Just-in-time material flow management has led many compa-
nies to change their strategy: they started using air transport regularly,
whereas previously this form of transport had been used only in emer-
gencies. This tendency has been increased by the growing concentration
of manufacturing operations in China and other Asian countries. The
major factors that influence the use of air transport of cargo include:
– the increased internationalisation of production;

– the growing importance of speed and flexibility of flows in supply
chains (if a company has founded its operations on strict inven-
tory control procedures, e.g. just-in-time, air transport will often be
necessary);
– the company’s position in the supply chain (the company dominating
the supply chain may force other entities to use the same methods).
Companies that favour in air transport include manufacturers of short

lifecycle products delivered just-in-time, high-value products and fragile
and perishable goods. Air transport is used for shipping fish from Central
and South America to the USA and Canada or freshly cut flowers from
Holland to other European countries. This also applies to components
in the advanced technology sector. For instance, in Asia they account
for approx. 40 per cent of all cargo shipped by air internationally (IATA,
2005). Sectors that are particularly interested in using air transport
include the food, clothing, and automotive, electronic, medical and
pharmaceutical industries. In general, land or sea transport remains
more efficient and cheaper. However, with the integration of the global
production network, the practice of using air transport is becoming
more popular as a means of gaining competitive advantage.
In the case of inventory management and warehousing, it is impor-
tant to plan storage conditions, e.g. assuring adequate temperature and
humidity in rooms used to store specific cargo. This sometimes requires
considerable investment, which may include, for instance, warehouse
equipment and control and measurement instruments. For warehousing
operations, these investments will include modern internal transport
solutions, automatic conveyors, cranes, and dock levellers with cano-
pies. Such solutions help boost efficiency, minimise errors and reduce
labour costs. In most cases, investments are in state-of-the-art ICT solu-
tions. Fully computer-assisted inventory management helps control and
record the temperature in the warehouse. It is possible to monitor (the
presence of) undesirable events to ensure the security of goods (usually
a CCTV system is required) and protection against fire (the warehouse
structure needs to be suitable, including fire walls and fire alarms, etc.).
All these measures are part of supply chain management. They
often lead to consolidation or integration (internal or external). M.
Abrahamsson and S. Brege (1997, p. 40) proposed a model of inter-
national distribution systems comprising a number of different areas
involving structural changes related to the entire supply chain:
1. consolidation of supplies combined with reduction in the number of

suppliers – lean practice;
2. centralisation of production points – rationalisation;
3. centralisation of downstream warehousing;
4. centralisation of administration (e.g. an international call centre).
Application of this model leads to a reduction in the number of produc-

tion facilities, as well as the centralisation and relocation of production
and distribution centres, the design of new distribution systems and the
consolidation and downsizing of the supply base. Within internal inte-
gration, G. Stock, N. Greis and J. Kasarda (2000, p. 534) defined vertical
integration as the extent to which a company has, in its own structures,

the resources that allow it to gain full control over all stages carried
out in the downstream supply chain, from raw materials sourcing to
distribution. Nevertheless, supply chain management is not the same as
vertical integration. Vertical integration normally implies ownership of
upstream suppliers and downstream customers (Christopher 1998, p. 15).
Integrating operations while retaining legal independence is a material
quality of collaboration between companies in a supply chain. It leads
to the extension of supply chains resulting from growing internationali-
sation of various areas of operation and from the increasing application
of organisationally complex solutions (including outsourcing). A rising
need for cooperation of companies in their drive towards the achieve-
ment of their goals in increasingly volatile conditions has become a sign
of the times.
1.3 Relationships in supply chains (Grażyna Wieteska)
A supply chain consists of various types of organisation, among which

numerous network connections are formed. Through their involvement
in the management of material goods and information flows, the links
in the chain participate in the development of supplier–buyer connec-
tions. Connections between suppliers and buyers constitute a repetitive
sequence in supply chains and, as such, can be deemed essential. Each
business unit operating in the supply chain is a supplier and a buyer at the
same time. This applies to suppliers of raw materials and retailers alike.
The connections between the supplier and buyer form the so-called
relationship. More broadly, this should be defined as business collabora-
tion, which comes down chiefly to purchase and sales transactions. The
relationship comprises widely understood dependencies between the
resources, actions and entities of the participants. We call it the content
of a relationship (Figure 1.2). The supplier–buyer relationship may be
analysed in the context of three aspects: connections, the impact of
relationship on the collaborators’ results, and the impact made by the
supplier–buyer relationship on the network and vice-versa (Fonfara 2009,
p. 28). Each change on the supplier’s side or in the network may have a
positive or negative impact on the buyer or the supplier–buyer relation-
ship. The resources and measures undertaken by individual companies
are related to one another due to the input and output of processes
carried out by the supplier or customer, and as such, determine the effec-
tiveness and efficiency of product and information flows.
Supplier Supplier-buyer Buyer

RELATION CONTENT
Entity 1 relations Entity 2
Supplier’s resources relations Buyer’s resources
Supplier’s actions relations Buyer’s actions
Material goods and information flow processes
Figure 1.2 Content of the supplier–buyer relationship

Source: Own study based on Fonfara (1999, p. 51).
A company (usually the market leader) attempting to build the

competitive advantage of its supply chain should first focus on the
development of efficient communications between its direct suppliers
and buyers. Improvement of the relationship between companies
may include planning, integration of ICT systems (and data sharing,
e.g. production schedules, inventory levels), development of suppliers,
product development, crisis management or cost-cutting programmes.
A lasting relationship between a supplier and a buyer is based on
trust resulting from mutually satisfactory collaboration. Buyers expect
their suppliers to be flexible and punctual, to provide adequate volumes
of products meeting specifications, and to work to short lead times.
Therefore, suppliers build their image by adapting to changing customer
needs, offering reliable order completion and commitment. On the
other hand, they require their buyers to fulfil their financial obligations
in time and expect a fair division of risk and benefits.
When describing the relationship between a supplier and buyer, one
should refer to the 3C paradigm, which covers the three possible types of
market coordination in a supply chain: cooperation, competition, and
control. Each aspect of coordination is characterised by specific indica-
tors, e.g. the main relation, the dominant type of management relation,
the degree of independence, the resources contributed to the relation,
and a sentimental feeling. For instance, the main relation and the atti-
tude for cooperation are, respectively, collaboration and partnership,
while for competition they are rivalry and hostility, and for control,
power and loyalty (Łupicka 2009, p. 86). Hence, the balance of forces
may vary in inter-organisational relationships. Taking into account
the dependencies between supplier and buyer, four situations may be
distinguished (Wit and Meyer 2007, pp. 225–226). The first is so-called
mutual independence, wherein neither party dominates or experiences
any consequence from terminating the collaboration. Another type of
arrangement is so-called unbalanced independence, wherein collabo-
ration is efficient, but one party has more power. The third situation
pertains to so-called mutual dependence (co-dependence), wherein both
parties are strongly involved in a close and partnership-based collabo-
ration, and the consequences of terminating the collaboration would
be unfavourable to either party. The last type is so-called unbalanced
dependence. In this case, dependence is very strong, both parties are
equally involved, but there is an asymmetry of power, wherein one
party may dominate the other. The distribution of power is determined
by honesty, trust and loyalty in relationships between the supplier and
the buyer. Honesty becomes a basis for developing trust and a lasting
arrangement. On the other hand, trust is a starting point for winning
the partner’s loyalty (Jambulingam, Kathuria and Nevin 2011).
Cooperation is the type of coordination most conducive to the
competitiveness and integration of a supply chain. This can take the
form of an opportunistic partnership, an operational partnership or a
strategic alliance (Hines 2004, p. 180). The first type of cooperation is
characterised by an imbalance of power, an unequal distribution of risk
and unequal benefits for collaborators, which result in reduced efficiency
of the relationship and much lower consumer value. The latter implies
the closest possible collaboration and a partnership that is focused on
adding consumer value through active exchange and mutual analysis of
information and the integration of core competencies. By establishing
strategic alliances, companies share resources, knowledge and skills.
All this to achieve competitive advantage and higher profits. Success is
grounded in the ability to cooperate, learn, apply new knowledge and
carry out new projects in collaboration with business partners (Nix et al.
2008). The third type of cooperation is an operational partnership, which
is a combination of the other two and a sort of intermediate form.
Results of research carried out by the Aberdeen Group show that
the main reasons for building collaboration between companies are:
increasing prices of materials and logistics costs; the growing demands
of customers; the lack of visibility in supply chains; and increasing
business complexity. On the other hand, one of the basic measures
undertaken by companies to develop collaboration in supply chains is

building partnership relationships with suppliers and customers, and
the reduction of inventory costs (Ball 2012).
Customers are one of the major values for any company. Hence, the
basic objectives of supply chain management include the improvement
of both external and internal customer service. To maintain and develop
their relationships with purchasers, companies use different strate-
gies. Some of them attempt to establish partnership relationships and
trust, and to complete projects together with purchasers, while others
set up exit barriers for customers or entrance barriers for competitors
(Światowiec 2006, p. 139).
To improve their market positions, companies particularly focus on
customer contact excellence. The most popular concept directed towards
customers is customer relationship management (CRM). This is a compre-
hensive approach to building lasting relationships with purchasers
supported by ICT systems that provide knowledge on purchasers and
databases for analysis. CRM means building a multifaceted collaboration
between supplier and customer to gain lasting customer satisfaction and
to encourage attachment to the company. At the same time, it covers all
aspects of a relationship, from the recognition of purchasers’ expecta-
tions and adjusting the offer to their needs to customer segmentation,
collaboration planning and control. CRM engages all company resources
(including marketing, sales, maintenance and customer service depart-
ments), adapting them to the purchasers’ requirements. The concept
focuses on existing and potential customers (Urbanskienė, Žostautienė,
and Chreptavičienė 2008). CRM implementation is based on adding
value, multi-level integration and the evaluation of the achievement of
objectives as these relate to the supplier–buyer relationship.
CRM is founded on relationship marketing (strategic marketing) prin-
ciples. This is the most developed form of partnership cooperation with
buyers and other external business partners. It is rooted in the win–win
principle, shared goals, bilateral and active exchange of information
which helps earn success in the market. This means the supplier and
buyer adopt a strategic orientation based on mutual involvement and
long-term partnership-based collaboration (Morris et al. 2001, p. 106).
Relationship marketing delivers long-term value to buyers in order to
fully satisfy their needs, give them lasting satisfaction and earn their
loyalty. It is not only the conscientious fulfilment of current obligations,
but also a comprehensive approach to customer service that involves
the establishment, maintenance and fostering of the relationship. Trust
and commitment are particularly important for strengthening the
value behind the supplier–buyer relationship and for gaining benefits

(Rehman, Shareef and Ishaque 2012, pp. 606–615). Other key aspects
of relationship marketing include personal responsibility and empower-
ment, communication, safeguarding investments against the threat of
opportunistic behaviour, empathy and professional intimacy, produc-
tive conflict resolution, ability to adapt to change (Williams 2012).
Relationships in a supply chain should be identified in both the B2B
and the B2C markets. They are governed by different responsibilities, as
the behaviours of institutional and individual customers are dissimilar. To
meet the strict requirements of both markets, companies more often focus
on suppliers, who play a vital role in adding customer value (Helander
and Möller 2007). Building supplier relationships is aimed at boosting
the effectiveness and efficiency of flow processes in the supply chain by
reducing costs, shortening cycles (e.g. production, order completion) or
lessening the probability of disruptions that may cause delays and the
failure to complete customers’ orders in line with their expectations.
Relationships with suppliers are, mostly, based on the purchasing
process, which is made up of a number of stages. Having recognised
and defined the purchasing need (quality parameters, detailed descrip-
tion and purchase volume), the company starts searching for adequate
suppliers. At this stage, a set of organisational and technical assessment
criteria for potential collaborators is required. These criteria facilitate
the selection of companies that will receive the requests for quotation.
Potential contractors are invited to make an offer. The analysis of the
offers of potential contractors helps pinpoint these suppliers who meet
the preliminary requirements of the buyer (e.g. pricing requirements)
and who will, consequently, be asked to complete sample orders. The
decision to start collaborating with a supplier is supported by discus-
sions, negotiations, opinions of customers and audits. The most impor-
tant criteria in a preliminary supplier assessment on the B2B market are
(Routroy 2008):
● costs (the price of the product, the impact of the new collaboration
on cost-cutting plans, minimum order volume);
● quality (specialisation of the supplier, product design and its compli-
ance with specifications, possibilities to change product parameters);
● delivery (lead time and modification possibilities);
● flexibility (of product design, production capacity);
● technology and innovativeness (ICT systems, specific resources, tech-
nical problem resolution skills);
● organisation (financial condition, service, reputation, green solutions

implementation, plans to boost added value).
Various methods are used to select suppliers. The most popular ones,
according to the literature and business practice, include the analytic
hierarchy process (Wang, Chin and Leung 2009), the max–min meth-
odology and others related to decision-making, such as categorical
methods, cluster analysis (CA), case-based reasoning (CBR) systems
or data envelopment analysis (DEA) (Sen, Sen and Baslıgil 2010). The
company that meets the customer’s requirements, properly completes
the sample orders and offers the prospect of satisfactory collaboration
becomes the qualified supplier.
The selection of a supplier is just the start of the supplier–buyer rela-
tionship. Supplier relationship management (SRM) also includes the
segmentation of suppliers, performance assessment, improvement of
the relationship and collaboration to create new value (Procurement
Strategy Council 2007, pp. 6–7).
The segmentation of suppliers helps rationally manage the company’s
resources by matching (up) suppliers to the company’s strategic objec-
tives. This consists in grouping suppliers and developing a collaboration
strategy for each group. Companies divide the suppliers into segments,
taking into account different variables, for instance: product development
opportunities, the relationship between the supplier and the customer,
market position, the potential of the relationship, the purchase volume
or goods-related risk (e.g. availability, criticality). Based on performance,
the following supplier segments may be created (Procurement Strategy
Council 2007, p. 32):
● ‘president’s club’: top suppliers;

● preferred suppliers: suppliers meeting the customer’s requirements,
recommended for all new projects;
● limited suppliers: suppliers for which the company creates develop-
ment programmes, recommended for specific projects;
● prohibited suppliers: collaboration with these suppliers is not fully
satisfactory, not recommended for projects.
Other groups might be disqualified suppliers, who have been excluded

by the customers due to lack of trust and terminated collaboration based
on negative experience, and potential suppliers, who meet the prelimi-
nary requirements of the customer but have not collaborated yet.
The periodical assessment of suppliers is based on evaluation criteria

that are drawn up specifically. These include immeasurable and meas-
urable criteria. The first group includes the supplier’s involvement and
its reputation. The second group comprises so-called key performance
indicators (KPI), which are determined by the customer’s objectives.
Monitoring KPIs is beneficial for both parties, as it reveals areas that
require analysis and improvement. KPIs may include inventory turno-
vers, the percentage of late (or inadequate quality) deliveries, finished
goods storage time, percentage of point-to-point deliveries and emer-
gency shipping costs (Liker and Wu 2000).
Segmentation and supplier assessment provide the starting point
for relationship improvement. Measures undertaken by purchasers
under the so-called ‘supplier development’ contribute to the relation-
ship improvement. Supplier development is defined as ‘any effort of a
buying firm with its supplier to increase the performance and/or capa-
bilities of the supplier and meet the buying firm’s supply needs’ (Krause
1997). Supplier development programmes are usually focused on critical
suppliers (offering unique products) and strategic suppliers (providing
a high volume of orders) (Handfield et al. 2000). If the supplier fails to
meet the customer’s expectations, the customer may resign from the
collaboration or focus on improvement of the partner’s performance.
Performance may be improved by training of the supplier’s employees,
investments in technology or cost-cutting plans.
Supplier development is related to new product development (NPD).
The collaboration with suppliers, in particular in the area of research and
development (R&D), helps implement technical innovations in prod-
ucts (Un, Cuervo-Cazurra and Asakawa 2010). This is possible owing
to solutions aimed at increasing the degree of supply chain integration
(Culley, Boston and McMahon 1999; Vachon and Klassen 2007).
Companies increasingly concentrate their actions on the selection
and development of green suppliers (Bai and Sarkis, 2010). Increasing
customer requirements in the B2B market, consumer pressure, stricter
regulations and the search for cost-cutting opportunities are the main
drivers of interest in green purchasing (Mebratu 2001). This aspect,
similar to the application of ecological solutions in finished products, is
supported by product lifecycle analysis, which covers such supply chain
processes as transport, packing, material supplies, assembly, recycling
and reusing (Nagel 1998). In this situation, building sustainable supply
chains requires the logistics and technological integration of resources
as well as actions taken by business partners. In parallel to the sustain-
able development of companies, the concept of responsible purchasing
is being developed. Its implementation is triggered by changes in legal

regulations, the search for economic opportunities, stakeholder expecta-
tions and ethical business behaviours (Worthington et al. 2008).
The supplier–buyer relationship is certainly a multi-aspect topic.
Unquestionably, it is the foundation of supply chain integration.
Building the supplier–buyer relationship provides an opportunity for
better performance in collaborating companies. Therefore, the concen-
tration of supply chain links on the development of suppliers’ and
buyers’ resources and measures should be counted among their top
priorities.
1.4 Directions of supply chain development

(Anna Baraniecka)
All discussions on supply chain development are dominated by refer-

ences to the environment (Rutkowski 2011, pp. 96–110; Witkowski
2003, pp. 179–181). This is obvious, as external conditions provide the
background, the source of opportunities and threats, as well as the inspi-
ration for business activity, including business activities undertaken in
the supply chain. However, the complexity of extended enterprises,
as supply chains are often called, requires heightened alertness to and
careful observation of the conditions of their operation. The connec-
tions between the external phenomena and the directions of supply
chain development are discussed later in this chapter.
When pinpointing the directions being taken in supply chain develop-
ment, one cannot skip the theoretical development of the supply chain
management concept. Over the last few decades of intensive research of
the SCM concept, many dedicated studies have been carried out. These
have included monographs, reports and guides. Now SCM training and
courses are available, or even university programmes to educate future SC
managers. When observing progress in this area, one can conclude that,
in theory, the SCM concept has reached a high level of development.
Simultaneously, the analysis of new publications on the topic shows that
SCM is very often discussed. The natural consequence of this is a concen-
tration on the relationship between the SCM concept and other fields of
study or areas of business operation. This also applies to this publication.
The theoretical development of the SCM concept described is an auspi-
cious sign in the context of future successes of its application in busi-
ness practice. Unfortunately, ineffective promotion of the concept to
date and the relatively poorly described process of its operationalisation
(implementation) and the resulting lack of understanding of the idea
behind SCM are the reasons for the limited implementation and devel-
opment of the concept. Another problem at the border of theory and
practice consists in the fact that market entities are very often uncritical
towards concepts, methods or tools proposed by theorists, and they
tend to forget about the need to adjust them to operating conditions or
the nature of the product. A similar limitation applies to the absence of
any closer description of implementation barriers for selected SCM solu-
tions in Poland. This limitation is particularly visible in the use of inte-
gration models, as their authors rarely specify the conditions that need
to be met and provided in the environment in order to allow progress
to higher stages of supply chain excellence. However, one of the major
problems with the operationalisation of SCM, in the author’s opinion,
is the absence of a systems approach. This lack leads to the implementa-
tion of fragmentary improvement projects, detached from the supply
chain strategy and poorly integrated. One of the reasons underlying
this problem is ignorance or the misinterpretation of fundamental SCM
principles. At this point, we need to take another look at the theoretical
approach to supply chain management.
In numerous definitions or comparative models, the complexity of
SCM principles is rarely stressed, which may mean that meeting just
one assumption, e.g. minimising costs across the entire supply chain or
measuring supply chain operations globally, is regarded as the imple-
mentation of the SCM concept. Perhaps this theoretical misunder-
standing is a reason for the notorious identification of supply chain
management with logistics. Therefore, the solutions, tools or systems
used in logistics management have, for many years, been applied for the
purposes of supply chain management. Although it would seem that
this has no negative practical consequences, the threats it causes are
worth mentioning. According to the author, the major threats include
(Baraniecka 2011a, p. 18):
1. delays in the dynamic development of the SCM concept in business

practice.
If a company has a working logistics system and uses efficient and
effective solutions in this system as well as a package of modern and
operational manufacturing and sales solutions, the SCM concept may
pose a real challenge to the integration of the functional areas in
the internal and external supply chain. A company at a lower level
of logistics excellence may become dangerously convinced that
improvements in logistics are equal to supply chain management. In
the author’s opinion, such disappointments decrease the popularity

of the SCM concept in business practice.
2. intensification of conflicts of objectives within the organisation and
its supply chain.
Equating SCM with logistics management means that mainly logis-
tics employees are responsible for the achievement of supply chain
objectives. This means that this group is vulnerable and often misun-
derstood by other departments in the organisation, which also makes
this group feel deprived of full decision-making competence, further
intensifying the conflicts within the organisation and reducing the
commitment of the logistics area to supply chain excellence.
3. opportunistic attitudes toward collaborators.
Logistics management solutions for purchasing, focused on reducing
internal system costs, without taking into account the partnership
cooperation with collaborators typical of the SCM concept, may
increase the transactional nature of supplier contacts.
4. limited opportunities to apply modern solutions based on partner-
ship, such as vendor manager inventory (VMI) and collaborative
planning, forecasting and replenishment (CPFR).
Modern inventory control or process planning methods assume
wide-scale cooperation with collaborators. Hence, mere awareness of
potential benefits for the internal logistics system of the company is
not a sufficient driver for implementing those methods. The differ-
ences in knowledge and competence, as well as the limited trust of
the company and its collaborators, considerably reduce – or even
exclude – the possibility of implementing the methods or solutions
(Baraniecka 2011b, pp. 156–166).
To implement the SCM concept, one needs logistics knowledge and

skills; however, equating these with SCM knowledge in the face of the
complexity of this concept may be regarded as somewhat abusive, and
is a significant source of delays in the development of supply chains in
Poland.
As mentioned earlier, the development of the supply chain and indi-
vidual companies is largely determined by operating conditions. The
complex and turbulent environment of supply chains, though it is often
regarded as a threat, is surprisingly favourable, as it becomes a stimulus
and source of progress in the improvement of flows between companies
along the product’s economic path. Although, as a rule, supply chain
links are separate entities with their own development strategies, stra-
tegic or competitive positions, resources and competences, sharing the
same flow connects them into a strong network of dependence. Major

environment trends that particularly influence the modern supply
chains include:
– globalisation and related changes in the attractiveness of investment

locations;
– demographic changes, including the growing individualisation of
consumer needs;
– technological progress, including the development of digital markets,
growing computerisation and automation of operations and easier
access to data;
– economic crises and intensified social conflicts and the resulting drop
in trust in business relationships;
– levelling of regional differences through the development of road
infrastructure with simultaneous and general growth in congestion;
– stronger social supervision of enterprise operation, mainly through
unlimited access to information and media development.
In the context of supply chain operation, these trends should be

constantly monitored and analysed in terms of their nature, direction
and strength. This suggests the need to use strategic analysis tools,
including environmental analysis methods, in the process of designing
enterprise strategy and supply chains.
These phenomena in supply chain environments imply specific
changes in their operation, both at strategy level and in terms of dedi-
cated operational solutions. The major trends in the development of
modern supply chains include:
1. the growing significance of supply chain management as a source of

competitive advantage for the supply chain links and the growing
significance of supply chain managers.
The benefits of the integration of supply chain management efforts
are visible in the entire chain and in the long term. Undoubtedly, this
limited the development of the SCM concept in business practice.
On the other hand, examples of market success based on the imple-
mentation of long-term projects aimed at supply chain excellence
(best practice) convinced less innovative organisations to undertake
SCM-related initiatives. The higher popularity of the SCM concept
implies the growing significance of supply chain managers. This
contributes to the modification of the organisational structure in the
entire supply chain and its individual links. Supply chain strategy is
also gaining followers owing to the growing availability of methods

to measure and assess the process and results (e.g. the SCOR reference
model) (Bolstorff and Rosenbaum 2007). The growing importance
of the SCM concept in strategies adopted by companies also implies
that strategic planning processes are more important (integrated
planning, supply chain strategy, collaborative planning of selected
supply chain processes, and supply chain reference models).
2. establishing strategic alliances to reduce costs, where the partners
include not only suppliers and customers, but increasingly also
competitors.
Partnership in the supply chain has become a synonym for matu-
rity. Unfortunately, this idea is rarely applied in practice, as it requires
a high level of trust (a precondition for true partnership), which is
difficult to achieve in a supply chain environment that is culturally,
economically and socially diversified. On the other hand, incorpo-
rating partnership in formal initiatives, e.g. under strategic alliances
known in business practice, made long-term collaboration realistic
and helped confirm the potential of partnership relationships. The
benefits of ambitious, cooperation-based projects are encouraging
companies to change the nature of competition from confronta-
tional to relational (based on collaboration). It seems that this trend
pertains not only to small entities but also, and in particular, to
global market leaders, with limited opportunities to use the experi-
ence effect. The experience effect means the reduction of unit costs
by increasing the scale of production. The experience effect uses
economies of scale, economies of skill, innovativeness and labour
substitution.
3. intensification of improvement projects and the growing role of
knowledge-based organisation in their implementation (knowledge
outsourcing).
Most new concepts have always been developed with the support
of knowledge-based organisations (universities, training and
consulting companies, and other entities generating and distrib-
uting knowledge to a wide range of users). Their presence in the
implementation of selected solutions in business practice is then
justified. Knowledge partnership in supply chain management has
been acknowledged for many years; however, a visible trend has
been the development of the training and consulting market in the
area of supply chain management, which hasn’t increased the avail-
ability of such services. The popularity of knowledge outsourcing
has intensified projects dedicated to supply chains.
4. shortening (reduction of the number of levels) and narrowing (reduc-

tion of the number of links at each level) supply chains with simulta-
neous diversification, i.e. ascribing different flow strategies to selected
products. This means that supply networks consisting of many supply
chains are being managed.
Modern communication technologies and the growing automa-
tion of supply chain operations are a vital reason for making supply
chains leaner. The reduction in the number of links on the product’s
path (shortening of the chain) is usually caused by the need for better
control of product flow but also by the attempt to reduce the risk of
disruption in the information flow (preventing the Forrester effect).
By controlling the information about demand and by reducing the
flow time and costs, companies in the supply chain will gain better
economic results from the flow, which may translate into stronger
competitive qualities such as lower price or higher customer service
level. Although shortening the supply chain is the visible form of
leaning, making the chain narrower is more popular (and in line
with the SCM concept). This means a reduction of the number of
collaborators at each product flow stage. The integration of suppliers
and a strategic approach to customer contacts help cut transaction
costs, which are the major element in the supply chain cost struc-
ture. What is significant in the trend to trim supply chains, and what
distinguishes it from typical reduction process (e.g. carried out under
the lean management concept), is the fact that this process does not
limit the supply chain’s flexibility. This results from the fact that the
trimming of individual supply chains is accompanied by the diversi-
fication of flow strategies for selected products or markets (creating a
bundle of supply chains, i.e. a supply network).
5. spatial consolidation of supply chains, understood as the locating of
links near the supply chain leader, usually the original equipment
manufacturer.
This trend is an alternative to the dwindling tendency to locate
manufacturing and distribution sites in low-cost areas. The reasons
for changes in network configuration include, on one hand, the
considerable recent increase in transport costs and, on the other,
the growing importance of customer service as a competitive edge
of modern enterprises. The considerable distances between supply
chain links (a constant cost-determining factor) currently observed,
given the forecast constant increase in fuel prices, may decrease the
attractiveness of the advantages seen to date, e.g. low labour costs.
The difficulty in exercising control over long-distance flows as well
as individualisation of demand may force enterprises to consolidate

supply chain links.
6. growing share of logistics service providers in non-core processes of
supply chain links (e.g. transport, warehousing) or having responsi-
bility for the integration of processes (inventory control in the supply
chain).
The logistics service market is visibly being consolidated, which
contributes to growth of market opportunities and the competences
of its representatives. Comparing this trend to increasing manage-
ment competences in supply chains, one may conclude that the
areas of logistics service providers collaboration with supply chains
is evolving to provide more and more advanced and comprehensive
services. They go towards process integration and coordination across
the supply chain. On the other hand, in the transitional period (i.e.
before the service providers gain high competence in SCM), a trend
to insource services will be evident, in particular in those areas where
their level is a component of the customer service level in the supply
chain (Weremij 2011, pp. 177–179).
7. growing specialisation of supply chain links (in terms of not only
core competences but also supply chain management), wherein the
selected entities may act as, for example, an inventory storage site for
the supply chain, a database concerning actual demand, or the coor-
dinator of knowledge management in the supply chain.
The growing visibility of supply chains, with the aforementioned
trends towards integration, increases the business self-awareness of
supply chain links. Professional control over flows in the supply
chain (including the period, quality and costs) helps identify the
supply chain areas that best (most effectively or efficiently) carry out
specific measures. Therefore, the tendency towards assigning supply
chain management tasks to specific links is not surprising (example:
database of the actual demand at retailer level, or keeping inventory
in one area of the supply chain). The growing specialisation of links,
with simultaneous knowledge sharing, makes the competence level
at individual links more equal, thus making true partnership more
realistic.
8. growing significance of close relationships (partnership) and deter-
mining factors, e.g. social capital.
The issues arising from the social conditions of supply chain devel-
opment are growing more important, in particular in the context
of the considerable degree of supply chain internationalisation
and the increase in outsourcing of its operations. Social capital has
ceased to be merely an external factor determining the development

of relationships in the supply chain. It has become an element of
the internal supply chain potential. This means the social capital of
supply chains is conducive to partnership relationships between the
links. High levels of trust, commitment and the loyalty of partners
make the supply chain more visible, stable and efficient. A partner-
ship based on these elements ceases to be only a slogan, and becomes
a reality. At this point, it should be stressed that the development of
a partnership in the supply chain should not be understood as an
attempt to harmonise methods of collaboration in the supply chain.
Diversification of the ways the collaborators contact one another is
justified, especially in the context of differences in competence and
social or cultural conditions (Bask and Juga 2001, pp. 145–146).
9. growing automation and computerisation of flows in supply chains,
boosting process quality and efficiency, productivity of resources and
efficiency of market service (e.g. customer service level).
Technological progress determines the characteristics of flows in
supply chains. It influences flow time, quality, cost, effectiveness
and efficiency. The computerisation and automation of operation is
the most dynamic economic trend. Labour costs in supply chains,
in particular in high-tech sectors, are more often generated by intel-
lectual and social capital than by the actual labour force. The trend
described above is demonstrated by the improvement of operational
indicators of supply chains such as production efficiency, delivery
time, production and distribution waste and process quality. It seems
obvious that in the foreseeable future those supply chains that do
not use modern solutions will be less competitive or will, following a
survival strategy, search for other sources of competitive advantage.
The development conditions of modern supply chains fundamen-

tally change the vision of their future. Globalisation, the development
of digital markets, the growing and more visible individualisation of
demand, create – even force – a different model of collaboration within
the supply chain. Attempts to improve competitive advantage and to
limit the internal potential in this area more often than not encourage
companies to review the nature of contacts with entities along the
specific product’s economic path.
Based on these deliberations, we may conclude that the supply chain
of the future will constitute a coherent network of highly specialised
companies with similar management competences supported by knowl-
edge-based organisations, advanced logistics service providers and new
technologies, all following a shared strategy based largely on partnership,
the process and results of which will be verified using modern methods,
and which will help in quickly adapting the entire network to changes
in the turbulent macro environment.
Notes
1. It may be assumed that modern supply chains are mostly cooperative networks
(Christopher 2005, pp. 5–6). The reason for this will be explained at the end of
Section 1.1.
2. In the case of service provision, it should be remembered that resources neces-
sary to provide a service flow through the supply chain, and in some cases these
resources include materials entrusted to the service provider by the customer
for the purpose of the service provision and things that are returned to the
customer after the service has been provided, e.g. laundry or repair services.
3. They are marginalised mainly by all those who use the term of logistics chain
in a narrower sense than supply chain (Pfohl 2010, p. 29; Kisperska-Moroń
and Krzyżaniak 2009, pp. 31–32), when concentrating on logistics problems
and (they) stress the key importance of organisation and coordination of flow
of goods in the supply chain: cargo transport, storage and service.
4. Covers demand forecasting and sales planning.
5. Perceiving the supply chain as a sequence of value-adding measures is also in
line with the interpretation of the European Committee for Standardisation
(CEN/TC 273: 1997).
6. The nature of the collaboration and selection of priorities depend also on
the type of product and adopted strategy. Priorities underlying supply chain
management may vary depending on the offered product. M. Fisher (1997,
pp. 105–116) distinguished two types of products, ‘innovative’ and ‘func-
tional’, and claimed that these types require different supply chain manage-
ment styles. Unpredictable demand and a short lifecycle are typical of
innovative products. Margins are higher; hence cost reduction is not a key
issue. Boosting flexibility is the priority. The electronics and textiles industries
are examples. Innovative product supply chain management must be focused
on high quality, flexibility and quick response (Lamming et al. 2000, p. 679).
Instead of concentrating on cost reduction, the goal is to shorten the delivery
period and search for market opportunities.
Functional products (e.g. furniture, household chemicals, most food prod-
ucts) have a long lifecycle and a stable, relatively predictable demand. Margins
for these products are usually low; therefore cost reduction is the priority.
Functional products’ supply chain should differ from that typical for the inno-
vative products. It is assumed that the supply chain of functional products
should be based on cost reduction, focusing on optimisation, lean manage-
ment and application of standard solutions assuring stable quality parameters
(Lamming et al. 2000, p. 679). The key objective is to reduce costs through,
e.g., reaching a low inventory level in the entire structure and gaining econo-
mies of scale due to mass or high volume production.
7. Focusing on one supply chain link may be a result of the structure’s leader
exploiting their dominating position over other entities, e.g. a large customer
having leverage over a group of small suppliers.
8. A push–pull system in business describes the movement of a product between

two entities in the supply chain.
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2
Supply Chain Development
Process
Anna Baraniecka
2.1 Integration of the supply chain
2.1.1 Nature and significance of supply chain integration

Integration is the single most important and the most common concept
associated with supply chain management. The idea of integration
includes such notions as synchronisation and coordination of actions
in order to speed up flows in a supply chain. The primacy of attempts
at integration, without which other actions in the supply chain could
not be carried out effectively and efficiently, needs to be stressed. At
the same time, following Mangan, Lalwani and Bucher (2008, p. 250),
it should be noted that supply chain integration is not identical with
partner collaboration in the supply chain. Indeed, though an integra-
tion initiative may be accompanied by relation-based collaboration,
something that will surely facilitate its implementation, partnership is
not an absolute condition for process integration in a supply chain.
The importance of integration activities as an expression of supply
chain excellence is highlighted by the process-related definition of
supply chain management, which includes this concept in the inte-
gration of key processes – from end-user to supplier – to add value to
products, services and information (Cooper, Lambert and Pagh 1997,
p. 2). This definition also highlights the most important challenge
related to supply chain management thus understood, namely reaching
outside a single company’s system. Identifying, visualising, control-
ling or coordinating supply chain processes is becoming increasingly
difficult as supply chain processes reach beyond the boundaries of the
organisations they comprise (regardless of their formal structures). One
(though not the only) way to eliminate integration barriers is to change
45
46 Anna Baraniecka
collaborators’ contacts in the supply chain from transactional contacts

to partner contacts.
Process integration undertaken as part of supply chain management
means process implementation, and this assumes:
– processes identification, visualisation and transparency with respect

to supply chain links;
– their reconfiguration, which takes into account objectives related to a
supply chain’s objectives, the competitors’ base and the specificity of the
product travelling through the chain and surrounding environment;
– the elimination of sources of waste and disruptions in information flow.
These steps make the integrated supply process visible, give it an objec-
tive that is adapted to the common supply chain strategy and free it from
physical and informational disruptions. Thanks to this, the effectiveness
and efficiency of this process increases. The full integration of processes
in a supply chain assumes that it is possible to execute the proposals and
principles related to supply chain management. This, in turn, is regarded
as an expression of chain’s maturity. Although supply chain processes
constitute the subject of integration thus understood, it should be stressed
that parallel integrative actions also need to be handled in relation to
the infrastructure and resources that support the processes. A mistake
frequently committed in relation to the interpretation of supply chain
integration is equating it with traditional concepts based on integration
processes, i.e. with market integration, defined as vertical integration,1 or
organisational integration, namely vertical mergers or acquisitions.
2
These types of integration share the fact that they represent alternative
concepts of organisational development. Nowadays, given considerable
environmental uncertainty and the resulting need for high responsive-
ness and limitation on capital-intensive investments, solutions based
on the long-term collaboration of companies (e.g. supply chain integra-
tion) are becoming more popular than traditional forms of integration.
2.1.2 Reasons for and benefits of integration

The attempt to achieve dynamic development based on a synergy of
actions is one of the most important reasons for pursuing supply chain
integration. The need for integration is stimulated by the obvious char-
acteristics of collaboration in the supply chain. They include (Kisperska-
Moroń 2000, p. 111):
– participation in the development of a complex product;

Supply Chain Development Process 47
– shared use of sources of raw materials;

– the sequence of business stages (purchase, manufacturing, distribu-
tion) and stages in the technological process;
– the degree of territorial concentration in manufacturing, trade or
service providing units;
– the possibility to share technical and communication infrastructure;
– cooperation on the intended use of available capital resources.
Apart from the aforementioned ‘natural’ stimulants to integration, a

vital reason for collaboration in supply chains is indicated in Porter’s
classic value creation analysis (value chain analysis): the limitation of
individual improvement measures in one organisation. Strong rela-
tions between internal processes and collaborators’ processes encourage
companies to search for new sources of value increase through collabora-
tion with other participants in the product economic path (Porter 2001,
p. 95). Another reason for the integration of supply chain processes is
the considerable diversification of executive competence levels in indi-
vidual supply chain links. And as the supply chain processes cover the
management systems of a number of entities, it is highly likely that they
use different resources and that their levels of competence in terms of
planning, execution and control of these processes also vary. This means
that the value developed in the process at the level of a specific link may
be limited (neutralised) at another.
Hence, one consequence of integration activities is an increase in
process value, including adding value to product flowing through the
supply chain. This is chiefly accomplished by reducing process costs (by
standardising and eliminating waste) and/or largee-scale improvement
(increasing the effectiveness and quality of actions). What is impor-
tant and what distinguishes supply chain integration as an improve-
ment concept, is the fact that it helps all entities to gain benefits when
executing integrated processes. Process integration in supply chains
encourages the creation of uniform processes (i.e. merging into one
another, so that transfer from one to another is fluid) in the entire
supply chain, which makes it possible to manufacture and market inno-
vative products of higher value, in a shorter time and at price that is
considerably lower than before (Christopher 2000, p. 216). According to
D. Kempny (2001, p. 110), process integration in supply chains means
developing the following capacities in the chain:
– unique logistics efficiency understood as the capacity to transfer prod-

ucts and materials from suppliers, through manufacturers to customers
48 Anna Baraniecka
at costs as low as possible, and the opportunity to meet or even exceed

customers’ expectations (this capacity is usually visible in the physical
distribution area);
– the possibility to generate sales plans that are precisely adequate to
demand;
– the flexibility and efficiency of manufacturing actions, accompanied
by the concurrent provision of adequate product quality.
Tendencies towards integration are growing in the economy; this can

also be seen in supply chain operation. This means, inter alia, that the
greatest benefits from supply chain process integration will be gained
by those companies that first carry out such initiatives in their sectors.
Integration competencies may thus become key factors determining the
market success of companies on a modern market.
2.1.3 Types of supply chain integration

When undertaking integration initiatives in supply chains, we can
ensure their scope of influence and coordinate their execution in a
number of ways. Using the scope of influence criterion, we can carry
out internal or external integration, whether selectively or fully.
Internal integration means achieving excellence of processes within
the organisation, usually without the participation of collaborators.
This usually comes down to the integration of processes as part of the
design and realisation of a coherent strategy of development or compe-
tition. When taking improvement measures as part of a single system,
full integration is usually carried out, as only then is it possible to
achieve strategic objectives effectively. In the case of external integra-
tion, the identification and excellence of processes in the entire supply
chain are targeted, including the participation of the collaborators
these processes involve. External integration assumes the collabora-
tion of supply chain links and, with such an assumption, can take on
two forms. The first form – selective integration – is limited to the inte-
gration of selected processes in a group of selected collaborators; the
other type – full integration – assumes a complex combination of proc-
esses in a coherent strategy carried out by all supply chain links. Due
to the difficulty of initiation and keeping close and extensive relations
under the full external integration, selective integration is becoming
more popular (and realistic). When implementing this type of integra-
tion, the choice (selection) of entities and processes to be integrated
in the supply chain management process is important. The criteria for
the selection of collaborators to be covered by process integration may

include:
– the scale of the potential benefits for partners in the integration (as an
indication of effectiveness of whole SCM project);
– the competence level of individual collaborators and their approach
to changes, which indicates their future commitment and credibility.
Another key decision in the supply chain integration process is how it

is initiated and coordinated. D. Kisperska-Moroń (2000) identified four
ways to integrate supply chains (concepts). They are:
– the creation of supply chain link pairs;

– the activities of channel integrator;
– analytical optimisation;
– quasi-vertical integration (partial ownership).
The aforementioned ways are presented and described in Figure 2.1.

The selection of an adequate integrative solution depends on many
factors, e.g.: the business cycle, collaborators’ competences, collabora-
tion history, bargaining power in business contacts, legal conditions,
and the degree of a supply chain’s sector consolidation. The literature
on the topic also includes the classification of integration activities
by direction, i.e. vertical and horizontal integration (e.g. Kisperska-
Moroń 2000, p. 115). Vertical relations are more common for supply
chain integration as they pertain to collaborators on the product’s
economic path. On the other hand, horizontal integration, which is
related to the combination of processes in companies competing or
collaborating regardless of the product flow in the supply chain, is
still rare.
Integration initiatives in a supply chain may also be divided by how
effects are achieved:
– prescriptive integration, which is achieved and maintained through

control over processes and their independent configuration, made
possible by the bargaining power of the leader, and which is based
on a favourable market relation between demand and supply, or the
leader’s unique competences;
– democratic integration, which is achieved through collaboration aimed
at process excellence; the effect of integration is stable if collaboration
50 Anna Baraniecka
Manner of Integration Supply chain

Tier 2 Tier 1 Main Direct End-customer
supplier supplier company customer
Pairing of companies for the purpose of integration usually results from good
Company pairs traditions of collaboration and/or strong mutual relations in creating value. Company
pairs are usually made up of direct collaborators (supplier and purchaser). A natural
consequence of this type of integration is the expansion of the partnership idea to other
links in the supply chain, in particular if the positive effects of integration to-date are
visible for both parties
.
Channel
integrator
The integrator’s role comes down to drawing up the supply chain strategy and
encouraging the links in the chain to implement it. The integration leader has ongoing,
appropriate, and constant direct contact with all supply chain participants. The leader
usually has the proper knowledge and resources and is willing to share them with
collaborators, seeing actual benefits, both for the leader and the entire supply chain.

Analytical Tier 2 Tier 1 Main Direct End-customer
optimisation supplier supplier company customer
A/O
This manner of integration is related to the supply chain leader using professional tools
to configure the supply chain’s operation. Under this solution, dedicated groups of
employees handle the modelling and supply chain development processes.
Quasi vertical
integration/
Partial
ownership
Ownership
The leadership and control capacity of the supply chain leader in this method of
integration results from at least partial ownership of links in the supply chain.
Figure 2.1 Ways of undertaking and executing integration activities in the supply
chain
Source: Own study based on Kisperska-Moroń 2000, pp. 116–118.
is based on a well understood partnership that assumes a fair division

of duties, risk and benefits.
The above classification pertains to all other types of classifications, as

activities may be handled prescriptively or democratically regardless of
the direction, scope and manner in which integration is initiated.
2.1.4 Barriers to supply chain process integration

The achievement of full or even partial integration of supply chain proc-
esses in the era of changing market conditions and evolving organisa-
tional management systems appears to be a serious challenge. To assure
the effectiveness of integration initiatives, it is necessary to identify
and avoid so-called supply chain disintegrators, i.e. actions that restrict
the potential of companies to collaborate on their way to excellence.
The most frequently discussed limitations to supply chain integration
include (Narayanan and Raman 2007, pp. 189–190):
– low transparency of the activity of companies in supply chains, which

leads to a lack of confidence and commitment;
– considerable differences in the competences of companies in supply
chain management, which restricts the effectiveness and efficiency of
excellence initiatives and weakens the credibility of weaker partners;
– the lack of a fair division of duties, risk and benefits resulting from
participation in supply chain management, which causes dissatisfac-
tion with effects among actors at levels other than the supply chain
leader, and consequently reduces the confidence and commitment of
most participants.
The aforementioned barriers should be identified and eliminated during

supply chain integration, taking the change management concept into
account. Selected ways of neutralising the limitations of the supply
chain integration process are presented in Table 2.1. Although, as has
been indicated, not all relationships in the supply chain must or may
be based on close collaboration (which means there may be competitive
or even conflicting relationships), it should not be forgotten that skilled
change management in a supply chain – in particular the capacity to
motivate participants, to communicate vision, goals and results, and to
prevent and solve conflicts – are elements that increase the effectiveness
of supply chain management based on process integration.
52 Anna Baraniecka
Table 2.1 Main barriers to the integration of the supply chain, their conse-
quences and methods of elimination
Barriers to supply
chain integration Consequences Methods of eliminating barriers
Poor mutual Limited Supply chain Skilful

visibility of confidence, visualisation management of
collaborators’ lower and mapping, organisational
activities in the commitment analysis and changes
supply chain evaluation dedicated to
of processes the creation
in inter- of high social
organisational and intellectual
projects capital of the
(reference supply chain
models,
supply chain
controlling)
Differences in Low Knowledge
competences of effectiveness management
supply chain links and efficiency in supply chain
of actions (including
in supply database
chain, loss of building,
credibility by educational
weaker supply projects)
chain links
Absence of fair Dissatisfaction Integrated cost
division of with the accounting
responsibilities, effects of and controlling
risk and benefits actions of supply
in supply chain, supply
chain, lower chain strategy
confidence mutually
and designed and
commitment communicated
to all supply
chain links
Source: Own study.
2.2 Concepts, methods and tools supporting supply

chain integration
Supply chain process integration is an initiative that requires a specific

amount of time, considerable commitment from all participants and
their competence. A series of solutions is used during integration, which
may be classed in three groups, i.e.:
● integration concepts;
● integration methods;
● integration tools.
The effectiveness of the solutions specified largely depends on skilful

selection and application, and this is determined by the time, compe-
tences and social capital at hand.
Before an attempt to identify integration-supporting solutions is
made, various categories of solution will be defined. Therefore, a concept
may cover solutions that facilitate the achievement of strategy objec-
tives indicating milestones, principles, procedures, methods, systems of
indicators and supporting tools. For instance, to achieve an objective
consisting in the reduction of supply chain costs, we can use the vendor
managed inventory (VMI) model, which assumes a reduction in inven-
tory and administrative costs related to the inventory control process
of collaborators. Integration methods, on the other hand, are groups of
solutions that are used during the execution of the concept to support
the decision-making process, mainly in the area of the way and the
scope of application of information, resources and infrastructure – for
instance, the method used to determine the maximum inventory level
for supplies in the VMI system, which includes the nature, frequency
and methods for gathering and processing data in the selected inven-
tory control formula. Last group of solutions used during integration is
tools. The tools include universal elements dedicated to supporting the
methods and concepts, which, if need be, can be modified and adapted
to the project. Tools that use the inventory control methods under the
VMI concept may include an ERP-class system with a central database
and electronic data interchange (EDI) interface, or a system of indicators
based on the supply chain reference model (SCOR), which provides a set
of indicators to assess the processes (including their effects).
After this discussion of the practical dimension of supply chain inte-
gration, it may be concluded that at each stage of integration, supporting
concepts, methods and tools are used. The concepts may be adapted
more precisely to the time and area of integration, and the methods and
tools are of a universal nature.
Hence, under internal integration, which is accompanied by the stra-
tegic management process, the concept of integrated planning is used,
inter alia also referred to as sales and operations planning (S&OP), in
order to bond the internal processes. The S&OP-dedicated methods
significant for integration purposes include process mapping, balance
scorecard design or identification, and elimination of conflict over
54 Anna Baraniecka
objectives. In this case, integration may be supported by the informa-

tion system (data collection, processing and exchange) or process cost
account (e.g. activity-based costing).
Many authors and practitioners agree that internal integration mecha-
nisms are much less complex than the integration of supply chain proc-
esses. External integration, often involving the design of a supply chain
strategy, requires the use of concepts that integrate processes covering
many entities. One such concept, sufficient for selective vertical integra-
tion, is the VMI concept, under which procurement is integrated at the
purchaser’s side, and the distribution process is integrated at the suppli-
er’s side. More advanced concepts facilitating full external integration
include collaborative planning, forecasting and replenishment (CPFR)
and efficient consumer response (ECR). Methods used to implement
these integrating concepts include reference models such as the SCOR
model or congruence models (e.g. Fisher’s model). Tools for external
integration comprise ICT systems integrated in the entire supply chain
or cost accounting (e.g. activity-based costing).
In the light of the universality of descriptions dedicated to integration
methods and tools, concepts used in supply chain integration need to be
presented in more detail. Figure 2.2 presents the visualisation of supply
chain areas covered by quoted above solutions.
The development of information and communication technolo-
gies and their universality, availability and relative ease of application
causes most integration processes, including the integrating concepts,
to start with the implementation of integrated ICT systems. Setting
aside the reasons for such implementations, it should be stressed that
they trigger awareness among individual companies of benefits related
to the integration of information flow. Still, ICT integration yields
limited results if it is not accompanied by the integration of objec-
tives and then processes. Therefore, the natural consequence of ICT
systems implementation is the need to eliminate any conflict of objec-
tives in an organisation. The differences in the perception of objectives
impede the efficient and effective use of an organisation’s resources,
cause disruptions and prevent development. Conflicts of objectives
are identified using process improvement concepts (e.g. lean manage-
ment) and other mapping or process visualisation methods. On the
other hand, a conflict of objectives is usually reduced through the
implementation of a development strategy, the operationalisation of
which is based on cascading objectives for all processes or areas of an
organisation’s operation (depending on the company management
approach). The integration of objectives facilitated by an integrated
CPFR, ECR
Supply chain
VMI VMI
S&OP S&OP S&OP
Z M S Z M S Z M S
Supplier Producer Buyer
SCM
Legend:
SCM – Supply Chain Management
S&OP – Sales and Operations Planning
VMI – Vendor Managed Inventory
CPFR – Collaborative Planning, Forecasting and Replenishment
ECR – Efficient Consumer Response
Z – Purchasing in a single company
M – Production (manufacturing) in a single company
S – Sales and distribution in a single company
Figure 2.2 Application of integration solutions in the supply chain

Source: Own study.
system permits other initiatives to be adopted that come down to

collaboration in the implementation of specific processes or measures
in an organisation. Planning is the most often integrated process in an
organisation. Integrated planning is the integration of many diverse
plans related to the flow of products and information by means of
appropriate central coordination and synchronisation of development,
verification, update, and communication of said plans. This plan-
ning category applies most of all to medium-term (e.g. annual) and
56 Anna Baraniecka
short-term (e.g. quarterly, monthly or weekly) plans, as long-term plans

are determined by the company development strategy (Baraniecka
2011a, p. 19). Obviously, it is not only planning that can be integrated;
other processes in an organisation may also be integrated at this stage
of improvement.
2.2.1 S&OP: essence and purpose

S&OP concept integrates internal processes in an organisation. This
concept comes down to the organised and coordinated collaboration of
all parties responsible for demand and supply management (related to
the flow of products and information) in a supply chain under collabo-
rative forecasting and planning, and to assuring systematic, organised,
company-wide control over any and all factors determining the volume
and structure of production, distribution and procurement (Baraniecka
2011b, p. 10). In practice, S&OP takes on the form of regular meetings
of the sales, production and logistics departments, the main purpose
of which is to reduce the negative impact of forecast errors on produc-
tion and logistics costs. S&OP, often referred to as integrated planning,
combines strategic plans with production plans and helps coordinate
many planning measures undertaken in a company, such as marketing,
financial, operational and human resources plans. S&OP is thus a very
effective communication link for the management board to support
many business operation plans (Vollmann, Berry, Whybark and Jacobs
2005, pp. 60–107).
Principles
The effectiveness of S&OP depends on its purpose, something that should
be included in the long-term company development vision relating to
supply chain management. The S&OP implementation process should
involve all operational areas of the company and its effects should be
controlled by top management. The effective introduction of S&OP in
an organisation requires specific measures. S&OP project implementa-
tion is made up of various stages, for example:
– development of a system of measures that assure planning effective-

ness; these measures result from cascading the company’s objectives
onto the purposes of the planning process;
– selection of principles for controlling the finished product inventory;
– preparation of a procedure and/or instructions for integrated sales and
operation planning;
– appointment of an S&OP leader and team;
– Choosing and developing the tool for the collection, processing and
analysis of data for S&OP purposes (e.g. the S&OP matrix).
Benefits
S&OP, effectively implemented, helps eliminate the negative effects of
disintegration in the planning and operational decision-making process.
These negative effects include a conflict of objectives (trade-off) and
reduced efficiency of measures undertaken in the area of marketing and
sales (sales promotion, advertising) and, or perhaps primarily, in the area
of operations (production, transport, storage, inventory control, logistics
customer service, procurement) (Baraniecka 2011b, pp. 156–166). The
introduction of the S&OP procedure helps improve logistics, production,
marketing and sales processes. This is owing not only to the principles
underlying S&OP but also, and above all, to the considerable improve-
ment of social capital at company level gained during the implementa-
tion. The S&OP concept, properly applied and often yielding spectacular
benefits, is an encouragement to further work in the integration of proc-
esses in the entire supply chain.
2.2.2 VMI: essence and purpose

The VMI concept may be seen as a collaboration between the customer
and the supplier that optimises the availability of products through
ongoing replenishment based on information on the current demand,
which helps reduce the costs of both business partners (Hines et al. 2000,
p. 335). When following the principles governing the VMI concept, the
supplier takes responsibility for operational management of the purchas-
er’s inventory and the purchaser is obliged to provide the supplier with
regular information that allows constant product replenishment.
Principles
The VMI’s improvement potential, as is the case with S&OP, results
from the purpose and manner of application. Empirical research (James,
Rich and Francis 1997) shows that two methods of initiating measures
under VMI are used. They are domination and collaboration. The first
method is based largely on the bargaining power of the customer, who
is also the initiator of VMI implementation. The replenishment process
is initiated so as to reduce inventory management costs mainly by
pushing inventories down the supply chain, which, naturally, burdens
the suppliers. These practices contradict the assumptions of coopera-
tion in a supply chain, i.e. partnership, confidence and mutual benefit;
they usually prove unsuccessful for both parties. The cooperation-based
58 Anna Baraniecka
method of VMI initiation follows these rules. In line with this method,
the parties agree on the formulas, procedures and objectives for inven-
tory replenishment.
Benefits
The justified and proper implementation of VMI brings benefits to all
project participants. It is a vital element that assists the promotion of
VMI among supply chain links. The purchaser collaborating with the
supplier in terms of VMI-based inventory replenishment gains, among
other things (Baraniecka 2003, p. 10; Baraniecka 2011b, pp. 156–166):
– a reduction in the inventory level (direct impact on inventory);

– a reduction in administrative costs (e.g. related to generation of
purchase orders);
– increased product availability (hence sales boost);
– a reduction in delivery cycles.
Continuous replenishment of customers’ inventories based on VMI

makes it possible, for instance, for the supplier to:
– limit disruptions in demand and improve knowledge of demand;

– concentrate on end-customer demand;
– reduce transport costs;
– reduce administrative costs;
– optimise the volume of production batches;
– reduce errors;
– increase customer loyalty;
– develop a logistics service that is difficult for competitors to emulate
(hence achieving all the benefits of a unique customer service)
(Kempny 2001, pp. 90–94),
– tighten customer relationships, which facilitates the introduction of
more advanced programmes based on partnership in the supply chain,
e.g. collaborative category management (Stobiński 2002, p. 273).
2.2.3 CPFR: essence and purpose

CPFR is a trade initiative supported by the Voluntary Inter-industry
Commerce Standards Association (VICS). CPFR was created in the
mid-1990s to support the synchronisation of forecasting and planning
between retailers and manufacturers. The integrative nature of this
concept is manifested by the fact that it combines the efforts of retailers

and manufacturers managing supply and demand for the purpose of
collaborative planning that should translate into increased efficiency of
actions (Baraniecka 2005, pp. 91–94).
Principles
CPFR solutions assume tighter collaboration between businesses in
supply chains with regard to demand forecasting, resource planning,
action planning and inventory replenishment decision-making. The
unlimited insight into the demand forecasts of individual links provided
by CPFR facilitates the immediate capturing of major discrepancies; it
helps explain their causes and eliminate errors (Frankel, Goldsby and
Whipple 2002, p. 63). The preliminary agreement and approval by
the partners of deviation standards for individual forecasts so as to
assure the automatic capturing and analysing of actual, major differ-
ences is vital for the success of CPFR-related actions. On account of
these rules of conduct, CPFR may be referred to as an exception-based
management technique (Kurt Salomon Associates 2000, pp. 3–4).
Collaboration in line with CPFR principles takes place on three levels:
planning, forecasting and inventory replenishment. On each level,
the process takes on a specific sequence of actions (Stobiński 2000,
pp. 269–270):
1. agreement on collaboration terms in line with CPFR terms (e.g.

defining the roles of participating companies, appointing people
responsible for process implementation, clarifying desired standards
of efficiency and effectiveness, and determining acceptable deviations
between the forecasts and plans of individual supply chain links);
2. development of common plans for each product category, taking
into account promotion schedules and inventory management
principles;
3. operational cooperation in terms of production, inventory replenish-
ment and sales consisting in (Witkowski 2001, p. 605):
– development, identification and interpretation of differences in
sales forecasts;
– sharing information on inventory replenishment plans along
with the identification and explanation of deviations from order
forecasts;
– deliveries based on actual sales results, in line with the agreed
quality and process efficiency standards.
60 Anna Baraniecka
Benefits
The CPFR concept helps improve inter-organisation collaboration
through joint administration of information and collaborative process
management aimed at reaching mutual benefits for business partners.
The most important positive implications of CPFR in favour of its appli-
cation in the supply chain excellence are presented in Table 2.2.
2.2.4 ECR: essence and purpose

ECR is a modern concept of supply chain excellence based on a part-
nership between chain links consisting in the synchronised manage-
ment of supply and demand using technologies that support the flow
Table 2.2 Selected CPFR benefits
Quality Impact Benefits
Collaborative forecast Any and all changes Elimination of costly

management at each link are errors caused by
immediately included the Forster effect
in forecasts (or acceleration
The collaborators jointly of demand,
draw up forecasts i.e. distortion
of end-purchasers’ of demand
demand. They serve as information in the
grounds for drawing supply chain)
up plans and schedules
and guarantee
compliance
Collaborative plan Closely connects the Category
party selling end-user management
goods (retailer) with strategy is
the party handling the developed, taking
manufacturing process into account the
(manufacturer) improvement of
Key actions are assigned manufacturing
to individual process efficiency
participants The actions
undertaken are
not duplicated or
contradictory
Collaborative and ongoing Permits quick changes in Increase in customer
control of change the inventory level in service level
processes the entire supply chain
Source: Own study based on Frankel, Goldsby and Whipple 2002, p. 63; Knolmayer, Mertens
and Zeier 2002, p. 124.
of products, information and funds to boost supply chain competitive-

ness, maximise benefits for all supply chain links and increase the end-
purchaser’s satisfaction (Baraniecka 2005, p. 22). The ECR concept is
focused on shortening the time and eliminating costs related to key
supply chain processes. The value-adding processes3 in the ECR concept
include delivery of assorted products expected by the customer at the
point of sale, assuring the high availability of the required product
range, communication of the benefits and value of products through
advertising and price incentives, and the development and marketing of
new products to meet the changing needs of purchasers (Kurt Salomon
Associates 1993, p. 29). For each of these processes, a specific element of
the ECR strategy is developed to boost its efficiency and finally increase
customer satisfaction related to the purchase of goods or services. The
elements of the ECR strategy are efficient replenishment of product,
efficient product range management, efficiency promotion and the
marketing of new products (Baraniecka 2005, p. 23).
Principles
All definitions of ECR emphasise two fundamental principles underlying
the concept (Baraniecka 2005, p. 21; Pokusa 1999, p. 26): collaboration
instead of confrontation, and customer orientation. Collaboration is
understood as a far-reaching partnership, both within the own company
and with other entities in supply chain, with the customer as the starting
point and destination of the collaborative actions of partners. Other
principles driving ECR are (Kurt Salomon Associates 1993, p. 13):
– maximisation of consumer added value: constantly striving for maxim-

isation of consumer added value by offering increasingly better prod-
ucts and better availability and simultaneously reducing the entire
supply chain’s costs;
– information efficiency: assuring exact and swift flow of information
in the entire value-adding chain through electronic data exchange
among partners and the use of efficient software in each company;
– improvement of goods flow: the optimisation of goods flow from the
manufacturer to the consumer, assuring their immediate availability
in a specific place and time;
– standardisation of service efficiency measurement: working out an
agreement regarding the methods of measuring the efficiency of the
provision of services to the entire value-adding chain, which helps
synchronise process control and fair division of costs and profits
(Pfohl 1998, p. 12).
62 Anna Baraniecka
Benefits
The benefits of ECR may be looked into on two levels: at the entire
supply chain level, to identify the positive changes and their impact on
competitiveness; and on the single chain link level, including the end-
customer, with reference to the efficiency and effectiveness of actions or
the extent of meeting needs (in the case of the end-purchaser). The most
important effect of ECR implementation for the entire supply chain is
its full integration, understood as adding process integration to organi-
sational and ICT integration. ECR strategy, if effectively and compre-
hensively implemented, brings benefits to all supply chain links. This
fact unquestionably increases the significance and attractiveness of this
strategy in the context of selecting ways to develop the collaboration
between supply chain links. Table 2.3 presents the number of potential
benefits of the application of ECR by individual supply chain links.
Table 2.3 Benefits of ECR implementation for individual supply chain links
Supply chain link Benefits General benefits for all

links
Producer/ • Improving the • Quick response to

Manufacturer synchronisation of consumer needs
production with • Increase in customer
demand service level
• Strengthened brand • Cost reduction
position
• Permanent business
relationships
Merchant (distributor, • Increased consumer • Increased flexibility of
retailer) loyalty operation, increase in
• Better market product and service
orientation quality
• Improved business • More efficient
relationships with inventory
suppliers management
• More efficient use of
assets
Customer • Wider choice and
increased comfort of
purchase
• Fewer product deficits
• Fresher and cheaper
products
Source: Baraniecka 2002, p. 131. Courtesy of the University of Gdańsk Press, Gdańsk, Poland.
The aforementioned concepts dedicated to supply chain process

integration display various levels of difficulty. The ECR concept is
definitely the most demanding solution, which may be why it is not
often implemented and is limited to the leading FMCG (Fast Moving
Consumer Goods) sector supply chain. The S&OP concept seems to be
the least complicated as it basically requires proper and well-organised
communication between employees of specific areas of a company. All
the concepts discussed use specific methods and tools to support inte-
gration, in particular: reference and congruence models, cost control-
ling and accounting, and integrated systems, including in particular
databases and EDI systems. What distinguishes the two above-men-
tioned solutions under the discussed integration concepts is their level
of advancement. And thus, for instance, the efficient implementation
of S&OP requires an ERP-class integrated ICT system; VMI also requires
a data warehouse; and ECR and CPFR, which are more advanced,
need an EDI interface. Along with the growing availability of dedi-
cated solutions, the integration concepts are becoming increasingly
popular, which is why they represent a source of progress in supply
chain management.
2.3 Supply chain maturity models
A model presents the dependence of various factors (actions, resources,

competences) used in a specific manner (scale, time and cost), which,
in practice, result in achieving a specific objective that was designed
in advance (condition). The supply chain maturity model (also referred
to as the proficiency or supply chain integration model) shows which
factors are required and how the relations between them can be used to
achieve the condition of full integration of supply chain processes. As is
true for each journey towards maturity, the journey to full integration
of supply chain processes is also related to many challenges and restric-
tions. Proficiency models should take into account such restrictions,
most of all by indicating the terms and conditions that must be met to
enter the higher stages (levels) of advancement.
The literature on the topic presents a number of supply chain matu-
rity models. Such models most often facilitate the analysis of the status
quo in supply chain processes; they also constitute a source of guidelines
for the improvement of these processes, thus helping in reaching higher
levels of supply chain excellence. Models fulfilling the objectives speci-
fied above include:
64 Anna Baraniecka
– the five-level compass model (Simchi-Levi, Kaminsky and Simchi-Levi

2000);
– the supply chain maturity model of Ch.C. Poirier (Poirier 1999,
2004);
– the supply chain development model of A. T. Kearney (Rutkowski
1999; Witkowski 2003);
– supply chain integration levels, per D. Kempny (Kempny 2001);
– the five gradable forms of company collaboration in a supply chain,
per D. Kisperska-Moroń (Kisperska-Moroń 2000);
– the supply chain proficiency model of A. Baraniecka and B. Rodawski
(Baraniecka and Rodawski 2007a);
– the supply chain evolution model, PRTM/PMG (Ayers 2004).
Regardless of how proficiency criteria are determined, all the above

models present the road to excellence understood as the fulfilment of
supply chain management principles. The levels of excellence most
frequently pertain to selected supply chain processes or resources. Less
often, they relate to conditions that should come with improvements.
Issues related to the circumstances (background) of process and resources
excellence are very important, as the low effectiveness and unsatisfac-
tory efficiency of measures undertaken in this area is often caused by
ignorance on the part of the entities initiating and implementing SCM
principles.
From the perspective of issues raised herein, Ch.C. Poirier’s supply
chain maturity model (also referred to as Poirier’s model) is the most
important. This model, used in business practice, underwent many
transformations; over time, it was adjusted to the changing conditions of
business operation. Poirier’s model, like others, assumes two basic stages
of supply chain excellence, i.e. internal integration, which is carried out
in two stages in a single company, and external integration, comprising
three stages, which assume the participation of collaborators. The last
maturity stage, i.e. joining to form supply networks, is a novelty when
compared with the classic version of Poirier’s model. Its emergence is
related to the promotion of the supply chain management idea and to
the development of supply networks that attract many supply chains,
often individualised in terms of flow strategy. The visualisation of a
supply chain’s growth to maturity is presented in Table 2.4.
As the studies of Poirier’s model show, already the first stage of matu-
rity means the that company is undertaking integrating measures at
the selected processes level, i.e. most often logistics, purchasing and
operations. Owing to the elimination of the conflict of objectives, the
Table 2.4 Supply chain maturity stages according to Ch.C. Poirier
Maturity level I II III IV V

Qualities Enterprise integration Internal supply chain Collaboration with Collaborative supply Supply network
management (corporate selected partners chain management connectivity
excellence) (value adding)
Internal integration External integration
Essence of the stage Purchasing and Internal excellence Network building Leadership in the sector
logistics
Driver Purchasing manager IT manager Business unit leaders Managing team
(operating under
pressure)
Benefits Increase in savings Priority improvements in Resulting from best Resulting from the network, profitability
the chain partnership
Point of focus Inventory, projects, Redesigning processes, Forecasting, planning, Customer, network
logistics, transport, system improvement customer service,
order completion extended enterprise
Tools Teamwork, functional Benchmarking, best Measures, databases, Internet, intranet, shares, IT systems
excellence practices, activity based e-commerce
costing
Area of operation Medium level of the Many levels of the Entire organisation Extended enterprise (new business
organisation organisation ecosystem)
Point of reference Cost data Process map Advance cost models, Demand and supply interrelations
process differentiation
Model None Internal supply chain Extended enterprise Global market
Alliances Vendor consolidation Best partner Formal alliances Joint ventures
Training Team Leadership Partnership Network
Source: Poirier 1998, p. 4; Poirier and Quinn 2004, pp. 24–31. Courtesy of Peerless Media LLC, Framingham, MA, USA.
66 Anna Baraniecka
company gains so-called functional excellence, which is demonstrated

in the implementation of an integrated excellence project, e.g. the
marketing of a new product or the reduction of logistics system costs.
According to Poirier, the integrating initiative is usually taken by func-
tional managers in areas such as logistics and purchasing. The attempt
of this group of employees to reduce the costs of logistics is becoming
a reason for taking active measures. Working in interdisciplinary teams
is a way to carry out these objectives. To improve the effectiveness of
measures aimed at excellence, training initiatives are undertaken at this
stage, mainly to get to know the processes and develop teamwork skills.
Because there is no clearly established model of conduct at the first stage
of integration, team members develop solutions on their own. Although
all measures undertaken are aimed at the internal development of the
company, at this point, first attempts at influencing the suppliers,
which are usually a part of supply consolidation, are made to enhance
the effects. Paradoxically, success at the first stage, usually demonstrated
by the reduction of logistics costs, weakens the need for further excel-
lence and involvement in projects. If a company remains at this level of
development, it may be concluded that the excellence process has been
abandoned. Such abandonment may provoke the loss of any benefits
developed thus far, and may result in increasing opportunistic behav-
iours on the part of collaborators and decreasing power.
The second stage of internal excellence based on Poirier’s model results
from the need to integrate information flows in the entire enterprise
or its units (corporate pattern). This makes ICT managers the change
leaders, and the excellence projects realised most often include the imple-
mentation of computer and information systems. As an outcome of the
introduction of integrated ICT solutions, errors and bureaucracy related
to the flow of goods, information and funds are minimised. Indirectly,
the customer service level improves. Simultaneously, at the discussed
maturity level, measures are undertaken to adjust the processes to meet
changing information flows and requirements. To that end, competi-
tive benchmarking and cost-controlling grounded on activity-based
costing are used. The scale of described projects includes senior manage-
ment in the group of participants, who must evaluate and approve the
objectives, efforts and effects, as well as the executive employees who
are directly involved in the initiatives. Because of the projects carried
out, the enterprise integrates processes internally, which is usually the
target at this maturity level. The effects of the second stage are largely
gained from educational projects aimed at change management skills,
including leadership skills.
Internal excellence, with rising awareness of limitations regarding

further development, encourages companies to take the step – the
breakthrough for the entire supply chain integration process. This step
consists in starting organised collaboration with supply chain links. As
the decisions on collaboration are strategic, the top management and/
or enterprise owners become involved in the excellence initiative. The
pilot implementation of a selected external integration concept such as
VMI is the leading project. At the external third stage of integration, all
employees of collaborating entities are included in the collaboration.
This generates an atmosphere of openness and improves the visibility
of actions, which in turn contributes to the development of the target
model, called ‘the extended enterprise’. Owing to external integration
with selected partners, the company gains more knowledge on flows
outside its system and becomes able to control or even shape them. On
the other hand, the actions within the third level are somewhat limited
by the risk of opportunistic behaviours (lack of confidence) resulting
from different objectives. The presence of a company at the third level
means that it is active in integration attempts. This active approach
assumes the full use of the knowledge, experience and resources of
the developmentally advanced partner in a supply chain. The active
approach may only disappoint in the case of low project efficiency; on
the other hand, it makes it possible to increase competences and create
an image of a modern enterprise.
The fourth stage is defined as cooperation in supply chain manage-
ment. This stage comes down to extending the number of integration
partners and concentrating joint efforts on adding value in the supply
chain. In consequence, all processes (measures) that do not add value
or are not efficient are eliminated. This purpose also requires a specific
recruitment of integration partners, wherein the criteria of assessment
include management competences. Benefits from deeper collaboration
with a larger number of partners with more uniform competence levels
encourages the search for added value in structures consisting of many
supply chains, i.e. in a supply network.
According to Poirier, the structure of such networks proves that the
enterprise and its supply chain entered the highest level, the fifth stage
of integration (maturity), i.e. supply network connectivity. Reaching the
highest maturity level requires that a high priority be given to the supply
chain management concept, which means that the representatives of all
collaborators’ management boards are involved in its implementation.
The mature stage of a supply chain lifecycle requires more advanced
support systems (e.g. modified ERP-class systems facilitating the planning
68 Anna Baraniecka
and implementation of the division of resources, tasks, costs and bene-

fits among the integrated supply chain links). Companies at this supply
chain maturity stage usually demonstrate a pioneering approach resulting
from the search for innovative development methods. Risk related to this
approach is very high, as it often requires the creation of new needs or
behaviours among collaborators who operate in a standard manner, and
it may always fail. However, if well selected and effectively implemented,
this approach guarantees a long-term competitive edge.
According to the research conducted by Poirier in 2004 (Poirier and
Quinn, pp. 24–31) with a sample of 209 enterprises representing 20 diverse
sectors operating in Europe and North America, the integration of supply
chain processes is quite diversified. The maturity level of selected supply
chain processes is presented in Figure 2.5. Poirier’s research also permits
the important conclusion that few enterprises reach the highest maturity
level in terms of supply chain management. Over half of respondents did
not have any strategy dedicated to the supply chain, and only 25 per cent
of them concluded that such a strategy is an integral part of the develop-
ment strategy of a company operating in a supply chain. The most impor-
tant purpose of supply chain management is cost reduction; less often,
companies expect long-term benefits such as an increase in company
value. Poirier made the vital observation that the implementation of ICT
systems precedes the stage of supply chain process proficiency (as opposed
to the theoretical perspective of the model). As the data presented in
Table 2.5 show, the least mature process in the supply chain is the manage-
ment of returns and service, apart from some purely marketing actions,
e.g. product management. The logistics processes, including procurement
and inventory management, are at the highest maturity level. Sales and
marketing and, very important in the SCM concept, forecasting and plan-
ning processes have reached a high maturity level.
When referring to the application of Poirier’s model, one should stress
its considerable contribution to the promotion of the supply chain
management concept, while simultaneously pointing out its limitations
due to the high generality of recommendations and lack of reference to
the diversified conditions of supply chain operation. This is particularly
important if supply chains operate in unfavourable business or social
conditions. In such a situation, the improvement potential of Poirier’s
model and its credibility in terms of application may prove insufficient.
The model of supply chain management proficiency designed
and applied in the research on supply chains by A. Baraniecka and
B. Rodawski (2007a, 2007b) has been developed as a response to the
Table 2.5 Maturity level of selected supply chain processes in Poirier’s model
Maturity level
I & II III IV V
Excellence area Share in %
Logistics 42 39 16 3
Purchasing 42 35 18 5
Inventory management 48 34 13 5
Forecasting and planning 49 36 11 4
Marketing and sales 46 34 17 3
CRM/SRM 52 31 14 3
Product management 55 34 6 5
IT technologies 50 32 11 5
Returns and service 62 29 7 2
Source: Poirier and Quinn 2004, pp. 24–31. Courtesy of Peerless Media LLC, Framingham,
MA, USA.
postulate of business practice related to the need to take into considera-

tion the conditioning of supply chain process integration. The model
is made of two inter-related elements: the process excellence model
and conditioning excellence model. This conditioning has been further
divided, by type, into ‘soft’ conditioning, related to organisational
culture (human, social or intellectual capital), and ‘hard’ conditioning,
i.e. systems and infrastructure to support processes. In both these areas,
the supply chain management proficiency model determines four stages
of proficiency (integration):
1. no integration, wherein there are no signs of supply chain process

integration, neither internal or external;
2. internal integration, wherein actions related to the integration of
companies’ internal processes are visible;
3. selective integration, which involves initiatives assuming the integra-
tion of processes with a selected partner in a supply chain;
4. full integration achieved owing to leadership or partnership in a
supply chain, assuming full integration of processes and the imple-
mentation of SCM principles.
The model presented in Tables 2.6, 2.7 and 2.8 shows how the main
supply chain processes are executed at individual stages and which type
of conditioning (‘soft’ or ‘hard’) is involved in individual proficiency
stages.
Table 2.6 Model of supply chain management proficiency (processes)
Full integration
Selected processes No integration Internal integration Selective integration Leadership Partnership
Forecasting and Separately in each Integrated in the Selected forecasts and Leader responsible Shared forecasting and
planning department company plans co-created / for forecasts, plans; planning
communicated with others try to adjust
strategic partners
Distribution, Decentralised Department of logistics Collaboration with The leader designs the Shared design of
transportation and responsibility, responsible selected partners (e.g. distribution network; the distribution
warehousing objective: cost VMI, 3PL) collaboration within network, cooperation
minimisation, no the network guaranteed by 3PL,
trade-off analysis 4PL
Operations Island – no integration Integration of Production system Production in the chain Actual demand
with procurement procurement and integrated with the is coordinated by coordinates chain
and distribution shipping; lean procurement and production plans of operations
management distribution systems of the leader
practices selected partners
Inventory Decentralised Systemic approach Joint inventory Leader manages Joint inventory
management responsibility; ad hoc to inventory management inventories in the management
approach management in a initiatives with network
company selected partners (VMI,
CPFR)
Supplier relationship None Procedures allowing Integration with The leader integrates Partnership with
management the collection selected suppliers – and develops the suppliers
and processing of supplier development supplies
supplier data programmes
Purchasing Cost reduction, Joint objectives with Assessment of suppliers The leader controls Purchasing jointly
conflicts with other other departments based on quality, purchasing in the coordinated in the
departments (S&OP) exchange of network network
information with
selected suppliers
Source: Baraniecka and Rodawski 2007a, pp. 2–4; Baraniecka and Rodawski 2007b, pp. 2–3; Baraniecka 2011b, pp. 156–66. Courtesy of PMR Ltd. Sp. z o.o.,
Cracow, Poland; and Faculty of Management and Social Communication of the Jagiellonian University, Cracow, Poland.
Table 2.7 ‘Soft’ conditioning of supply chain management proficiency
Full integration
Conditioning No integration Internal integration Selective integration Leadership Partnership
Attitude I have nothing to Joint responsibility for Shared business with Leader is an We are all the
do with it company processes certain suppliers/ example we authors of
purchasers must follow success
Atmosphere Internal conflicts Agreement of common Interest in Accepted Partnership
objectives, feeling of collaboration with domination of
co-responsibility strategic supply chain the leader
links
Supply chain Logistics Top management Function directors Top management Top management
innovation driver (procurement, sales)
Putting pressure Shared inter-department External talks, visits, Regular inter-department meetings,
on other education first joint initiatives trainings, initiatives, staff exchange
Dominating
departments,
relations
suppliers
(purchasers)
Source: Baraniecka and Rodawski 2007a, pp. 2–4; Baraniecka and Rodawski 2007b, pp. 2–3; Baraniecka 2011b, pp. 156–66. Courtesy of PMR Ltd. Sp. z
o.o., Cracow, Poland; and Faculty of Management and Social Communication of the Jagiellonian University, Cracow, Poland.
72 Anna Baraniecka
Table 2.8 ‘Hard’ conditioning of supply chain management proficiency
Full integration
No Internal Selective
Conditioning integration integration integration Leadership Partnership
Costing systems Traditional, Traditional, Shared process ABC ABC

department business costs implemented
budgets plans, by selected
process partners
costs
Organisational Functional Functional/ Matrix/process Diversified in Customised
structure matrix structure the chain to
structure strategy
IT MRP ERP ERP, CRM, ERP, CRM, SRM, APS, data
technologies – SRM, APS warehouses
data (limited),
processing data
warehouses
IT – Intranet Intranet, Intranet, extranet, EDI,
technologies – extranet, integration of IT systems of
information EDI partners
exchange
Source: Baraniecka and Rodawski 2007a, pp. 2–4; Baraniecka and Rodawski 2007b, pp. 2–3;
Baraniecka 2011b, pp. 156–66. Courtesy of PMR Ltd. Sp. z o.o., Cracow, Poland; and Faculty
of Management and Social Communication of the Jagiellonian University, Cracow, Poland.
In the context of the model presented, one can clearly see that the
highest level of supply chain management proficiency is guaranteed by
initiatives based on deeper collaboration. Therefore, the most impor-
tant SCM projects focus on trying to change the nature of collabora-
tors’ contacts from transaction- into relation-oriented contacts and
finally in to relation based on a shared vision of supply chain develop-
ment. Obviously, each stage of supply chain management proficiency is
related to specific profits, both for the company and for its collaborators;
however, due to the fact that effects of some initiatives are visible only
in the long term and related expenditures, one needs to be cautious in
estimating the efficiency of the proficiency process.
The aforementioned supply chain proficiency model may be used by
companies to assess the advancement of the SCM concept in their chains
and to control the collaborators’ advancement. Knowledge in this area
helps considerably in predicting the barriers to and costs of collabora-
tion, in identifying required investments at business partner level and,
most importantly, in selecting the most effective and efficient manner
of collaboration with other supply chain links. The model can be used
to identify the conditions for introducing innovative integration solu-
tions (including S&OP and VMI) in supply chain management. At this
point, it should be stressed that the specified conditions of SCM profi-

ciency are internal, which means that companies can influence and
change them. The selected external conditioning of supply chain profi-
ciency (social capital) is described in Chapter 7. All factors determining
the successful integration are discussed in other publications (Baraniecka
2004, pp. 123–128; Baraniecka 2011c, pp. 147–159; Baraniecka 2011b,
pp. 156–166).
2.4 Results of research
The supply chain maturity research was a computer-assisted tele-

phone interview (CATI) carried out within the preliminary study (see
Introduction). The questionnaire involved establishing whether the
respondent managed a supply chain at all and determining the matu-
rity of the supply chain, and the degree of advancement of the supply
chain management concept. The results of the research conducted by
the authors to determine the maturity of supply chains in Poland are no
surprise. As practice would suggest, the application of the SCM concept
in Poland is not very high. This is proven not only by the fact that
most of the researched entities operate in poorly integrated areas of
Poirier’s model, but also by the limited understanding of the concept,
unambitious objectives or information-related barriers to implementa-
tion. Thus, when asked about supply chain management proficiency, 70
per cent responded that they managed supply chains (Figure 2.3). This
might suggest that this concept is widely used. However, during inter-
views, many respondents asked for a hint regarding what supply chain
management meant. Evidently, this concept is still not widely known or
understood in business practice.
The conclusions presented above are confirmed by the answer to
another question: how do the respondents perceive supply chain
management? Most responses pertained to internal process excellence
or directly (apparently in relation to the very name of the concepts)
to customer supplies. Table 2.9 presents how the researched companies
interpreted the SCM notion.
As to what constitutes the main barrier to supply chain manage-
ment, the respondents most often indicated the wide scale of process
outsourcing (31% of respondents). This may mean that outsourcing
is not only related to the limited influence on the outsourced process
and to the loss of control the company has over that process. Another
significant barrier to supply chain proficiency is limited access to infor-
mation. In the context of the indicated dynamic development of ICT
74 Anna Baraniecka
29%
71%
Yes No
Figure 2.3 Responses to the question: does the company manage the supply
chain?
Source: Own study.
Table 2.9 Responses to the question: how do you understand the supply chain
management notion?
Response Share
Planning and execution of procurement 16%

Planning and execution of distribution 6%
Planning and execution of all supplies 23%
Planning and execution of all flow processes (procurement, 37%
distribution, production)
Planning, execution and control over all company’s and 18%
collaborators’ flow processes, from raw material generation to
consumption centres
Source: Own study.
technologies and improved availability of new ICT systems for the

collection, processing and transfer of data, insufficient information
exchange may result mainly from limited confidence among collabora-
tors and inadequate communication in the supply chain. Interestingly,
the absence or instability of sales forecasts is predominantly indicated

as ‘other reasons’ for difficulties in SCM implementation. This clearly
indicates that there is no internal integration of processes at company
level. The structure of barriers to supply chain management is presented
in Figure 2.4.
Based on the assessment of supply chain maturity, it was determined
that 70 per cent of respondents are at the lowest, the first, level. This
confirms the difficulties in interpretation of the SCM concept indicated
earlier. Only 2 of the 427 researched companies (less than 1%) were at
the fourth level; none of the companies had reached the fifth level.
A certain degree of progress in the integration of the supply chain at
company level in Poland may be proven by the fact that the second
most often achieved level of maturity is the third level, at which the
first external integration initiatives are undertaken (with collaborators).
The scale of these actions is larger than in the case of those dedicated
to internal integration, which occurs at the second stage of integration
19% 18%
10% 14%
8%
31%
No access to information
High business risk (uncertainty)
Large scale of process outsourcing
International scope of business operations
Lack of confidence and involvement
Other
Figure 2.4 Responses to the question: what is the biggest barrier to the imple-
mentation of the supply chain management concept?
Source: Own study.
76 Anna Baraniecka
(11% of respondents are at the third level and 3% at the second level).
The existence of supply chains where integration is at various levels of
advancement in various areas of operation is an important conclusion
from the analyses of supply chain maturity in Poland, determined based
on Poirier’s model. Thus, some respondents represented considerable
diversification of integration activities at the level of their supply chain.
Most often, the integration tendencies could be seen in suppliers’ logis-
tics and process integration areas. To the least extent, they pertained
to collaboration at top management level (business leaders) or to joint
initiatives in distribution channels. This tendency is confirmed by the
answers to the question regarding the identity of the supply chain
management drivers, who are, for the most part, logistics employees,
in particular procurement department staff (93% of respondents). The
initiation and execution of the SCM concept is only the responsibility
of managers in the case of small entities. This, however, results from the
wide scope of activities of the executive staff, which is typical for small
entities with limited human resources. In larger companies, one can
encounter supply chain management initiatives in multi-organisation
teams. It should be stressed, however, that these teams are usually made
up of suppliers’ representatives (which confirms a wider integration in
the upper part of the supply chain). The distribution of responsibility for
supply chain management is presented in Table 2.10.
While using the supply chain management concept, the researched
entities most often expect benefits related to a reduction in operation
costs (as many as 63% of respondents), and only 3 per cent of respond-
ents saw supply chain proficiency and partnership-based collaboration
as sources of competitive advantage. Sixteen per cent of respondents
expected process improvement through internal integration and 18 per
cent expected process excellence (in terms of quality and costs) through
cooperation with collaborators. Figure 2.5 shows the objective of supply
chain management.
Table 2.10 Responses to the question: who is responsible for supply chain
management?
Response Share
Purchasing/Logistics department 93%

ICT department –
Company (unit) manager 4%
Team made of managers of the company and collaborators 3%
Source: Own study.
3%
18%
63%
16%
Cost reduction
Process improvement
Economies of scale and improvement of quality of operation for the company and its partners
Increase in profits and leadership in the sector thanks to active supply chain collaboration
Figure 2.5 Responses to the question: what is the objective of supply chain
management?
Source: Own study.
Table 2.11 Responses to the question: who is involved in supply chain

management?
Response Share
Mainly managers and specialists 57%

Various company levels – directors, managers and employees 29%
The entire company (all employees) 9%
The entire company and collaborators 5%
Source: Own study.
Most often specialists and selected area (process) managers are involved
in the achievement of the objectives. This was confirmed by 57 per cent of
analysed companies. Approximately one-third of respondents extended
the supply chain excellence concept across the entire organisation. On
the other hand, only 5 per cent of respondents stated that the repre-
sentatives of collaborators were involved in the achievement of supply
chain objectives. A lack of involvement of all employees or collaborators
may corroborate earlier conclusions on the concentration on integration
78 Anna Baraniecka
activities in the logistics area. The scale of involvement in the execution

of SCM at the supply chain level is presented in Table 2.11.
The companies researched manage their supply chains through team-
work (50% of respondents) and increasingly precise analysis of cost and
quality data (29% of respondents). It seems promising, from the perspec-
tive of supply chain development in Poland, that a relatively large
group of researched companies uses modern tools for SC management
improvement, e.g. extended databases or the SCOR reference model.
What is also interesting is the fact that these tools are often used by
companies that are not planning external integration and they mainly
serve to improve internal processes. This may indicate greater openness
to new technologies and innovative business solutions. The scope of
application of SCM support tools is presented in Figure 2.6.
The reasons for supply chain excellence and reference points for
projects dedicated to that end usually include process costs, incurred
both in a single company (38% of respondents declared that they
referred to company-wide cost data when making decisions) and in the
entire supply chain (39% of respondents apply cost controlling in the
supply chain). The data presented indicate the growing importance of
control functions in supply chains. Maps of processes, both internal and
8%
13%
50%
29%
Mainly work in a team in the company

Mainly analysis of cost and quality data of the company
Extended databases and reference mobel: SCOR, APICS, other
Databases common for the company and its collaborators, common ICT systems,
reference models used together with collaborators
Figure 2.6 Responses to the question: which tools are used for supply chain
management?
Source: Own study.
flowing through the entire supply chain, are much less popular points
of reference for supply chain excellence activities. The significance of
individual reasons for SCM initiatives is presented in Figure 2.7.
The nature of collaboration with partners is a parameter that deter-
mines supply chain maturity level. Most of the researched organisa-
tions (74%) had already consolidated their suppliers and were initiating
closer collaboration with selected partners. This collaboration pertained
in particular to suppliers. The still low application of SCM among the
analysed companies is confirmed by the limited scale of close collabora-
tion based on strategic alliances (4% of respondents). Vertical alliances
with suppliers or purchasers were the most popular (80% of all initia-
tives), while horizontal alliances with direct competitors were rare (only
10%
38%
39%
13%
Company-wide cost data
Company process maps
Cost controlling in the entire supply chain
Process maps in the entire supply chain, common cost accounting, common
plans
Figure 2.7 Responses to the question: what is the reference point for supply
chain excellence?
Source: Own study.
80 Anna Baraniecka
7%). This may result from the still relatively low level of SCM advance-
ment in Poland, as the potential for collaboration in vertical alliances
has not been exhausted. Research and development objectives were
very rarely achieved in vertical alliances with collaborators (only 15% of
respondents collaborated in the R&D area). The reasons for the lack of
interest in collaboration in this area most often included differences in
competences, lack of confidence and no R&D needs (due to the recon-
structive nature of business operations). The nature of the collaboration
declared by the respondents is presented in Figure 2.8 and the types and
scale of alliances are shown in Table 2.12.
In the context of assessing supply chain maturity in Poland, it is inter-
esting that as many as 58 per cent of respondents felt like supply chain
leaders. In the context of earlier data painting an image of supply chain
maturity, this declaration may not be reflected in reality, and may result
from the need to dominate, or a feeling of being isolated from other
entities in the supply chain. This is confirmed by the fact that over 27
per cent of companies do not know who their supply chain leader is
(Figure 2.9).
4%
22%
74%
Supplier consolidation
Selection of key partners and starting closer collaboration
Aliiances
Figure 2.8 Responses to the question: what is the nature of your collaboration
with your partners?
Source: Own study.
Table 2.12 Responses to the question: what is the nature of your alliances?
Nature of alliances Share
Vertical with supplier(s) or purchaser(s) 80%

Horizontal with other companies at the same level of supply chain 13%
Horizontal with direct competitors 7%
Source: Own study.
Difficult to say 27%
Brand owner 2%
Logistics service provider 1%
Retail stores network 1%
Our purchaser (customer) 6%
Our supplier 5%
Our company 58%
Figure 2.9 Responses to the question: who is the supply chain leader?
Source: Own study.
To sum up, the following conclusions from the research on supply

chain maturity level in Poland should be emphasised:
1. The awareness of the nature and importance of SCM is still low. This
is demonstrated by limitations in the perception of its objectives and
scope and by the conviction of being the supply chain leader, whereas
no coherent strategy or other improvements are in place.
2. Based on the criteria for assessing the supply chain maturity level
proposed in Poirier’s model, it may be concluded that most respond-
ents are at the first stage of development. This does not change the
fact that an increasing number of companies undertake initiatives
extending beyond internal excellence and integrate processes in the
entire supply chain.
82 Anna Baraniecka
3. Logistics processes proved to be the main area of excellence and rele-

vant activities were driven by cost analysis results.
4. Usually, managers involved in logistics processes are involved in inte-
gration. All employees of a company (other areas, such as sales or
R&D) or collaborators rarely participate in SCM projects.
5. Universal access to information has undoubtedly contributed to
more frequent use of modern solutions supporting supply chain
management by companies, e.g. databases and reference models such
as SCOR).
6. The absence of adequate communication and limited trust between
collaborators seem to be the largest barriers to the application of the
SCM concept in Poland. As the results of our research indirectly show,
the relatively low level of competence in SCM demonstrated by Polish
companies also may be a barrier.
During the research on excellence level according to Poirier’s model,

some incoherence in the responses regarding the individual elements of
the model was observed. This indicates either unawareness (unreliable
responses) or uneven development of the SCM concept. For the purposes
of reasoning, it was assumed that the majority of responses given at a
certain stage constitute the result (level of integration). In the event of an
even distribution of responses, the level was referred to as undefined and
an amalgam of levels was shown. The situation described here may mean
that integration between the researched companies and their supply chains
is not controlled and is uneven. The compiled results of the research on
maturity level based on Poirier’s model are presented in Table 2.13.
As presented in the table above, the analysed companies are at
the lowest maturity level in terms of supply chain management. A
certain amount of progress is observed only in the application of tools
supporting the integration initiatives that can also be used for external
improvement (e.g. SCOR). A higher level of advancement was noticed
in terms of collaboration in strategic alliances, although none of the
analysed companies demonstrated the highest level of collaboration, i.e.
alliances in terms of research and development. Although the results
clearly indicate a low level of supply chain maturity in Poland, they
confirm the growing interest in the SCM concept and exceptional open-
ness to new, dedicated solutions. And even if such methods or tools as
SCOR, ERP and EDI systems or activity-based costing are used outside
supply chain integration projects, it may be concluded that their appli-
cation increases the integration competences of Polish companies,
which is a forecast of dynamic and positive change, including advanced
collaboration in supply chains.
Table 2.13 Assessment of supply chain maturity in Poland according to Poirier’s

model (selected areas)
Maturity I II III IV V
level Enterprise Internal Collaboration Collaborative Supply
integration supply chain with selected supply chain network
management partners management connectivity
(corporate
excellence)
Qualities Internal integration External integration
Driver X
Benefits X
Point of X
focus
Tools X
Area of X
operation
Point of X
reference
Alliances X
Source: Own study.
Notes
1. Vertical integration is a company development strategy that means the inclu-
sion of entities related in the manufacturing and/or distribution, sales or
service processes (Pierścionek 1997, p. 218).
2. A vertical merger consists in the voluntary combination of two companies on
the economic path of a product to gain mutual benefits. A vertical acquisi-
tion is the buyout of a company on the neighbouring economic path by a
stronger partner (e.g. a manufacturing company buys out its supplier and/or
distributor) (Pierścionek 1997, p. 301).
3. The added value is defined, for example, as value ascribed to products
resulting from a specific physical process. The notion of added value is widely
discussed in the following publications: T. Levitt, 1969, The Augmented
Product Concept, in: The Marketing Mode: Pathways to Corporate Growth,
New York, McGraw-Hill, as cited in: M.E. Porter, 1992, Strategia konkurencji.
Metody analizy sektorów i konkurentów, Warsaw, PWE, p. 132; Ph. Kotler, 1994,
Marketing. Analiza, planowanie, wdrażanie i kontrola, Warsaw, Gebethner i
Spóka, p. 33; 1998, Terminologia logistyczna. Aneks. Pojęcia i ich definicje,
Poznań, ILiM, p. 116.
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3
Supply Chain Risk
Grażyna Wieteska
3.1 Definition of risk
In recent years, the question of how to ensure process continuity in rela-

tionships between supplier and customer has been getting more atten-
tion in academic discussion and commercial practice. This is due to a
significant increase in levels of risk, in particular in international supply
chains. The main reasons for this increase are the following:
● globalisation, outsourcing and offshoring strategies, which translate

into increasingly complex supply chains due to the diversification of
links involved in the process of the flow of information and goods
and, consequently, heightened uncertainty in relationships between
supplier and purchaser;
● reduction of the supplier base, single sourcing and global sourcing;
● concentration of manufacturing sites and suppliers in a single loca-
tion, central distribution;
● focus on efficiency rather than effectiveness and flexibility (Jüttner,
Peck and Christopher 2003, pp. 197–210);
● new threats, including terrorism (the attack on the World Trade
Center triggered increased attention to the issue of international
security); climate change (Australian Greenhouse Office 2006, p. 16)
(the number of natural disasters has doubled over the last 20 years
(The Center for Research on Environmental Decisions 2008, p. 10));
● dependence of processes on new technologies, the application of
which determines the effectiveness and efficiency of actions taken;
● the financial crisis;
● increased complexity of products;
87
88 Grażyna Wieteska
● use of strategies such as lean manufacturing and just-in-time supply,

aimed at boosting competitiveness, reducing costs, and focusing on
core competences, which simultaneously increase vulnerability to
disruptions (Bosman 2006, pp. 1–10);
● buffer reduction (inventory, time, and production capacity), which
intensifies the impact of negative events on processes of the flow of
goods and information in supply chains;
● the geographical stretch of supply chain structures and extension of
processes (e.g. transport), as well as the need to operate in a changing
macro environment.
Risk can be defined as a chance of danger, damage, loss, injury or any

other undesired consequences (Harland, Brenchley and Walker 2003,
pp. 51–62). We all contend with risk each day – it is inherent in every
aspect of life. Also, entrepreneurs face risks when trying to gain profits,
develop a strong market position and win customers. Every decision and
economic activity is associated with risk of loss. This risk stems from the
existence of various threats.
To understand the nature of risk a term of threat should be explained.
Threat is a source of risk. Threat is a condition in which the event can
but do not have to occur, whereas risk relates to the probability and the
consequences of the potential event and can be measured. A threat is a
condition of danger (Sobol 2002, p. 1220) in which negative effects may
occur, which includes a situation in which an enterprise takes the risk of
failure upon itself. A threat is also called a risk factor or a downside risk.
Depending on the issue being discussed, a threat may be defined in a
number of ways. With regard to occupational health and safety, a threat
is referred to as a hazard, i.e. “any situation, substance, activity, event, or
environment that could potentially cause injury or ill health” (OHSAS
18001:2007). On the other hand, Directive 96/82/EEC On the Control
of Major-accident Hazards Involving Dangerous Substances describes a
threat as an “intrinsic property of a dangerous substance or physical
situation, with a potential for creating damage to human health and/
or the environment”. The Center for Research on the Epidemiology of
Disasters defines a threat as a natural hazard. Thus, it analyses those
aspects related to the occurrence of extreme events, including floods,
earthquakes and strong winds. In the literature on the topic, one encoun-
ters a number of classifications of threats. One of the most popular
classifications is the division into military and non-military threats
(Kwiasowski and Durmała 2005, pp. 27–28). The first group pertains
to breaches of national security. The second group includes political
Supply Chain Risk 89
threats (e.g. infringement of human rights), public security threats (e.g.

crime), economic threats (e.g. inflation, depletion of natural resources,
globalisation), ecological threats (e.g. natural disasters), health threats
(e.g. diseases and epidemics, famine), communication and ICT threats
(e.g. cyber-crimes), social threats (e.g. unemployment) and demographic
threats (e.g. migration, ageing of society).
When operating under conditions of threat, a supply chain is exposed
to various problems, i.e. negative events (Table 3.1). The events which
are connected only with causing losses in supply chains are called
adverse events (Kumar 2011, pp. 131–157). For instance, cooperation
with an uncertain supplier (a threat) means that the purchaser is vulner-
able to many, possibly adverse, events. These events typically include
delayed deliveries and the inadequate technical quality of deliveries. On
the other hand, with each adverse event, the likelihood of its occurrence
can be identified, as well as its potential consequences. Both specified
parameters describe the risk of a specific adverse event.
Risk is the likelihood of failure: an action that may bring about such
consequences (Sobol 2002, p. 887). Risk is defined in many norma-
tive documents, in particular those including standards (Table 3.2).
Definitions of risk combine the four most important components that
need to be taken into account when managing risk. These components
include a potential event, the probability of the event occurring, the
likely consequences, and objectives that may be affected by the event.
Deloach defines business risk as “the level of exposure to uncertain-
ties that the enterprise must understand and effectively manage as it
Table 3.1 The relation between threat, adverse event and risk
Threat Adverse event Risk
Starting cooperation with a Materials Likelihood of

new supplier non-compliant with receiving materials
specification non-compliant with
specification and
potential consequences
of such an event
Non-compliance with OHS Accident at work and Likelihood of an
regulations at production employee injury accident at work and
station X consequences of such
an event
Notes: The risk means L = Likelihood* Consequences, it is a measure concerning adverse
event.
Source: Own study.
Table 3.2 Definitions of risk
Source of definition Definition
ISO/IEC Guide 73:2002. Risk Combination of the probability of an

Management, Vocabulary, Guidelines event and its consequences
for use in Standards
AS/NZS ISO 31000:2009 Risk Effect of uncertainty on objectives
Management – Principles and
Guidelines
The Committee of Sponsoring Possibility that an event will occur and
Organizations, Enterprise Risk adversely affect the achievement of
Management – Integrated objectives
Framework, 2004.
OHSAS 18001:2007 Occupational Risk combines three elements: it starts
Health and Safety Management with a potential event, and then
Standard combines its probability with its
potential severity
BS 25999–2:2007 Specification for Something that can happen and affect
Business Continuity Management the objectives
Source: Own study based on ISO/IEC Guide 73:2002; ISO 31000:2009; The Committee of
Sponsoring Organizations 2004; OHSAS 18001:2007; BS 25999–2:2007.
executes its strategies to achieve its business objectives and create value”
(Diabat, Govindan and Panicker 2012).
The objectives specified above are incorporated in the following four
categories (Committee of Sponsoring Organizations 2004, p. 3):
● strategic – high level, connected with the mission;

● operations – connected with current functioning of the company;
● reporting – connected with the reliability of reports;
● compliance – connected with meeting legal and other regulations.
Supply chain objectives are related to many of the most vital factors
taken into account when thinking about risk. They are the measure-
ments of success in supply chain management. They include such criteria
of assessment as the following: timeliness (the capacity to fulfil orders
within deadline), security of supply (avoiding interruptions and disrup-
tions of the flow of goods and supply of services), quality (achieving
proper quality of products and services), price (lack of price volatility),
costs (associated with procurement, logistics and stock management and
resulting from problems with timeliness, quality or security) and suppli-
er’s support during solving problems with timeliness, quality or security
(Ritchie and Brindley 2009, pp. 18–19). Risk factors may be identified
with respect to such challenges related to supply chain management as

changes in macroeconomic environment efficiency of processes, compli-
ance (with any and all regulations and requirements) and protection of
people and property in the context of crisis and emergency response
(MARSH 2006, p. 4).
There are various categorisations of risk. The most popular in the liter-
ature are presented below. Risk can be divided into two types, depending
on the consequences: speculative and pure risk. The risk accompanying a
decision-making situation is termed speculative risk (dynamic risk, posi-
tive risk, upside risk). Its consequences may be either positive or nega-
tive. It varies over time and is a derivative of economic, technological
and organisational changes (Michalski 1999, pp. 24–25). For instance,
the transfer of a company branch to a developing country (in line with
offshoring) may provide an opportunity to reduce costs, but it may also
be the source of new problems, e.g. a deficit of skilled personnel, uncer-
tain local suppliers, lower quality of products or ineffective communi-
cation. In the event of the latter type of risk, the consequences always
mean a loss for the company. This is the pure risk (or static risk, nega-
tive risk), which is independent of time and covers random events,
e.g. natural or technical. Its consequences may, in particular, affect the
resources of the enterprise, mainly employees (e.g. accidents at work),
technical infrastructure (e.g. failures) and goods (e.g. theft). The defini-
tion of pure risk indicates that it is an underwriting risk (Kaczmarek
2005, p. 56). Speculative risk is mainly related to the management of the
enterprise (e.g. by the supply chain leader) and affects the achievement
of strategic objectives. On the other hand, pure risk occurs during the
day-to-day operation of the supply chain, affecting the achievement of
both operational and strategic objectives.
Decision risk is related to the notion of the propensity to take risk. A
high propensity to accept risk, i.e. love of risk, is related to gambling:
although the probability of a profit is rather faint, the potential profit is
very high. A so-called risk-averse attitude is defined, in contrast, as a low
propensity to take risk, i.e. a preference for decisions that are the most
likely to yield profit (though not the highest) (Bolesta-Kukułka 2000,
pp. 113 and 191). At this point, appetite for risk should be mentioned,
meaning the amount of risk a company or other entity is willing to take
on in pursuit of its mission (The Committee of Sponsoring Organizations
2004, p. 117). The greater the appetite, the higher the risk the company
is willing to take.
Decision-making situations require companies to have reliable infor-
mation (data), knowledge or experience. Decisions may be made under
various conditions. Depending on the capacity for identifying the results

of a decision, three possibilities are defined (Nahotko 2001, pp. 91–95).
The most favourable situation is one that is certain. In such a situation,
available data are reliable and measurable. This guarantees the certainty
of the future scenario. The second is a situation where decisions are made
under conditions of risk, when the data are not complete but the prob-
abilities of specific outcomes are known, e.g. based on statistics, models
and the laws of physics. In recent years, the third situation has been
mentioned more often, i.e. decision making in a situation of uncertainty.
In such a case, not all the consequences of a decision are known. The
probabilities of potential scenarios are not known, either. Uncertainty
means lack of knowledge about all possible future scenarios. It arises
from factors which are impossible to be under total control of what can
have a negative impact on the company (Purdy 2010, pp. 881–886).
The most traditional classification of risk is a division into strategic
and operational risk. The first risk type, related to long-term objectives
of the supply chain and external factors, means the unexpected changes
in key elements of the strategy and the impossibility of putting it into
practice, e.g. emergence of competition, considerable fluctuations in
demand, regulatory changes and a decision to extend the portfolio.
The fundamental types of strategic risk are political, economic, social,
technological, legal and environmental risks – the PESTLE principle
(Ministerstwo Finansów Rzeczypospolitej Polskiej [Ministry of Finance
of the Republic of Poland], p. 23). On the other hand, operational risk
to a supply chain includes legal, professional, physical, contractual,
technological and environmental risks. According to directive 2006/48/
EC of the European Parliament and of the Council of 14 June 2006
relating to the taking-up and pursuit of the business by credit insti-
tutions, operational risk means risk of loss resulting from (Directive
2006/48/EC):
● inadequate or failed internal processes (including instructions, organ-

isation of labour);
● human errors;
● system errors (failures of machinery and equipment, ICT systems);
● external events, i.e. random, mostly natural events;
● non-compliance with legal regulations (legal risk).
We can find many examples of situations in history that are related to

risk taking at the strategic level and examples showing the consequences
of operational risk (Table 3.3).
Table 3.3 Examples of strategic and operational risk
Strategic risk Operational risk
Background: Sara Lee company and Background: explosion of a drilling rig

its branch, Aris Isotoner, yielding in the Gulf of Mexico in 2010.
considerable profits. The branch,
with sales of $220 million, 15% net
profit and high growth, was moved
to a potentially cheaper location.
Result of the decision: 10–20% growth Consequences of the event: a long-

in costs, slower order processing, lasting spill of oil into the Gulf of
drop in the technical quality of Mexico and ensuing environmental
goods, considerable drop in sales. disaster, loss of reputation, financial
penalties, enormous costs of
stopping and removing the results of
the spill.
Corrective measures: in consequence, Corrective measures: contingency
the company was forced to sell the procedures, PR.
branch.
Source: Own study based on Supply Chain Digest 2006, p. 10.
Both situations caused massive losses for the companies. These were not
only financial losses, but also immeasurable losses such as loss of repu-
tation and customer trust. The decision to move the branch proved to
be wrong, as it was ill considered from the point of view of the size
and diversity of associated threats. On the other hand, the oil spill in
the Gulf of Mexico was the direct consequence of the operational risk.
The explosion of the drilling rig was a random event and difficult to
predict, with a scenario that turned out to be dramatic. The preparation
of corrective measures in the event of adverse effects is a very important
element in assuring process continuity in the relationships between the
supplier and purchaser. It provides for resistance (resilience, robustness),
i.e. a company’s capacity to respond to unexpected disruptions and
therefore to assure the proper level of operational process in the supply
chain (Rice 2003, p. 4).
The risk associated with decisions made and actions undertaken by
a company not only pertains to the strategic and operational level and
to financial aspects. It is also necessary to take the following issues
into consideration: compliance (regarding OHS, environmental aspect,
information security or consumer protection) and knowledge manage-
ment (development, protection, dissemination) (AIRMIC/ALARM/IRM:
2002, p. 5).
Among the categorisations of risks, there is also a classification

connected with the operational level in the company. In terms of busi-
ness operation, risk may be divided into manufacturing, commercial
and financial risk (Łuczak 2003, p. 14). These three types of risk may
pose a serious negative impact to the functioning of supply chains
(Table 3.4). Manufacturing risk is associated with the operation of the
company’s manufacturing system. It encompasses risk that may affect
the continuity of the manufacturing process and the quality of prod-
ucts. Property risk belongs to this group. This type of risk covers such
events as the destruction of, theft of or damage to machinery, invento-
ries or products in progress, and the deficit of supplies at system input.
Manufacturing risk also includes personnel risk, related to the availa-
bility of personnel and their expertise and skills. It should also include
downtime risk, including potential environmental losses or penalties
imposed by customers (Kaczmarek 2005, p. 259). In the case of the
destruction of assets, the capacity to hedge against the risk helps reduce
the amount of damage inflicted and decrease vulnerability, defined as “a
weakness in an asset” that “could allow it to be exploited and harmed
by one or more threats” (ISO 27001:2005). Commercial risk pertains to
conditions in which purchase transactions are made, and to any events
that may affect them. Polish law stipulates that commercial risk involves
debtor’s insolvency, default in settling financial liabilities and breach
of an export contract (Rozporządzenie Ministra Finansów [Regulation
by the Minister of Finance] of 7 May 2010). Financial risk means unex-
pected changes in prices, exchange rates or the financial liquidity of
suppliers and customers. It covers market, credit and financial liquidity
risk (Segal 2011, p. 116).
Each adverse effect, e.g. fire in suppliers’ facilities or the bankruptcy
of the main business partner, causes certain consequences and prob-
lems for other links in the supply chain. The effect of the consequences
of risk along the supply chain is defined as disruption. Such a turn of
events is commonly compared to the domino effect. One event trig-
gers another, and the consequence of one event becomes the cause of
another. Disruptions in supply chains are “unplanned events that may
occur in the supply chain which might affect the normal or expected
flow of materials and components” (Svensson 2000, pp. 731–749). An
adverse effect that leads to a long gap in the flow of processes in the
supply chain is a critical disruption of the supply chain. According to
the concept of business continuity management a crisis is described
as “any unplanned event that can cause deaths or significant injuries
to employees, customers or the public; or that can shut down your
Table 3.4 Examples of manufacturing, commercial and financial risk
Manufacturing risk Commercial risk Financial risk
Background: small fire in the Background: epidemic Background: financial

manufacturing site of a caused by bean crisis that started in
supplier to Nokia Corp. and sprouts with the USA in 2007 and
AB L.M Ericsson, caused by dangerous E. Coli called the effectiveness
lightning striking a power bacteria being sold in of risk management by
line. Europe in 2011. financial institutions
into question.
Consequences: due to the Consequences: crisis Consequences: drop
destruction of inventory, along the fruit in timeliness of
neither purchaser received and vegetable payments, global
key manufacturing supply chains, loss increase in the
components. of reputation by number of bankrupt
distributors of fruit businesses, growing
and vegetables in share of debts,
Western Europe, social unrest, loss of
financial losses, credibility, crisis at
panic, drop in the the labour market,
demand for fruit and increase in the prices
vegetables. of raw materials.
For AB L.M Ericsson, this
meant huge financial losses.
This was, inter alia, because
the company ignored the
situation.
Corrective measures: Nokia Corrective measures: Corrective measures:
blocked the available search for the source introduction
microchip reserves and of the problem, of regulatory
production capacity of withdrawing products mechanisms and
other suppliers. Deviation from the market. supervision of
from the single sourcing financial markets.
strategy.
Source: Own study using Chopra and Mohan Man Sodhi 2004, pp. 53–61; Segal 2011, p. 11.
business, disrupt operations, cause physical or environmental damage,

or threaten the facility’s financial standing or public image” (Federal
Emergency Management Association 1993, p. 5).
To sum up, the issue of risk is a wide topic covered by a range of defini-
tions, classifications and associated terms. Clearly, risk leads to various
losses. Hence, risk needs to be effectively managed. To that end, it is
necessary – first – to identify the external and internal sources of risk
(threats) to the supply chain, and then take actions to minimise the risk
of potential adverse events.
3.2 Internal and external sources of risk for supply chains
Supply chain risk can be defined as “any risks for the information,
material and product flows from original supplier to the delivery of the
final product for the end user” (Jüttner, Peck and Christopher 2003,
pp. 197–210).
The most common classification of risk sources for a supply chain is
a division into internal and external sources. The Research at Cranfield
School of Management sponsored by the British Department of Transport
has shown that the most important factors affecting the vulnerability of
supply chains are (Braithwaite 2003, pp. 6–7):
● internal risk factors – processes (disruptions of assets and infrastruc-

ture), controls (problems with procedures, systems, applied rules that
help control the processes); mitigation, i.e. focusing on prevention
rather than continuity plans.
● external risk factors – demand (all disruptions related to the flow
of products, information and money between the customers and
company), supply (all disruptions occurring during cooperation
with suppliers), environmental (external factors, difficult to control,
which may affect the company either directly or indirectly through
the suppliers and purchasers).
In addition to the external (environmental) and internal (organisa-

tional) categories, Jüttner, Peck and Christopher (2003, pp. 197–210)
distinguished a third category related to the operation of the network,
i.e. network risk sources. Tang, on the other hand, divided supply chain
risk into two categories: operational risk and disruption risk, which is
often related to catastrophic results. He indicated that the first group
comprised the uncertainty associated with customer demand, supply
and costs. The second category, on the other hand, encompassed spec-
tacular disruptions caused by natural disasters or man-made disasters
(e.g. floods, terrorist attacks) and factors that arise within the macro
environment (e.g. economic crises, strikes) (Tang 2006, pp. 451–488).
Johnson (2001) points to two types of supply chain risk: product demand
(seasonality, volatility, short product life) and product supply (problems
with logistics and manufacturing capacities or supply disruptions).
Brdulak points out characteristic areas for the external and internal
categories of risk sources. In line with the proposed division, external
risk factors cover four areas. The first encompasses factors from the
macro environment, i.e. the more distant environment. The second area
is the meso environment, which includes the situation in the sector and
competitors. The third and fourth areas comprise, respectively, demand

and supply-related risk. Internal risk, on the other hand, pertains mainly
to changes in the organisation (e.g. of the executive staff, in the structure
of the enterprise, in procedures) and the security aspect of the organisa-
tion’s resources: goods, information, employees and work environment
(Brdulak 2007, pp. 2–7).
The FERMA 2002 Standard (Table 3.5) presents a broad approach to
the sources of risk for an enterprise and its relationships with suppliers
and customers. According to this standard, four risk types may be
distinguished: strategic, operational, financial and hazard risks. Each
risk type has internal and external sources. The specific risk factors may
be internally or externally driven or internally and externally driven at
the same time.
From the perspective of processes carried out by companies in the
supply chain the six areas of risk can be indicated (Spekman and Davis
2004, pp. 414–433). The first three areas pertain to flow processes
carried out in the supply chain: flow of goods, flow of information
and flow of money. The last three areas include ICT systems, relation-
ships with suppliers and aspects of corporate social responsibility. Risk
related to goods is associated with the costs of excessive inventories
and loss or damage of cargo. The information flow process is exposed
to disruptions caused by, e.g., computer viruses or network problems.
Table 3.5 The externally and internally driven factors of strategic, operational,
financial and hazard risks
Externally and
Externally driven Internally driven internally driven
Type of risk factors factors factors
Strategic risk Competition, Research & Mergers &

customer changes, development, Acquisitions
industry changes, intellectual integration
customer demand capital
Operational risk Regulations, culture, Accounting Recruitment,
board composition controls, supply chain
information
systems
Financial risk Interest rates, foreign Liquidity, cash –
exchange, credit flow
Hazard risk Contracts, natural – Public access,
events, suppliers, employees,
environment properties,
products and
services
Source: Own study based on AIRMIC/ALARM/IRM: 2002, p. 3.
Table 3.6 Risks to subchains in a supply chain
Subchains Risks to subchains
Physical subchain Delays, disruptions, supplier capacity constraints,

technological changes, transportation, inventory,
procurement, inflexible capacity, design, poor
quality
Informational subchain Information, security/breakdown risk, forecast risk
Financial subchain Cost/price risk, business risk, fiscal risk, untimely
payments, settlement process disruptions,
volatile oil prices, lack of hedging, investment
risk, unstable pricing, exchange rate risk/
currency ﬂuctuations
Relational subchain Reputational risk, legal risk, lack of trust and
opportunism risk, intellectual property
rights risk, information systems/information
technology outsourcing risk
Source: Own study based on Faisal 2009, pp. 45–52.
On the other hand, the risk inherent in the flow of money pertains
chiefly to untimely payment, hedging or letters of credit. ICT systems
are exposed to cyber attacks, weak firewalls, failures and equipment
theft. Opportunistic behaviours and transaction costs pertain to risk
in relationships with suppliers. The CSR area is associated mainly with
threats to the reputation of the enterprise related to unacceptable prac-
tices (e.g. child labour) that the company or its business partners may
have adopted.
Faisal (2009, pp. 45–52) indicates risk types for each flow process in
the supply chain and for relationships in the supply chain (Table 3.6).
The operation of each subchain is related to typical threats. The flow of
goods and money involves the greatest number of types of risk. It would
not be possible to identify all threats to all supply chains. Similarly, their
priority will vary depending on the situation. Keeping the Pareto prin-
ciple in mind, companies should focus on 20 per cent of key threats, as
they cause 80 per cent of all losses.
Chopra and Mohan Man Sodhi (2004, pp. 53–61) pinpoint the key
categories of risk sources for the supply chain:
● disruptions: natural disaster, labour dispute, supplier bankruptcy,

terrorism, single sourcing;
● delays: high capacity utilisation at supply source, inflexibility of
supply source, poor quality at supply source, excessive handling due
to border crossings or to change in transportation modes;
● system failures: information infrastructure breakdown, system inte-

gration or extensive systems networking, e-commerce;
● inaccurate forecasts: due to: long lead times/seasonality/product
variety/short life cycles; “bullwhip effect”; information distortion
due to sales promotions/lack of supply chain visibility;
● intellectual property: vertical integration of supply chain, global
outsourcing and markets;
● procurement problems: exchange rate risk, single sourcing, industry-
wide capacity utilisation, long-term versus short-term contracts;
● receivables: number of customers, financial strength of customers;
● inventory: rate of product obsolescence, inventory holding cost,
product value, demand and supply uncertainty;
● capacity: cost of capacity, capacity flexibility.
While analysing the supply chain structure, one can see that the
externally and internally driven supply chain risks can be divided as
follows:
1. Internally driven:
● each link – as a source of strategic and operational risk for the
continuity of information, goods and money flow processes;
● dependencies in the relationships between the supplier and
customer;
2. Externally driven:
● closer environment – competitive supply chains;
● more distant environment – macroeconomic factors.
The problems of each participant in the supply chain (regarded as a

specific and defined structure) may affect the business success of coop-
erating parties. The links connecting one to another by flow processes
(the output of the supplier’s processes, e.g. delivery, is the input of the
purchaser’s processes) may cause disruptions along the supply chain
(Figure 3.1).
The partners closest to the company that is the direct source of the
problem are the most exposed to the domino effect. Disruptions may be
caused by a wrong decision or random event of one of the participants
resulting from, e.g., human error or failure of machinery and equip-
ment. The problem of the domino effect is especially escalated if strong
dependencies occur within the supply chain. Dependencies resulting
from cooperation translate into strong relations between resources and
actions, which are the basic components of each relationships between
Adverse event, e.g. interruption of manufacturing
Further links up the chain Further links down the chain

Supplier Purchaser
Late delivery of
production
materials
Output of the Input of the purchaser’s processes

supplier’s processes
Consequences of event disrupting the chain upwards and downwards (domino effect)
Figure 3.1 The disruptive consequences of an adverse event along the supply
chain
Source: Own study.
supplier and purchaser. These dependencies may be understood in two

ways:
● dependency resulting from close cooperation transformed into stra-

tegic partnership, e.g. cooperation between an international manu-
facturer and a supplier of logistics services who services the entire
supply chain structure of the enterprise and receives most of the
transport orders;
● dependency resulting from the asymmetry of power, e.g. a sole local
supplier offering unique resources, or a small company offering its larger
cooperating party the major part of its production capacity for contin-
uous use, which means that the cooperating party is the purchaser of
the majority of goods manufactured by the small company.
It is worth mentioning that the dependencies of supply chains currently

in operation are intensified due to wide application of outsourcing. The
growing degree of complexity of the supply chain translates into prob-
lems with the supervision of suppliers and purchasers, communication
(larger amounts of data to be managed, problems with different ICT
systems, growth in uncertainty resulting from unwillingness to share
information), with maintaining the standardised technical quality of
semi-finished goods, or with the timeliness, synchronisation and collec-
tion of deliveries. On the other hand, dependencies are boosted by
the application of strategies focused on the efficient management of
the supply stream and, in consequence, the reduction in the number

of supply sources and decrease in inventories in some sections of the
supply chain. According to the risk coming from environment, for each
supply chain the source of risk can be another supply chain. This, in
particular, involves situations of:
● new competitors emerging;

● existing competitors starting to manufacture and market an enhanced
product.
At the same time, the macro environment poses a serious threat,

especially to global supply chains. This is particularly experienced
by companies who eagerly use offshoring practices. In international
conditions, the changing environment is a special type of threat,
and includes various legal requirements, fluctuations in exchange
rates, increases in the price of raw materials, cultural differences,
longer distances (hence increase in transport costs) and time differ-
ences. The World Economic Forum (WEF) (2012, pp. 6–7) identified
the following macro risk factors: economic, environmental, geopo-
litical, social and technological. The WEF indicated the following as
presenting the largest global threats in 2011: increasing emission of
greenhouse gases, threats related to ICT systems (failures, data thefts,
cyber terrorism), unbalanced increase in population (and associated
problems of famine or uncontrolled migration), financial crisis and
political conflict. The results of research conducted by AON show that
among the ten major types of global risk, the top two come from the
external environment: economic slowdown and increasing competi-
tion (AON 2011, p. 7).1
While analysing environmental threats, Ernst & Young indicated five
major risk categories that need to be taken into consideration when
attempting to build a sustainable supply chain. These categories include
strategic, compliance, financial, reputational and operational risk (Ernst
& Young 2012, pp. 1–10). A sustainable supply chain is also a secure
chain in terms of the risk of environmental, social and economic disrup-
tions (UN Global Compact Office and Business for Social Responsibility
2010, p. 13).
The sources of risk described are usually interrelated. They strongly influ-
ence one another, intensifying the possible negative outcomes of events
(Table 3.7). In relation to the very diverse and individual (for each supply
chain) internal and external terms of operation, the efficient identifica-
tion of internal and external sources of risk is fundamental to effective
Table 3.7 Example of disruption caused by an external event and wrong

decision
Disruption and its components Description of disruption components
Background Thailand was struck by the worst floods

in 50 years. They affected one-third of
the country, which is one of the largest
exporters of hard drives.
Description of disruption Sites manufacturing hard drives were closed.
Global supply chains experienced a deficit
of the finished product in distribution
channels. The price of hard drives on the
B2B and B2C market went up abruptly
(by almost 100%), in particular affecting
end-customers.
Externally driven risk The flood was an external event for hard
drive supply chains. It was caused by the
unpredictable and threatening forces
of nature. The threat from the macro
environment is beyond the control of
man.
Risk caused by a wrong decision Location of hard drive manufacturers in
Thailand. Concentration of the global
hard drive production in a single
geographical area.
Source: Own study based on Hardy 2012.
information flow. Most importantly: comprehensively recognising threats

is also the first stage in the proper management of supply chain risk.
Note
1. The top ten global threats are: (1) economic slowdown, (2) increasing compe-
tition, (3) damage to reputation/brand, (4) failure to attract or retain top
talent, (5) regulatory/legislative changes, (6) third party liability, (7) injury to
workers, (8) cash flow/liquidity risk, (9) commodity price risk and (10) capital
availability/credit risk. In the same research carried out in 2009 among enter-
prises operating in Poland, the top ten threats were: (1) economic slowdown,
(2) exchange rate fluctuations, (3) commodity price risk, (4) regulatory/legis-
lative changes, (5) increasing competition, (6) contractors – trade receivables,
(7) cash flow/liquidity risk, (8) loss of data, (9) supply chain disruption/inter-
ruption, (10) damage to reputation/brand (Słobosz and Ziomko 2009, p. 18).
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4
Outsourcing and Offshoring as
Factors Increasing Risk in Supply
Chains
Mariusz Szuster
4.1 The essence of outsourcing and offshoring
4.1.1 Outsourcing
Outsourcing involves the sourcing of goods and services, previously
produced by the sourcing organisation, from external suppliers (McIvor
2006, p. 7). The term outsourcing is an abbreviation of ‘outside-resource-
using’, which means the use of external resources to perform tasks that
were traditionally performed in-house. Outsourcing is a concept of organ-
isation management consisting in entrusting tasks to outside compa-
nies, which take on the obligation to perform them. The execution of
this concept leads to resignation from the independent performance of
selected tasks and the entrusting of this to specialised third parties. The
theoretical boundaries of outsourcing range from 0% to 100% and the
upper limit (100%) means the company outsources all operational activi-
ties to third parties and is itself a virtual entity (Rymarczyk 2008, p. 70).
If a company does not outsource anything at all (the lower limit of 0%),
then its operation is fully based on in-house resources (insourcing). A
good example of insourcing is provided by the Ford Motor Company.
When Henry Ford realised how much glass was needed to build his auto-
mobiles, he decided to acquire a glass factory (Tompkins et al. 2005, p. 4).
The traditional business based on own resources allows full control over
processes. Generally, insourcing is perceived as an approach that gives
higher security. In some cases (like described in 4.2.3. the example of
Toshiba) companies relying solely on own resources cannot compete with
organisations that outsource some operations. For example, a planned
expansion may lead to an excessive increase in costs in comparison with
106
Outsourcing and Offshoring 107
the competitive business based on outsourcing (Schniederjans 2005, p. 4).

One of the arguments in favour of outsourcing is that it facilitates access
to specialised personnel and resources. The rationale for outsourcing is
also to exploit external resources, know-how, capabilities, and profes-
sional staff. Outsourcing means that processes required for the operation
of a business are delegated to specialised third parties, who carry them
out more efficiently than would be possible in-house (Brilman 2002,
p. 271). That helps an organisation reduce its operating costs whilst
achieving better performance of its core processes. An outsourcee may be
better prepared for operation in a selected business segment. Thanks to
outsourcing, a company may be capable of faster implementation of new
technology, offering a new product to customers more rapidly or better
coping with sudden changes in demand.
The case against outsourcing is based on arguments such as loss of
management control and lower morale of employees, who will be afraid
of losing their jobs in the future (Schniederjans 2005, p. 4). There is
also a possibility of communication problems during contacts with
an outsourcee. Competitive outsourcing requires a high standard of
management to avoid the pitfalls of transferring critical functionality or
becoming too dependent on an outsourcee for day-to-day performance
of vital business functions (McCarthy and Anagnostou 2004, p. 64).
Despite these reservations, it may be concluded that organisations are
now focusing on their ‘core business’. Everything else is outsourced
(Christopher 1998, p. 15).
4.1.2 Purpose of outsourcing

The experience of companies operating in developed countries shows
that organisations that apply outsourcing-based solutions for the first
time usually do so to reduce costs (McIvor 2006, pp. 9, 21). Often the
purpose is to improve, in a simple way, only one function or activity.
Positive initial effects usually lead to outsourcing other tasks that are
more complex. The essential purposes of outsourcing are:
1. focus on core competence, assuring competitive advantage;

2. reduction of overall investment level and release of investment
capital, which may be focused on key operations;
3. more potential for expansion and development without new invest-
ment expenses;
4. investment risk hedging;
5. transfer of demand uncertainty onto the outsourcee (favourable in
cases of high demand fluctuation);
108 Mariusz Szuster
6. reduction of operating costs (outsourcees may perform tasks more

cheaply by applying, e.g., economies of scale);
7. higher flexibility – in particular in the case of operating in an
industry of fast technology development or frequent changes in
demand structure;
8. greater possibilities to adapt to customer needs;
9. access to knowledge and skills the company does not have;
10. access to advanced and costly technologies the company cannot
acquire on its own or whose purchase is not economically justified;
11. quality improvement owing to higher standards warranted by
outsourcees;
12. greater efficiency in selected areas;
13. removal of troublesome and inconvenient functions;
14. gaining other, originally unplanned, indirect benefits.
During the implementation of outsourcing-based projects, indirect bene-

fits can be yielded (Tompkins et al. 2005, p. 35). Whilst searching for a
provider of a single service, a company may find it possible to use other
services that prove an interesting alternative to solutions applied to-date
(if the outsourcee presents their wide offer, client may realise that it is
possible to solve another problem, which was not the topic of negotia-
tions). Identifying the core competences of a company may present the
functions it performs in a different perspective and help identify the
actual sources of competitive advantage. An additional advantage may
be the development of methods for the assessment of outsourced proc-
esses or functions. Similar tools may be used for the assessment of proc-
esses and functions performed in-house.
4.1.3 Scope of outsourcing

The value, strategic importance and complexity of outsourced functions
have increased considerably over the last dozen or so years. Besides
ancillary, non-value-adding functions such as security, cleaning and
catering, outsourcing is now being used in key processes such as ICT
services, logistics, manufacturing, sales and accounting (McCarthy and
Anagnostou 2004, p. 63). Other outsourced actions include legal and
consulting services, e.g. bookkeeping, personal consultancy, informa-
tion flow management, marketing, and research and development. The
data on costs related to outsourcing for individual types of business show
that the largest share is spent on the outsourcing of logistics (manufac-
turing is the second largest area) (Balakrishnan, Mohan and Seshadri
2008, p. 289). This is the result of visible changes in the methods of

operation of manufacturers over the last dozen or so years.
4.1.4 Differences between outsourcing and offshoring

Despite considerable and explicit differences, one often encounters the
interchangeable use of the terms ‘outsourcing’ and ‘offshoring’ (Puślecki
2008, p. 156). The differences result from the fact that outsourcing
means ordering processes that have, to-date, been performed in-house
from specialised third parties operating on the domestic market. This
term means that manufacturing activities, services or business proc-
esses, in whole or in part, are transferred to another company oper-
ating in the same country. Offshoring means the transfer of orders,
manufacturing, services or general business processes, or part thereof,
abroad (Rybiński 2008, p. 171). This term covers the transfer of organi-
sational functions, in whole or in part, to another country, regardless
of whether the work is being performed in the foreign affiliates of the
same enterprise or in a factory belonging to another (independent)
company (Puślecki 2008, p. 156). Offshoring is based on using another
country’s resources to manufacture goods or provide services that
were previously manufactured or provided in the implementing
company’s country of origin (McIvor 2006, p. 12). For example, the
isolation of cleaning services and transferring them to a third party
is outsourcing. On the other hand, the transfer of the manufacture of
entire products or their components to the company’s affiliate abroad
is offshoring. This type of operation has become increasingly popular
over the last few years. The popularity of this solution results also
from the expected benefits. The research conducted by UNCTAD and
Roland Berger Strategy Consultants shows that 83% of large European
companies positively evaluated the effects of offshoring-based projects
(Outsourcing Magazine 2009).
Offshoring may be carried out by own affiliates abroad, joint-ven-
ture companies or suppliers unrelated to the company (Youngdahl and
Ramaswamy 2008, p. 136).
In consequence, the enterprise has a number of options (Sznajder and
Witek-Hajduk 2009, p. 502):
• performing the functions in own enterprises in the home country;

• ordering the functions from domestic third parties (outsourcing);
• performing the functions in own affiliates of enterprises in
foreign countries (intrafirm offshoring, captive offshoring);
110 Mariusz Szuster
• performing the functions in shared undertakings with foreign

companies (joint-venture offshoring);
• performing the functions by third parties in foreign countries
(offshore outsourcing or offsourcing, which means the practice of
transferring the manufacture of products or provision of services
to an outsourcee abroad who handles the processes in a country
other than the ordering party’s country of operation).
If a company wants to maintain full control over activities carried out

abroad, it transfers the business to a foreign affiliate. The other possi-
bility of performing tasks abroad is the establishment of joint-venture
companies. The last option is international outsourcing, i.e. offshore
outsourcing. Outsourcing can be domestic when the company providing
goods or services is located inside the same country, or it can be inter-
national when the company providing goods or services is outside
the country of a client (Olson and Wu 2011, p. 402). In consequence,
offshore outsourcing is equated with the reallocation of organisational
functions to a different country, combined with the change of internal
organisational control (Puślecki 2008, p. 156). This option is connected
with a higher risk than in case of previous ones.
4.1.5 Purpose of offshoring

There are a number of factors that are taken into account when making
a decision on offshoring. They include (Szuster 2009, p. 463):
• reduction of operating costs (cheaper workforce; lower taxes;

lower costs of leases, energy, transport; lower real estate and
land prices; lower communication tariffs and cheaper means of
production);
• higher professional qualifications of employees abroad – an
opportunity to employ better educated personnel in relatively
low positions;
• closeness of the target market;
• less strict environment protection regulations;
• less strict (or no) labour law regulations;
• closeness to raw material sources.
Particularly in the initial period of implementing solutions based on

offshoring manufacturing operations, the essential goal was to use
the poorly paid workforce to perform simple assembly activities that
mainly required manual labour. This option assumes achieving a cost
advantage by locating the manufacturing operation in low-cost coun-

tries and selling the products in developed countries.
4.1.6 Areas of offshoring application

Offshoring may pertain both to manufacturing and to service provi-
sion. Initially, this type of solution was used mainly by manufacturing
companies that transferred manufacturing operations or selected stages
of production process to countries with a cheap workforce. Whereas the
first wave of outsourcing included manufacturing and assembly, which
required considerable amounts of manual labour, the current wave
covers knowledge-based services and tasks (Youngdahl and Ramaswamy
2008, p. 135).
The offshoring of services has been increasingly popular in recent
years. For instance, in the last decade, in Great Britain the application
of offshoring in manufacturing went up by 35% and in services by 48%
(Gorg, Greenaway and Kneller 2008, p. 43). The average annual increase
in the offshoring of services to emerging countries in the years 1980–2002
was faster than the growth of the overall international trade in services,
and in the years 2003–2008 the annual growth rate was approx. 30%
(Kuźnar 2008, p. 113). In the European Union, mainly back office services
are being offshored, e.g., accounting (57%) and front office services, such
as e.g., call centre (27%) (Kałążna 2008, p. 148). To some extent, this is a
consequence of the development of telecommunications and the exten-
sion of information exchange infrastructure. The internationalisation of
services is facilitated by the internet, which increases the potential to sell
abroad. The areas most often offshored include ICT technologies, adver-
tising and marketing, services for customers of financial institutions, and
the drafting of customer account statements and payrolls (Ellram, Tate and
Billington 2008, p. 149). Despite a strong growth trend in the offshoring of
services, a low share in the entire market is visible (Metters 2009, p. 199).
Services account for approx. 20% of all goods on the international scale,
with 80% of share held by products (Kuźnar 2008, p. 102).
4.2 Application of outsourcing and offshoring in

manufacturing
4.2.1 Outsourcing of manufacturing operations

The implementation of lean manufacturing, just-in-time, and quick
response concepts caused large manufacturing firms to be seen as
too diversified and inflexible to operate efficiently on a dynamically
changing market. The management of many companies concluded that
112 Mariusz Szuster
because of extended and complex structures, their organisations are

too slow to keep up with the changes on the market. In consequence,
manufacturers started to outsource ancillary functions (e.g. transport
or warehousing services) and then others, e.g. individual production
stages. Manufacturers began to utilise the resources of other manufac-
turing organisations (McIvor 2006, p.7). The outsourcing of manufac-
turing operations includes the purchase of semi-finished products or
services, previously performed and produced in-house, from outsour-
cees. This leads to making ‘make or buy’ decisions, i.e. whether to manu-
facture certain elements in-house, purchase them from an outsourcee
or outsource the processing of a certain detail, e.g. cadmium or zinc
plating, polishing. This may cause additional transfers between the
outsourcer and the outsourcee along the line of supplier–manufacturer–
outsourcee–manufacturer–customer. In the case of the outsourcing of
manufacturing operations, solutions may involve:
– processing (e.g. polishing, grinding) of single components of the

finished product;
– manufacture of components (modules) assembled by the ordering
company;
– manufacture of the complete, sales-ready product.
It is often the case in the manufacturing area that quality-critical stages

of production are performed using own resources, while functions
that require unsophisticated work are outsourced. In its production of
motorcycles in Vietnam, Honda decided to outsource some non-core
parts, e.g. attachments and decorative elements, to reduce manufac-
turing costs (Duc Tiep 2007, p. 304). In some cases, all manufacturing
stages are outsourced. Nike sells over 40 million of pairs of shoes a year,
though not one pair is produced in Nike’s own factory (Tompkins et al.
2005, p. 51). Nike uses the global network of manufacturing companies
and outsources the entire manufacturing process. The finished product
(footwear) suppliers have production resources, technology and knowl-
edge at their disposal that the ordering party uses. These suppliers are
close to the core of Nike’s business. This is also how functions regarded
as core processes began to be outsourced. Nike is perceived as the manu-
facturer, but in fact it is not truth. This company is rather the trade mark
owner and coordinator of such processes like research and development,
design, logistics and distribution. Naturally it opens a discussion on what
constitutes the core activity of a manufacturing company. Sometimes
it may be difficult to distinguish core and non-core functions. These
Table 4.1 Core and non-core processes
Primary focus Secondary focus
Core process Things that differentiate Things that need to be done

an organisation in the well but are not visible to
marketplace the customer
Non-core process Things that, if not done Things that need to be
well, can have a negative done but do not have any
impact on manufacturer significant impact on the
performance success of the business
Source: Tompkins et al. 2005, p. 41. Courtesy of Tompkins International, Raleigh, NC, USA.
two kinds of function can be further divided depending on their focus:

primary or secondary (Table 4.1).
A question arises: which functions to keep in-house and which to
outsource? The answer to this question may reveal the benefits that may
be gained from outsourcing manufacturing functions. The outsourcing
of manufacturing helps reduce capital investment. If a company no
longer assembles a particular product, then there is no need to buy or
maintain manufacturing resources. Usually it is also necessary to make
investments in order to modernise the equipment. By outsourcing, the
company could avoid having to make this investment. Re-evaluation of
functions is possible when a function is viewed as difficult to manage
or out of control and the organisation does not want to cope with this
problem. The outsourcing of manufacturing functions facilitates access
to resources that make it possible to manufacture products different
from what is offered as a standard. This is possible thanks to the access
to technology, software and precision equipment a company does not
have and needs to perform a specific task.
4.2.2 Offshoring of manufacturing operations

This type of operation has become increasingly popular over the last
few years. For instance, between 2000 and 2008, in the UK, the applica-
tion of offshoring in manufacturing went up by 35% and in services by
48% (Gorg, Greenaway and Kneller 2008, p. 43). In the most popular
approach, the transfer of manufacturing activities to developing coun-
tries helps reduce costs. When the transfer of the means of production
to other countries has become possible and profitable, many enterprises
decided to change their manufacturing structure. The typical aim was
to win cost advantage by locating the manufacturing operation in low-
cost countries and selling the products in developed countries. This,
114 Mariusz Szuster
however, is not the sole factor. The proper location of business activities
facilitates access to new markets and the adaptation of the product to the
needs of the specific market (and regulations or technical requirements
in force) and to the economic standing of the local customers. It also
helps keep an eye on the situation in the market, practices adopted by
competitors and trends; it also helps speed up the response to changes
in the local market (and its environment). This is particularly impor-
tant given the visible trend towards shortening product life cycles. An
interesting example is Haier, the Chinese manufacturer of household
appliances. The company opened a factory, in March 2000, in Camden
(South Carolina, USA). The company employs American workers and
pays them ten times as much as the workers in China (Corbett 2004,
p. 56), but the two key benefits were closeness to the market and brand
building. The proximity of the market facilitated quick response to orders
placed by American retailers, who keep low inventory and often expect
just-in-time deliveries. Physical presence in a specific country also helps
a company build a positive image, which can develop a positive percep-
tion of its products in the local market.
Transferring manufacturing operations abroad is gradually becoming
a standard. In the globalising economy, companies look for possibili-
ties to manufacture products in various parts of the world. The drive to
optimise actions and reduce costs, which are the strategic goals of many
companies, causes companies to search for ways to boost their competi-
tive advantage. It is often combined with transferring manufacturing
operations to other countries. As a result, purchasing and manufacturing
in other countries have become a standard in the globalising economy.
Production may be moved abroad by copying the entire structure of
manufacturing resources in other countries or by fragmenting opera-
tions in the supply chain (or the manufacturing process) and transferring
selected stages abroad (Luengo and Alvarez 2009, p. 51). An example of
the first approach comes from the airline industry. Airbus had its A320
model assembled in a factory in Tianjin in China (Wall 2009, p. 5). The
assembly line is an almost exact copy of the state-of-the-art Airbus line
in Hamburg. Second approach is met in Polish shoe industry. Coping
with competitors from China and Vietnam, some manufacturers decided
to realise chosen production functions in low-cost countries. It helped
them avoid liquidation of factories.
Recently, there have been signals that not only the cheap workforce,
but increasingly often also access to resources (knowledge, technology,
organisational structure) and markets is becoming a key factor when
making a decision on the location of a business activity. Consumption
in developing countries is growing (Hameri and Hintsa 2009, p. 754).

This translates into location decisions made by manufacturers and local
retailers, such as Tesco, Carrefour and Walmart. The number of invest-
ments targeted at developing countries and carried out to assure prox-
imity to a dynamically developing market is growing. An example is the
development of the automotive market in China, which in 2009 became
the largest automotive market in the world. In 2010, 18.06 million cars
were sold, which was up by 32.4% against 2009 (PAP 2010). That country
became the key source of revenue for global concerns that located their
manufacturing resources there.
From the logistical point of view, the offshoring of manufac-
turing operations requires the redesigning of supply chains to assure
effective management of relations with foreign enterprises. The
supply chain configuration must include the location of finished or
semi-finished product manufacturing sites in relation to the loca-
tion of target markets. First of all, a decision must be made regarding
which part of manufacturing operation should be moved abroad. The
other issue is where to transfer this operation. Decisions relating to the
supply chain include the number and location of production affiliates,
the capacity of each site, the markets to be served by individual facto-
ries, and the selection of suppliers. The trade-off relation between lower
labour costs and a longer lead time or higher transport costs must also
be taken into account. Extra costs related to offshoring also pertain
to the maintenance of higher inventory levels. Offshoring requires a
global purchasing and inventory management policy, the determina-
tion of the degree of centralisation of the purchasing structure, and
a decision at which stage inventories are to be made (raw materials,
semi-finished and finished products). These activities help discount the
advantage obtained in the area of lower labour costs. The new model of
the manufacturing organisation assumes broad possibilities to reduce
costs. This is connected to the economic development of newly indus-
trialised countries and their inclusion in the international division
of workload. Japanese and American companies send technologically
advanced components to China, where iPhones are assembled (Brown
2009, p. 26). The manufacturing cost of the iPhone 4G is USD 6.54,
which accounts for only 1.1% of the retail price (PAP 2010). Apple’s
profit from each sold device exceeds 60%. Hon Hai and Foxconn, a
subsidiary from Hong Kong, which manufacture iPhones and iPads
for Apple, employ approx. 937,000 workers in China (PAP 2010). They
also offer other products (mainly electronic components). Apart from
Apple, they work for, e.g., Dell and Hewlett-Packard.
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4.2.3 Offshore outsourcing

Offshore outsourcing is the practice of using the outsourcee to perform
specific functions in a country other than the one where the goods or
services are currently manufactured or provided (Li et al. 2008, p. 258).
Recently, a growing trend towards the outsourcing of manufacturing
functions to partners abroad has been observed (Hammami, Frein
and Hadj-Alouane 2008, p. 643). This option helps the company in
preparing a quick response to changes in demand. The scope of offshore
outsourcing covers the transfer of isolated processes to be handled by
collaborators operating in different countries and then coordinating
the outsourced functions. An example of the application of solutions
based on offshore outsourcing covers the strategies of ICT companies
(Tompkins et al. 2005, p. 30). When the management boards of Dell
and HP decided to offshore-outsource the production of notebooks to
Singapore-based companies, they incurred much lower manufacturing
costs and, in consequence, could charge lower prices. Toshiba started
losing market share. To stop this process and win its market position
back, Toshiba also transferred the production of notebooks to manufac-
turers in Singapore. These actions are an example of solutions based on
offshore outsourcing, when the individual stages of production may be
separated and located in countries that offer, e.g., a cost advantage. Then
the semi-finished or finished products are shipped to the end customer.
4.3 Outsourcing of logistics functions
The outsourcing of logistics functions means that outsourcees perform

logistics activities which had traditionally been carried out within the
organisation. These functions are performed by the logistics service
provider (also called a 3PL provider), i.e. a specialised outsourcee
handling specific logistics activities. These activities may include the
entire supply chain flow management (manufacturers often want to
collaborate with global logistics service providers, entrusting them
with responsibility for the entire operation) or selected activities in the
process. These selected activities at least include transport and ware-
housing management. As for transport, customers are visibly more inter-
ested in outsourcing logistics activities to one provider only, who would
coordinate all necessary operations. Outsourcing in the area of logistics
services helps gain access to a broad and complex offer, including, e.g.,
the use of various modes of transport or undertaking of various and
specific measures for different products (food, electronics, household
chemicals, precision equipment). Managers of many companies quickly

realise how comfortable it is to be able to transfer the full responsibility
for logistics processes to a third party.
A stimulus to undertake such changes was the emergence of logistics
service providers who not only were able to assure efficient transport, but
also offered to take upon themselves the organisation of the purchasing
or distribution processes. In such cases, a comprehensive service is
provided from the moment of order registration, through the supervi-
sion of performance, up till the conclusion of any potential complaint.
Logistics service providers offer comprehensive services, including the
coordination of purchases, inventory management, labelling, packing
and shipment. Using this option helps reduce costs through the reduc-
tion of own (frequently extensive) logistics departments.
In the second case, of outsourcing of logistics services for selected
functions only, the collaboration is limited to single and separate opera-
tions. The decision to outsource only some logistics operations (and not
the whole package) may be based on two factors:
– feeling of greater confidence thanks to direct contacts, which facilitate

the control and assessment of service level;
– specialisation of the 3PL provider.
The first factor is the feeling of greater confidence and control over
the process results, e.g., from the direct contact with the transport and
logistics service provider. Direct collaboration facilitates control and
assessment of the hauliers and forwarders. It makes it possible to assess
the efficiency and risk for individual activities. It also permits an inde-
pendent review of entities participating in logistics operations, proc-
esses they carry out and procedures they employ. Also, the swiftness of
response to faults and errors may be assessed. Independent identifica-
tion of critical points, selection of indicators and monitoring systems are
possible. The monitoring system feedback makes it possible to identify
areas to be improved and modified and to determine corrective meas-
ures. The purpose is also to assess the difference between the service level
declared by the logistics service provider and the actual level. Often,
in business practice, considerable discrepancies between the expecta-
tions of the ordering parties and the approach of the logistics service
providers are encountered. They usually pertain to the significance of
individual criteria, e.g. the place of functions and processes in the hier-
archy, their weight and their importance. These discrepancies are not
118 Mariusz Szuster
necessarily caused by negligence. They may stem from the fact that the
parameter regarded by the ordering party as key may be perceived by the
logistics service provider, based on previous experience, as of secondary
importance. A disadvantage of such a solution is the fact that inde-
pendent control is very time-consuming. It requires a group of qualified
employees to be involved in the control. This is a persuasive argument
for using the 3PL provider’s comprehensive offer.
The second factor covers the specialisation, skills and experience of the
logistics service provider. As customers require that the offer be adjusted
to the demands of a specific market, increasingly the logistics functions
are outsourced to companies that dedicate their services to a specific
sector. Transport and storage requirements specific to different products
are important (e.g. food, pharmaceuticals, fragile precision equipment).
The specialisation of the logistics services market is usually related to
the specific nature of the industry and typical products, as well as the
need to assure proper storage, transport and cargo handling conditions.
There are industries which require a strictly specialised service, e.g. the
pharmaceutical and medical industries (in some countries the offer
includes radioactive materials logistics). Special offers are made also to
firms operating in the automotive, textile, clothing, fuel, wine, foot-
wear, cosmetics and audio/video and household appliances sectors. The
customer orientation, i.e. an individual approach to customers’ needs,
is what counts. Thanks to learning the specific requirements of the
customers in the given sector, logistics service provider may adjust its
offer to the needs of clients. The specialisation and focus on the given
customer group helps gain a better recognition of their needs and finally
a higher service level. Specialisation applies not only to technical, but
also to legal and administrative aspects, related to the requirement to
adhere to strict regulations or restrictions in trading a specific product
in a given country or community. This requires compliance with other
regulations, e.g. hygiene and safety, which may differ depending on
the country. These requirements are also related to the need to follow
various significant procedures, e.g. procedures applied in the pharma-
ceutical industry regarding pest control methods. Often, it is necessary
to obtain a licence or permit, and the provision of a logistics service
may require the submission of reports to designated state institutions.
The chance that the 3PL provider will develop, implement and test the
required procedures is very low. As a result, specialisation has become
the basis for the strategy of many logistics companies aiming at building
their market position this way. The specific nature of resources at the
disposal of logistics companies is important. They may have specialised
warehouse equipment, loading devices, means of transport and human

resources qualified and experienced in the transport of specific cargo.
Outsourced logistics functions may be divided into two groups:
– those focused on transport (collaboration with forwarders and haul-

iers who plan and coordinate transport);
– those focused on logistics (inventory management, storage, assembly,
packing, quality control, distribution, and purchasing management).
Initially, the main benefits for the companies using the logistics service
providers included cost reduction and capital release. Instead of fixed
costs that the company must cover regardless of its needs, variable
costs were accounted (helping adjust spending to seasonal changes in
demand). The company pays for the order and not for keeping unused
resources. Recently, thanks to logistics service providers, a trend has
emerged to gain competitive advantage, increase service level (through
shortening of delivery and picking times) or increase flexibility. Activities
performed by logistics companies often include value-adding services,
e.g. final assembly, packing, quality control and information services.
For many companies operating in just-in-time mode, the delivery
system is as important as the manufacturing itself. Many manufacturers
and retailers outsource their logistics functions, using only those logis-
tics service providers who presented a properly tailored offer. The offer
meeting the specific customer’s needs helps add value. It is the direct
reason behind the increased popularity of this form of collaboration.
For many companies cooperation with a logistics service provider is the
only way to diversify the distribution strategy or to start to operate on
the foreign markets. It facilitates geographical expansion while main-
taining the desired customer service level. Collaboration with a logistics
service provider does not rely solely on using the provider’s competence,
but also on triggering the development of potential and expecting the
provider’s initiative. For instance, a Danish pump manufacturer that
made logistics its key competence established a joint project with a
logistics service provider. The purpose was to shorten the lead time
when delivering products to Australia, which until then had taken
four months (Halldórsson and Skjøtt-Larsen 2004, pp. 200–201). This
seemed inevitable, mainly due to the need to use sea transport. The
logistics service provider mapped the operations and made an accurate
estimation of process time. It turned out that the problem was not the
transport time, but the entire lead time, which included manufacturing,
packing, consolidation, sea transport (this could not be shortened for
120 Mariusz Szuster
technical reasons), downtimes, activities related to hygiene and safety

requirements – which was important for drinking water pumps (this
function was considerably shortened) – reloading, picking and delivery
to customers. As a result of eliminating some operations and short-
ening others, the lead time was reduced to 51 days (Halldórsson and
Skjøtt-Larsen 2004, pp. 200–201). This is an excellent example of using
the outsourcing partner’s potential to improve the supply chain flow
through the reduction or elimination of unnecessary operations and an
increase in the transparency of flows.
When entering a new market, many manufacturing companies use
the services of the logistics service provider who currently supplies the
customer. For example, to ensure efficient services for automotive compa-
nies expecting transport between Europe and Asia, Schenker established
own affiliates in Singapore, Rotterdam and opened a network of agen-
cies in China (Lemoine and Dagnǽs 2003, p. 222). This is an example of
a situation where the logistics service provider adjusts its structure to the
expectations of industrial companies.
4.4 Risk related to outsourcing and offshoring
4.4.1 Outsourcing risk

In most cases, the decision to outsource a function is strategic. The tradi-
tional working method based on own resources facilitates full control
over the operation. The decision to outsource any function may be
costly and difficult to reverse. There may be the risk of losing control
over the process, risk of excessive dependence on the outsourcee, risk
of losing control over strategic information, risk of conflict between
financial and service level targets (overestimation of rates by outsour-
cees) and risk of lack of coordination between internal and external
processes (Schniederjans 2005, p. 4). The risk of outsourcing pertains to
losing control over the service level and to problems with coordinating
outsourced functions with those performed in-house. There also may be
problems with information flow or deterioration of employee morale
(Schniederjans 2005, p. 4). In many cases, the company gains access
to resources also used by the competitors, which is why the company
cannot gain a competitive advantage.
Outsourcing costs are another issue. If they exceed expectations, the
collaboration may lead to failure. Companies often underestimate the
costs of finding and assessing an outsourcee, or the costs of managing
relationship with the outsourcee and monitoring contract performance
for compliance with the agreement (McIvor 2006, p. 65). Such costs may
considerably affect positive outcomes. In many cases, the detailed esti-

mation of the future costs of a project combined with the implemen-
tation of outsourcing is impossible due to a long-term impact on the
organisation. The cost of the induction of the outsourcee is a hidden
cost. Usually, it takes a few months to introduce the outsourcee fully
into the operation of the company. Negotiation of amendments to the
contract, in the case of a long-term contract (warehousing, distribution)
leads to a change of collaboration terms, which is difficult to put into
practice and complicated. An extreme case is the change of 3PL provider
or resuming the in-house performance of tasks.
The risk of outsourcing logistics operations may also pertain to hidden
costs, excessive dependence on the logistics service provider and loss
of flexibility, threats related to a situation in which the logistics service
provider, satisfied with winning a long-term contract, will not work on
improving the offer (unwillingness of the 3PL provider to adapt to the
new situation) (Sinha et al. 2011, pp. 70–71). From the point of view
of both parties, the relation’s value may be overestimated, an unfa-
vourable contract may be signed, threats may result from the parties’
differing values, and the objectives of the parties may not be committed
to the relation and its development. A conflict between the financial
goals of the outsourcee and the customer service level may occur. Other
risk factors include those ones which are closely related to supply chain
management and logistics. In this case, they are:
– transportation risk;
– poor organisation of deliveries (upstream or downstream) performed
by the logistics service provider;
– errors in the manufacturing process (e.g. in production planning
in terms of quantity and product range, and in the coordination of
manufacturing in different locations);
– information flow (no or wrong information on which decisions are
based, which results in irrational decisions);
– operating activities related to current business (e.g. damage during
handling, reloading).
Transportation risk is first of all related to the physical movement. It is

the basic factor distinguishing this risk type; it poses a threat to the condi-
tion of the cargo. Activities posing a threat also include the following:
exceeding the working time of drivers, reloading operations, packaging,
selection of means of transport, planning cargo space, and proper cargo
placement. During carriage, risk factors may include poor ventilation,
122 Mariusz Szuster
fluctuation of temperature exceeding the acceptable scope, accident and

theft. Companies may also suffer the consequences of errors committed
by the outsourcing partner’s employees (e.g. delivery of goods to the
wrong destination, obtaining incomplete customs documents from the
customer) or failure of the transport means.
4.4.2 Offshoring risk

Offshoring offers new opportunities but also poses risks that are not
entirely recognised, and which may limit the chances for success. Key
factors are uncertainty and the lack of transparency of supply chain flows.
For many manufacturers, offshoring is a step backwards in respect of
product diversification or meeting the customer’s needs. Longer lead times
decrease flexibility. There are technological limitations which prevent the
offshoring of some operations. For that reason, not all companies are
inclined to carry out international projects. Only 8% of UK manufacturers
have subsidiaries in India or China (Gorg, Greenaway and Kneller 2008,
p. 43). Most international outsourcing is carried out in other developed
economies, especially those within the European Union.
The formula of pricing diversification and locating the manufacturing
process in countries offering the lowest costs is not always effective. When
establishing a part of the supply chain in another country, management
may find out that previously effective organisational structures and
procedures may not be effective. Often, speed and quality resulting from
specialisation and innovation are more important. Strategies that are
supposed to be low-cost may prove less effective and more costly than was
initially assumed. The launch and carrying-out of offshoring operations
are usually very expensive. The costs include the services of translators
and agents who organise the initial talks and help reconnoitre the area,
the costs of delegations and trips, the selection of locations and suppliers,
the handling of formalities in the destination country, the investment
itself and the purchase or lease of real estate or premises. All this consti-
tutes a significant entry barrier for small companies and also an obstacle
to the implementation of relatively small projects. Another source of risk
is related to lack of knowledge of the local conditions. The more volatile
the market, the less sense there is in offshoring a specific function due to,
e.g., a longer response period (Ellram, Tate and Billington 2008, p. 154).
The transfer and launch of production in another country is always time-
consuming. Any delay in launching new production may have a negative
impact on market results. Also, the costs related to closing the manufac-
turing site should be taken into account, e.g. severance pay and training
for laid-off employees, which is particularly burdensome (for political
reasons) in the company’s country of origin. It is also difficult to estimate

the time necessary to discontinue production. The announcement of the
closing of the manufacturing site may be met with employee protest
blocking the transfer of production. Sources of unexpected costs may
include defective product handling, transport losses and an unplanned,
extended warehousing period (e.g. when demand is lower than expected).
For some manufacturers in the USA, for example, the location of manu-
facturing operations in China brings cost reduction accounting to as low
as 5–15% (Ferreira and Prokopets 2009, p. 23).
Risk may be incurred if relations between the countries become
strained for some reason (e.g. conflict between Egypt and Algeria in
November 2009, when, after a heated match to qualify for the World
Cup, the offices of Egyptian companies in Algeria were destroyed). For
the sake of safety, confidence and reliability, some companies abandon
such solutions. For instance, the reason for leaving the call centre of
a certain financial institution in Canada instead of moving it to India
was the risk of conflict between India and Pakistan (Ellram, Tate and
Billington 2008, p. 154). Risk also includes the threat of nationalisation
or the introduction of such obstacles that would prevent the business
operating in the given country. Obstacles may take the form of legal
regulations and requirements or hygiene and safety regulations which
will impede or prevent the implementation of the project. Legal and
administrative barriers may also lead to higher costs than originally
assumed. Contract risk is related to operation under different legal
systems. Suppliers from low-cost countries are often less reliable, and
risk related to manufacturing is higher. If the company operating and
registered in a distant (exotic) country breaks the contract principles and
evades payment of compensation, the chances of winning the lawsuit in
this distant country are often negligible.
Exchange rate risk and the increase of salaries in low-cost countries

Recently, savings from offshoring have been dropping. In the years
2005–2008, the Chinese yuan strengthened against the US dollar by
18% and the wages of Chinese workers employed in the production
sector went up by 44% (Ferreira and Prokopets 2009, p. 21). Greater
interest in offshoring of services (call centres) in India translated into an
annual increase in earnings by 10–15% (Metters 2009, p. 205).
Dissatisfaction of customers and loss of reputation

The consequences of offshoring are related to the reduction of product
manufacturing or service provision in the country of origin. As a result
124 Mariusz Szuster
of manufacturing products or providing services abroad, domestic opera-

tions are reduced or liquidated. In 2004, C. Garner estimated that the
number of jobs lost in America at the beginning of the decade totalled
approx. 109,000 a year (Garner 2004, p. 19). Other authors claimed it was
much more. In 2003, it was estimated that as many as 400,000 jobs in the
USA were lost due to offshoring (Metters 2009, p. 199). This translated
into growing disfavour among customers from developed countries.
The growing aversion of customers to offshoring is particularly visible
in times of crisis. Actions like ‘buy American’ show that many American
customers have become anxious about offshoring.
Such factors impede the development of offshoring. Two of them are
predominant. First, factors other than low labour costs may be more
important when making a decision on offshoring. Second, the cost
reduction is usually lower than expected, as it is estimated only on the
basis of the differences in remuneration. Even large differences in remu-
neration do not mean that the actual reduction in cost will be high.
Remuneration is just one of the many cost items. Usually, logistics or
legal service costs are higher (in particular in disputes).
The internationalisation of manufacturing operations connected with
the use of external manufacturing resources located in other countries
often requires the redesign of the supply chain. Such solutions translate
into complexity of the international logistics systems.
4.4.3 International sourcing

The growing scale of difficulty when creating logistics systems is
connected to, e.g., the global sourcing of components and the desire to
gain access to global markets. The transport between distant countries is
more time-consuming and requires more precise coordination than in
the case of small- and medium-distance transport. It is often connected
with the need to combine various modes of transport. Importing compo-
nents, e.g. from China, requires much more effort to agree the details
of the project or order than in the case of local deliveries. Ordering
raw materials and components from suppliers operating in low-cost
countries is also more time-consuming due to the need to overcome
linguistic and cultural barriers. The number of potential critical points
is so high that it requires forcing the suppliers to implement inventory
management, quality control and design and logistics standards. Larger
distances in an international operation lead not only to higher transport
costs and longer lead times, but also to conflicts between the objectives
related to customer service level (keeping high inventory levels to assure
availability) and the objectives related to cost reduction and stability
of operation (reducing the inventory level in all supply chain links)

(Szuster 2010, p. 67).
These factors translate into the growing complexity of logistics
systems. They also affect the risk level. In general, risk level goes up with
(Christopher, Peck and Towill 2006, p. 281):
• increased distance between the elements of the logistics system;

• growth in the number of participants and their dispersion (the
more elements are located in various parts of the world, the larger
the number of risk sources is);
• growing number of activities (e.g., reloading);
• growing complexity;
• growing time pressure, which may make it difficult to assess and
verify the suppliers of goods or services (e.g. logistics services).
In the first point, the larger the distances, the higher the complexity of
processes. Ordering raw materials, semi-finished products and compo-
nents from offshore suppliers is more complicated, and the number of
potential critical points is much higher than in the case of local actions
(Christopher, Peck and Towill 2006, p. 281).
Another factor is the growing number of participants. The higher
it is, the higher the risk of disruptions of the flow between consecu-
tive supply chain links. It turns out that in each international flow
(upstream) from 25 to 30 various entities (business and institutional)
are involved (Hameri and Hintsa 2009, p. 742). Business entities include
suppliers, co-partners, logistics service providers, trade companies, etc.
Institutional entities are customs agencies, tax offices, trade agencies,
import agencies, etc. The number of participants is also affected by the
dispersion of activities realised by members of the logistics system. They
may be concentrated or dispersed across the world. In consequence,
different configurations along the line of suppliers–manufacturers–
sales markets may occur, as well as a different division of tasks between
manufacturing sites of the company. The organisationally extended
supply chains can, in addition, also be dispersed (outsourcing of indi-
vidual phases of operation). In such a case dispersed flows of materials
(instead of a single flow from supplier to manufacturer and finally to
retailer) are also a source of risk.
The need to join system elements scattered across the world translates
into a larger number of shipping, collection and intermediate points
and, as a result, the number of activities (e.g. reloading). This heightens
the risk of damaging or losing the cargo.
126 Mariusz Szuster
It may result from the need to assure proper handling of a specific

(fragile) product (a larger number of handling activities increases the risk
of damage to cargo). These factors translate into the growing complexity
of activities. This complexity may also be caused by legal or administra-
tive barriers (a larger number of required documents increases the risk of
error or omission). Legislative changes (in various countries) often make
the operation of international companies more difficult.
These factors are exacerbated by another one, related to growing time
pressure. At this point, one may ask how the managers of such systems
try to mitigate risk or prevent threats.
4.5 Identifying the major sources of risk in

manufacturing companies –results of research
The purpose of the research was to assess the extent to which risk
management tools were used in selected manufacturing companies.
The research was made up of two stages (see Introduction). In the first
stage of the fundamental study, companies operating in a complex
logistics system were identified. The selection criterion was to pinpoint
companies which outsource manufacturing operations and logistics and
which operate in an international environment. During the first stage
of the fundamental study, which consisted of the identification of risk
sources, the research results were not referenced to supply chain matu-
rity level based on the model of Ch.C. Poirier. This was because the
focus was on the recognition of threats and risks related to companies
using outsourcing or offshoring. If a company uses at least one of these
options, additional sources of risk emerge. Their identification is one of
the targets of the research. On the other hand, taking into account the
supply chain maturity level will be vital at subsequent stages pertaining
to the methods of risk and information management that are employed
by the researched companies.
The first question in the questionnaire pertained to the period
of outsourcing. The distribution of responses from 52 companies
is presented in Figure 4.1. In 96% of cases, it was concluded that the
researched companies had been using this solution for over a year. In
over half of cases, it was more than five years. The next question was
about changes in outsourcing of manufacturing or logistics operations
in terms of quantities of outsourced functions and processes. The chart
presented in Figure 4.2. shows the growth in interest in and application
of this method of running business operation. Companies are searching
for new opportunities to use this form of business organisation.
Less than one year

From one year to five
years
Over five years
Figure 4.1 Period of using outsourcing-based solutions

Source: Own study.
Increased
Decreased
Remained at a similar
level
Figure 4.2 Changes in the scope of outsourcing application over the last few
years
Source: Own study.
Table 4.2 Impact of the outsourcing

decision on company operation
Very high impact 7

High impact 19
Medium impact 19
Low impact 7
No impact 0
Source: Own study.
Table 4.2. shows the distribution of the respondents’ opinions on how

outsourcing affects the operation of companies. In 50% of cases, the
respondents concluded that the influence was high or very high. Only
thirteen per cent of respondents declared that the impact was low. Such
results are not surprising. In the case of outsourcing of such sensitive
business areas as manufacturing or logistics, a natural consequence is a
material change in operation.
The next question regarded threats resulting from outsourcing logis-
tics operations. Problems most frequently arise (Table 4.3) from a low
level of services provided by logistics companies. Another unfavourable
factor is the cost increase and problems in communication with the
128 Mariusz Szuster
Table 4.3 Problems related to outsourcing logistics operations
Low service level 21

Increase in costs or additional fees 16
Problems in communication with the outsourcee 14
Loss or absence of control over outsourced processes 8
Imposing unfavourable solutions by the outsourcee 6
Unclear method of service cost calculation 2
Source: Own study.
Table 4.4 Negative consequences of outsourcing manufacturing operations
Untimely order completion 8

Inadequate quality 8
Higher uncertainty 6
Low competency and/or lack of commitment of the outsourcing 5
partner’s employees
Limited supervision over the outsourced processes 4
Higher costs of business 3
Disclosure of confidential data 1
Using the bargaining power of the outsourcee (e.g. resulting from 0
holding unique resources)
Source: Own study.
outsourcee. Table 4.4 presents the cases related to negative consequences

of outsourcing of manufacturing operations. Questionnaires were filled
out by 16 of the 52 companies (only this many companies declared that
they outsourced manufacturing operations). Responses indicated most
often untimely order completion, the inadequate quality of measures
undertaken by outsourcees higher uncertainty and the low competence
or lack of commitment of outsourcing partner’s employees.
The next part of the questionnaire discussed the threats encountered
in international companies. Twenty-four firms declared that they used
offshoring-based solutions. The questions were about the assessment of
threats on a scale from 1 to 5 (1 being zero and 5 being very high). The
results are presented in Table 4.5. As it turns out, despite claims that
the entire economy is becoming one global village, cultural factors and
linguistic barriers are usually the sources of uncertainty. Further, compli-
cated customs procedures and low competence of foreign employees
were given as significant threats. However, the source of the highest
threat is the administrative aspect, namely the operation of the domestic
and foreign authorities responsible for serving international businesses.
Table 4.5 Threats indicated by companies using offshoring-based solutions (on

a scale from 1 to 5)
Communication problems (cultural and linguistic differences) 3.42

Complicated import/export procedures 3.25
Low competence of foreign employees 3.21
Untimely or incomplete deliveries or inadequate quality 2.71
Changes in the environment (political, legal, economic) 2.62
Higher costs of business 2.27
More difficult supervision over own foreign unit/foreign partner 1.95
Source: Own study.
Table 4.6 Areas of international operation where highest risk has been
identified
Contacts with authorities abroad 3.29

Contacts with domestic authorities with regard to international trade 3.14
New product design and development 3.00
Marketing activities on foreign markets 2.36
Purchasing activities on foreign markets 2.21
Manufacturing abroad 2.14
Distribution on foreign markets 2.06
Source: Own study.
Much lower assessments for international purchasing, manufacturing or

distribution show that companies, regardless of whether they operate
using own resources or collaborate with other entities, are able to develop,
in their opinion, effective procedures which help assure a stable supply
chain flow. External factors prove to be the largest source of threat.
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5
Supply Chain Risk Management
Grażyna Wieteska
5.1 Risk management and risk mitigation methods
Supply chain risk management (SCRM) is based on the same method-

ology as enterprise risk management (ERM). It presents risk manage-
ment as a process composed of a number of stages (AIRMIC/ALARM/
IRM: 2002; COSO 2004; HM Treasury 2004; ISO 31000:2009; Fraser and
Simkins 2010, p. 103):
1. threat identification (related to objectives, values);

2. risk measurement (probability and consequences of an event);
3. risk evaluation (identification of its acceptability);
4. risk treatment (making a decision on how to influence the risk);
5. risk monitoring and control.
The first two stages are called risk analysis and the first three, risk
assessment.
As results of research by the Aberdeen Group show, for the most
part, companies manage risk in order to achieve their financial objec-
tives effectively in conditions of economic instability and in fluctuating
markets (Ismail 2012, p. 2). According to Tang (2006, pp. 451–488),
supply chain risk management may be defined as ‘the management
of supply chain risks through coordination or collaboration among
the supply chain partners so as to ensure profitability and continuity’.
Hallikas et al. (2004, pp. 47–58) point out that SCRM includes a number
of components, risk identification being the top priority. Risk identifica-
tion is followed by risk assessment, which leads to making a decision on
dealing with risk (depending on whether the risk is acceptable or not)
and on solutions related to monitoring risk levels. Zsidisin et al. (as cited
133
in Norrman and Jansson 2004, pp. 434–456) stress the need to carry out
the following measures under SCRM in the context of a process-related
approach to supply chain management:
● identification of flow processes in the supply chain;

● identification of process owners;
● development of process effectiveness indicators;
● identification of threats to individual processes and risk assessment;
● documentation of risk assessment and undertaking of preventive
measures;
● assessment of effects of the measures undertaken;
● improvement and updating of methods used for risk management
purposes.
The identification of sources of risk and the factors elevating the risk
level in the supply chain, and the determination of effects (impact) of
adverse events on the flow processes are essential, as they comprise the
starting point for the selection of risk mitigation strategy (Jüttner, Peck
and Christopher 2003, pp. 197–210). Identified types of risks (supply
risks and environmental risks, process and control risks and demand
risks) and, in consequence, the proposed risk-mitigating measures
depend largely on the industry and type of goods being manufactured,
as well as on the market in which the company and its business part-
ners are operating (Christopher et al. 2011, pp. 67–81), the scope of the
supply chain (e.g. international) and the market for which the goods are
manufactured.
Many methods and techniques can be used to assist threat identifica-
tion and risk analysis (Table 5.1.). They should be selected on the basis
of the type of risk analysed. Also, the nature of risk should be taken
into account: whether it is positive or negative. When assessing risk,
information is of high value. The knowledge and expertise of opera-
tional and top executive staff are the main source of relevant informa-
tion. External statistics also play an important role (the central statistical
office, the national labour inspectorate, the police), as well as historical
data on companies. The same applies to any and all regulations and
requirements.
To measure risk, one must calculate the probability of an event
(L=likelihood) and determine its possible severity (C=consequences) with
respect to defined objectives and values. In the case of pure risk, these
parameters may be determined using various data, mainly statistics, e.g.
the police or central statistical office data. Such data are used, along with
Supply Chain Risk Management 135
Table 5.1 Examples of methods and techniques used for risk identification and
analysis
Risk identification Positive risk Negative risk Positive or

techniques analysis analysis negative
methods and methods and risk analysis
techniques techniques methods and
techniques
Brainstorming, Market surveys, Threat analysis, Dependency
questionnaires, prospecting, fault tree modelling,
business process test analysis, FMEA SWOT
studies, industry marketing, (Failure Mode analysis, ETA
benchmarking, research and & Effects (Event Tree
scenario analysis, development, Analysis) Analysis),
risk assessment business business
workshops, incident impact continuity
investigation, auditing, analysis analysis,
and inspection, HAZOP real option
(HAZard & OPerability modelling,
Studies) statistical
inference,
measures
of central
tendency and
dispersion,
PESTLE
Source: AIRMIC/ALARM/IRM: 2002. Courtesy of airmic, London, UK; alarm, Sidmouth, UK;
The Institute of Risk Management, London, UK, www.theirm.org.
others, by insurance companies. They are also used by enterprises who

that want to estimate the risk levels (sizes). The problem arises if the risk
cannot be precisely expressed in numbers due to the absence of histor-
ical data. In such a case, a subjective estimate is applied, rather than
mathematical probability (Province of British Columbia 2012, p. 13). To
describe risk, the likelihood and consequences are determined, e.g. on a
scale from one to five or ten:
● likelihood: improbable/rare (1), unlikely (2), possible (3), likely (4),

almost certain (5);
● consequences: insignificant (1), minor (2), significant (3), major (4),
catastrophic/severe (5).
This kind of data also supports the description of likelihood as a prob-

ability in percentage terms. Identifying the frequency of events in a
specific period (e.g. day, month, year) is good practice. On the other
Table 5.2 L*C matrix
Score L*C Level of risk

0–5 Low
6–10 Medium
12–16 High
20–25 Extreme
Source: Province of British Columbia 2012, p. 14. Courtesy
of The Province of British Columbia, Victoria, BC,
Canada.
hand, the consequences can have an impact on the operational and

strategic objectives of the supply chain in terms of such effects as the
following: financial losses, reputational impact, and impact on the
environment, health and lives of employees. Depending on the type of
event, one may face low or high losses. The probability will affect the
total losses related to a specific event at a given time. The assessment of
both L and C must inform an evaluation aimed at assessing the capacity
to accept risk.
When evaluating the risk of a specific event, it is good practice to work
up an L*C matrix (Table 5.2). The matrix offers a general view of the level
of risk for a specific event; this provides a starting point for discussing
how acceptable some risk may be. The L*C score may be accepted,
although either the L or C may also be rejected. In the latter case, the
background of the situation becomes extremely important The outcome
of a risk evaluation is determined by various factors. These include legal
regulations, customer requirements, technical standards requirements
and organisational standards as defined for the supply chain.
When determining supply chain risk level, one should consider
the following factors: the type of supplier (for example, key or crit-
ical), the extent of security threats, uncertainty in relationship with
suppliers (the buyer’s experience is the source for this information) and
the complexity of product and technology (Giunipero and Eltantawy
2004, pp. 698–713). Risk may be acceptable if its value has not been
deemed high during measurement or if the risk has been mitigated, after
adopting specific measures, to an acceptable level. Supply chain risk is
often accepted unknowingly, due to the absence of a risk management
process and proper awareness. An excessive appetite for risk can result
in accepting dangerous, future scenarios. An example for such situation
is the reduction in the design and testing period of a product which
may in turn be related to the risk of launching an unsafe product and
at the same time potential harm to the consumers. An unacceptable
supply chain risk level should be addressed and reduced. There are many
methods for treating supply chain risks with the aim of mitigating them
(Wieteska 2011b, pp. 40–44).
The simplest method for risk treatment is risk avoidance, i.e. not
making decisions or refraining from taking action in conditions of threat
(Table 5.3). This may not yield any benefit. Refraining from making a
decision can also be a form of risk. Another method is attempting to
influence the probability or outcome of an event. This is one of the most
rational methods of risk treatment, as it permits effective risk control
and monitoring. Exerting an influence on probability means avoiding
adverse events, i.e. actively taking preventive measures. This often
involves high costs, which should be set against the costs of potential
losses following an event. The same applies to the effort to mitigate the
consequences of an event. These types of action may chiefly be related
to the issue of protecting goods and people.
Until the mid-twentieth century, the risk management meant insur-
ance coverage. Only later did companies begin paying attention to
managing risk that was not amenable to insurance. This new approach
recognised the need to manage risk in the enterprise and its supply
chain more comprehensively. Even so, the transfer of risk through
the use of insurance is still a basic method of risk treatment today,
Table 5.3 Examples of the application of supply chain risk treatment methods
Supply chain risk treatment method Example of application

Acceptance Reduction of product design time
Avoidance Refraining from cooperation with an
uncertain supplier
Reduction of probability of an event Preliminary assessment of the
supplier, supplier development
programmes
Reduction of consequences of an event Introduction of cargo protection
procedures
Transfer Insurance, outsourcing, offshoring,
INCOTERMS
Diversification Having at least two manufacturing
sites, which permits the shifting
of orders, preventing the
concentration of suppliers/sites in
one location
Responsiveness Development of emergency
procedures in case of, e.g., a fire or
a major failure
Source: Own study.
in particular in the face of losses related to pure risk. Under current

conditions of operation, however, relying solely on this approach to
risk management is not wise. Supply chains, which compete in terms
of time, flexibility and agility, should be oriented to preventing disrup-
tions in process flows rather than to minimising losses through insur-
ance. This is all the more true because losses related to each random
event in a supply chain are not only connected with countable losses
(physical damage, penalties imposed by customers) but also with conse-
quences that are difficult to predict and measure. Uncountable losses
include loss of reputation and confidence of business partners, and loss
of customers. These losses are exacerbated by the uncertainty resulting
from the domino effect in a supply chain. Outsourcing is also a type
of transfer related to the movement of supply chain risk. It is effective
when a link of the chain to which the risk is being transferred handles
risk better than the customer.
Diversification is a common risk treatment method; it is understood
as differentiation and multiplication of the following: suppliers, prod-
ucts, locations. Such measures are applied in supply chains not only
in terms of risk management. The supply chain configuration also has
strategic importance and, as such, is a foundation for building its struc-
ture. International companies may use various conditions and places
of operation; this gives them more diversification potential. In this
case, globalisation presents an opportunity to reduce supply chain risk,
although it is also a major source of risk.
So-called responsiveness is the last method used in supply chains
for handling risk. It usually pertains to the occurrence of threats to the
safety of human life and health and the environment. These are basi-
cally emergency/contingency plans, which must be implemented under
the binding legal regulations. Thus, they are limited to select emergen-
cies in the supply chain, the removal of day-to-day obstacles, and the
damage they cause.
Tang showed that supply chain risk can be treated through mitiga-
tion, using strategic and tactical plans (Table 5.4). This type of impact
on risk is associated with the business continuity management (BCM)
concept – see Section 5.2, which includes the contingency plans devel-
oped at operational level.
Supply chain risk mitigation is supported by such areas as product
management, supply and demand management, and supply chain
management. Each area makes applying methods on the strategic and
tactical level possible. Risk can be mitigated by implementing the avoid-
ance, control, cooperation and flexibility strategy (Jüttner, Peck and
Table 5.4 Mitigation of supply chain risk with strategic and tactical plans
Source of risk mitigation plans
Supply Demand Product Information

management management management management
Strategic Supply network Product rollovers Product variety Supply chain visibility
plans design and product
pricing
Tactical Supplier Shifting demand Postponement Information sharing,
plans selection, across time, and process vendor-managed
supplier order markets, and sequencing inventory,
allocation products collaborative
and supply planning, forecasting
contracts and replenishment
Source: Tang 2006, pp. 451–488. Courtesy of Elsevier Inc, Philadelphia, PA, USA.
Christopher 2003, pp. 197–210). Avoidance means, e.g., withdrawal

from the market or giving up the manufacturing of a specific product.
Control may be exercised through vertical integration or by maintaining
an inventory buffer and manufacturing/transport/storage process
capacity. Cooperation allows an security risk due to increased visibility
and sharing of information. To improve supply chain flexibility, post-
ponement and multi-sourcing strategies may be used. Wieland and
Wallenburg (2012, pp. 887–905) point out that supplier risk may be
mitigated by boosting the robustness of the supply chain (in line with
the BCM concept); on the other hand, customer risk may be mitigated
by adopting an agile strategy.
At this point, it should be stressed that there are various systemic tools
permitting the assessment and mitigation of supply chain risk. These
include the organisational standards associated with quality manage-
ment (ISO 9001), environment (ISO 14001) and occupational health
and safety (OHSAS/PN-N 18001) (Wieteska 2012a, pp. 139–159), which
support the reduction of risk in relations with suppliers. For instance,
one of the quality principles encourages building lasting relationships
with suppliers (the principle of mutually beneficial relationships with
suppliers). The ISO 9001 standard covers requirements regarding coop-
eration with suppliers and purchasing, and refers to the entire internal
value chain of each organisation. Environmental standards reduce the
negative impact on the environment (environmental aspect) and OHS
standards are aimed at reducing occupational risk.
Similarly, operational improvement tools are significant in reducing
operational risk: 5S, kaizen, Total Productive Maintenance, or the six-
sigma method.
What is equally important in identifying threats and mitigating risk

is building relationships between supplier and purchaser based on trust,
as these provide the grounds for solving problems, as well as improving
relationships using an audit and supplier development programme.
The last stage in risk management is control and monitoring.
Monitoring, i.e. the tracking of risk, is an ongoing assessment of the
effectiveness of actions aimed at reducing supply chain risk. This is
the foundation of regular risk analysis and evaluation (Department of
Defence 2006, p. 34). Any key risk indicators may be used to monitor
risk. Depending on the type of risk, they may indicate, e.g., produc-
tion downtime over 24 hours or the percentage of defective products.
Risk control, on the other hand, determines the implementation of
risk-reducing measures through the development of proper mechanisms
(Figure 5.1). Control measures make certain that the risk-mitigating
measures are carried out as planned and in line with the schedule. Most
of all, they mean the preparation and implementation of policies and
procedures (COSO 2004, pp. 61–66).
P.R. Kleindorfer and G.H. Saad (2005, pp. 53–68) defined the most
important components of the foundation underlying effective supply
chain risk management. Any enterprise that sees an issue of risk manage-
ment in its supply chain should be the first to initiate relevant discus-
sion. When managing risk, it is better to concentrate on prevention than
response. It is also worth diversifying, taking into account the location
of sites, number of supply sources, logistics potential, and operational
modes. What is equally important, in particular while making supply
chains lean and concentrating on their effectiveness, is to structure the
response to potential adverse events so as to maintain the continuity of
flow of goods and information. In this case, emergency management
is often insufficient. The flexibility and agility of the supply chain is
supported by active sharing of data and information, cooperation, coor-
dination and collaboration in risk management. The same applies to
the implementation of business excellence tools. The ISO 31000:2009
standard shows that risk management should be based on a number of
Adverse Risk mitigating Monitoring: development of an Control: checking whether

events: measure: supplier indicator, monitoring of programmes are carried out
untimely development deliveries, assessment of and each delivery is
deliveries programmes supplier timeliness monitored
Figure 5.1 Monitoring and control of adverse event risk: untimely deliveries
Source: Own study.
principles. The following principles may be particularly referred to the

operation of supply chains:
● Risk management creates value. The primary objective of supply chain

management is adding customer value. Risk management helps to
protect this value and to create it efficiently and effectively.
● Risk management is an integral part of an organisational process. Risk
management should be an element of goods and information flow
process management in a supply chain.
● Risk management is part of decision making. Supply chain management
covers many decisions that should take the aspects of risk into account
in order to assure the security and continuity of flow processes.
● Risk management explicitly addresses uncertainty. International supply
chains (including the use of offshoring) and cooperation in rela-
tionships between supplier and purchaser (including the use of
outsourcing) constitute a particular source of uncertainty for the
supply chain. Hence, the management of cooperation in face of
globalisation have become inherent elements of supply network
management.
● Risk management is based on the best available information. Information
flow is one of the most important processes in a supply chain. The
availability of data and sharing of information and knowledge in
cooperation between partners helps minimise supply chain risk.
● Risk management takes human and cultural factors into account.
International supply chains in particular require the analysis of
human and cultural factors.
● Risk management is dynamic, iterative and responsive to change. Variable
conditions of supply chain operation and diversity of participants
translate into the need to improve supply chain risk management
constantly and to treat it as a repeating process, which will help adapt
to changes and respond quickly to disruptions.
Mature risk management should also take the aspects of supply chains’
responsibility into account in social and environmental terms. At the
same time, this type of management means the conscious identifica-
tion and evaluation of risk, noticing the dependencies between risks and
potential scenarios, concentration on transparent communication on risk
in the whole company and in the supply chain (Deloitte 2011, p. 10).
Undoubtedly, risk management requires top executives and opera-
tional staff to have considerable expertise in supply chain manage-
ment. Therefore, the prerequisite elements for effective SCRM include
information and experience. They reduce uncertainty and contribute

to the comprehensive identification of threats and to making good
decisions on risk treatment. In practice, an increased interest has been
observed in reporting the risk companies face to stakeholders (ICAEW
2011, p. 4). Risk management must be a process carried out regularly,
supported by communication with the environment, the organisational
culture and a philosophy of continuous improvement.
5.2 Security and business continuity management

in the supply chain
5.2.1 Supply chain security management

Supply chain risk management (SCRM) is supported by two concepts with
supply chain security management (SCSM) and the business continuity
management (BCM). All three concepts – i.e. SCRM, SCSM and BCM –
are based on risk analysis and constitute a comprehensive approach to
the assessment of, reducing of and response to various threats to supply
chains (Wieteska 2012b).
Security and business continuity management are two major pillars of
ERM. The issue of security in ERM covers the following aspects (Province
of British Columbia 2012, p. 11):
• ICT security;
• information security;
• physical security;
• personnel security.
Supply network security covers two areas: physical security and digital
security (MIT Center for Transportation and Logistics 2003, pp. 28–29).
Supply chain security management treats security as the protection of
any assets in the supply chain (technical infrastructure, plant, infor-
mation, personnel, product), including its effectiveness and efficiency
(William, Leug and LeMay 2008, pp. 254–258). In global conditions, it
requires the involvement of many entities, not only private, but also
public and government-operated. SCSM is a collection of procedures
and policies developed to protect assets against such threats as damage,
theft, terrorism and smuggling (Closs and McGarrell 2004, p. 8). Supply
chain security is an area that is widely covered in the literature. It has
been discussed in two groups of international organisation standards:
ISO/IEC 27000 (information security management) and ISO 28000
(security management for the supply chain). The primary objective of
information security management is to ‘protect and preserve informa-

tion, including such qualities as confidentiality, integrity, authenticity,
availability, and reliability’ (ISO/IEC 27001:2005).
The issue of information security is particularly important for the
supply chain, as the flow of information is one of the three major proc-
esses carried out therein. A disruption of this process translates into the
simultaneous disruption of processes related to the flow of goods and
to added customer value. There are two types of cyber attacks that pose
a threat to digital security (MIT Center for Transportation and Logistics
2003, p. 29). The first type is targeted at the information system, the
other, at the information itself. Physical security means the protection
of systems and technical infrastructures. In this case, personnel security
is associated most of all with assuring the security of information held
by personnel (Kierner 2008, p. 160). Adverse events pertain to data and
information infrastructure and basically mean unauthorised access to
information, the loss and/or modification of data, and physical damage.
The results of global research carried out by Deloitte in 2011 show that
companies experience problems with information security relatively
frequently (Barker and Buith 2011, p. 6). To assure practical information
security, many actions can be taken, depending on the type of threat
and the possibility of applying specific solutions:
● password-protection of computers, whereby the password is known

only to the user and access to systems and information services is
based on a log in and log out procedure;
● saving of back-up copies;
● destruction of redundant hard copies of documents;
● restriction of access of unauthorised parties to the organisation;
● supervision of records and documents;
● conclusion of confidentiality agreements;
● protection of equipment, including wiring, against threats such as
fire and theft;
● identification of incoming and outgoing information;
● employee training;
● use of screen savers;
● application of UPS devices;
● storage of servers in fireproof rooms.
The research conducted among companies operating in Poland shows

that they become more interested in information security as they
develop. As the amount of information increases, so does the need to
supervise it (Wieteska 2009, pp. 5–11). Operational reasons for imple-

menting organisational and technical solutions to assure information
security include – above all – incidents of permanent data loss, frequent
failures of ICT systems, interruptions in the supply of electricity, disloy-
alty of employees and uncontrolled access to the network.
Physical and personnel security is the area of supply chain and flow
processes management that focuses on the security of cargo in particular.
According to the ISO 28000 standard, the supply chain is secure ‘when
it can resist, fend off, or withstand unauthorised acts that are designed
to cause intentional harm or damage’. The standard also stresses that
security is unstable, changes over time and must therefore be monitored
regularly (ISO 28000:2007). The Manufacturing Institute of Stanford
University has carried out research showing that the major benefits of
the implementation of the supply chain security management concept
are the assurance of product safety; improvements in resilience, visibility,
effectiveness and inventory management; and more efficient turnover
of goods on an international scale (Blanchard 2006, p. 43; Peleg-Gillai,
Bhat and Sept 2006, p. 4). Until only recently, border control has been
chiefly conducted for fiscal reasons. Now it is understood that interna-
tional trade in goods must be handled with respect to assuring maximum
security in broad reference to the threat to the life and health of people.
Following the WTC attack in 2001, the issue of international safety of
people and cargo gained particular importance. The United States of
America became the cradle of many SCSM initiatives:
● the Container Security Initiative (CSI), with the so-called 24-Hour

Manifest Rule;
● the Smart Container Project (screening, smart box);
● the International Ship and Port Facility Security (ISPS) Code;
● the Customs-Trade Partnership Against Terrorism (C-TPAT);
● the Proliferation Security Initiative (PSI);
● the Bioterrorism Act (BTA);
● the Business Alliance for Secure Commerce (BASC);
● the Transported Asset Protection Association (TAPA).
International transport processes are particularly significant with

respect to protecting cargo. Security and safety are assured by relevant
organisations. Actions related to maritime transport are carried out by
the International Maritime Organisation (IMO); air transport is covered
by the International Civil Aviation Organisation (ICAO) and the
International Air Transport Association (IATA).
Requirements related to supply chain security are most widely

discussed in C-TPAT good practices. They refer to many areas of supply
chain operation, including ICT security and emergency preparedness
and/or disaster recovery. Good practices assuring the protection of a
supply chain also include practices related to the following security
areas (Knight 2003, pp. 1–22; Rice and Spayd 2005, pp. 6–11; C-TPAT
2006, pp. 1–49, Wieteska 2011a, pp. 149–162): business partner require-
ments (required security approach from all links in the supply chain),
programme membership/certifications (membership in associations,
applying for certifications, e.g. ISO 28000), physical access control (spec-
ification of principles, instructions, procedures governing the access to
goods, rooms, special zones in the company), personnel security (in
particular, detailed verification of potential employees, implementation
of simple solutions to identify employees and guests), physical security
(introduction of solutions to protect the facility against unauthorised
access by using gates, alarms, monitoring; in particular, in reloading
areas), security training/threat awareness (training employees who carry
out goods and information flow processes, e.g. drivers), procedural secu-
rity (introduction of procedures facilitating recognition and conduct in
the event of a threat and its reporting), cargo tracking, container/trailer
security and conveyance security.
The European equivalent of C-TPAT is the Authorised Economic
Operator (AEO) initiative. There are three types of AEO status: AEOC,
AEOS, AEOF. They differ from each other in privileges. Through the
application of the security requirements a credible company operating
on an international scale may gain an efficient and quick flow of goods,
thanks to time saved and the reduction of red tape related to international
trade and transport. These benefits result from less frequent controls of
cargo and documents, easier access to customs simplifications, a reduced
amount of data to be included in summary declarations, the possibility
of companies receiving earlier notification of delivery controls, priority
treatment of the company’s shipment in the event of a check, and the
possibility for the company to request that a shipment be checked in
any location.
5.2.2 Business continuity management in the supply chain

Business continuity management may be regarded as the development
of the risk management concept and the transition from preventive
measures to response (Zapłata and Kaźmierczak 2011, p. 145). When
determining security measures and business continuity management in
the context of risk treatment, it may be noticed that the first belong
to the method reducing the probability and consequences of an event

and the second to the responsiveness method. In practice, responsive-
ness is limited to having contingency plans, in the event of fire or a
major failure, protecting the lives of employees, ensuring public secu-
rity and reducing negative impacts on the natural environment. In an
emergency, however, the problem of interruption of flow processes also
occurs. Therefore, to assure the resilience (robustness) of the supply
chain, it is necessary to prepare participants for its occurrence. The BCM
concept focuses more on the response to the interruption than on the
source of the disruption. Nevertheless, relying on risk analysis, it also
requires the identification of threats, in particular those that may yield
catastrophic effects. Such effects can result in serious interruption of the
key supply chain processes . It should determine the need of launching
continuity plans, which help resume these processes. Even unlikely
events may occur, often at the least expected moment. Murphy’s Law
perfectly matches the issues covered by BCM:
• ‘If something can go wrong, sooner or later it will.’

• ‘If there is a possibility of several things going wrong, the one that will
cause the most damage will be the one to go wrong.’
Among the many threats, one can identify specific ones, which may
cause major disruptions in supply chains and, in consequence, an
emergency (Kleindorfer and Saad 2005, pp. 53–68). They include opera-
tional contingencies (equipment malfunctions, systemic failures, frauds,
strikes, blackouts of partners), natural hazards (hurricane, earthquake,
flood), terrorism and political instability. Sudden and abrupt events
(caused mainly by the forces of nature and physical failures), such as
fire, explosions and accidents, cause major delays and require expensive
remediation efforts – repairs, relocation or emergency sourcing changes
(CFO 2009, p. 3). Companies indicate that the greatest impact on the
business is exerted by failures of critical assets, non-compliance, envi-
ronmental impacts and financial and logistics problems (Ismail 2012,
p. 2).
Many companies believe that emergencies are not their concern and
they will cope with them when the need arises. They mainly focus –
sometimes quite rightly – on highly likely events. In an emergency, it
is difficult to come up with an adequate response to a disruption, given
that when it occurs, it is usually too late. Therefore, implementing the
BCM concept as it pertains to less likely situations, which seemingly
implies assuming unnecessary costs, may be regarded as higher-level
awareness in terms of assuring the security and continuity of supply

chain processes. As it has been defined, BCM is a process aimed at
building a company’s resilience and its capacity to respond effectively
to an adverse event in a manner that assures the protection of stake-
holders, the brand and value-adding actions (BS 25999–1:2006). BCM
pertains to situations that may have a negative impact – in particular on
the supply chain’s reputation. Therefore, when determining the conse-
quences of adverse events, the following aspects are often taken into
account: impact on the supply chain’s reputation and impact on the
environment, health or safety of people. Reputational risk is caused by
publicity of adverse events and the influence this has on public opinion,
resulting in supply chain value loss. Companies believe that rebuilding
a reputation is the most difficult thing to accomplish in reputation
management (Tonello 2007, pp. 21–22). Thus, reputational risk should
be a part of supply chain risk management, and focus on prevention
by quickly mitigating consequences is the most important thing in this
case.
Business continuity management requires many action, in accordance
with BCM policy. In this concept, risk analysis only serves the purpose of
recognising threats that may lead to interruptions in handling key proc-
esses, resulting from the disruption of functions directly comprising or
supporting those processes. The foundation of BCM is business impact
analysis (BIA). This type of analysis involves an assessment of the impact
made by abrupt and sudden events on the operational capacity of the
company with reference to the period of specific process interruption
(BCI 2008a, p. 4). BIA is a starting point for defining a general continuity
strategy. This may be an off-site strategy, meaning the decision to transfer
the operation to another location, e.g. another company location or an
outsourcing services supplier. At the operational level, so-called busi-
ness continuity plans are described, which take into account the period
of disruption and are based on using various disruption response tech-
niques (BCI 2008b, pp. 3–11):
• absence of employees – cross-training of skills across a number

of employees;
• information loss – making back-ups;
• machine failure – duplication of technical infrastructure;
• supplier bankruptcy – having a number of sources.
In line with the BCM concept, responding to a disruption involves not

only a direct reaction to an incident but also the ability to ensure process
continuity (e.g. manufacturing, customer service) and measures aimed

at the reconstruction and resumption of the normal operation of the
supply chain. BCM is effective owing to the testing of response plans,
training of employees and building of awareness among all participants
in the supply chain. Knowledge management, learning and drawing
conclusions in the context of continuous improvement are very impor-
tant elements of the risk and business continuity management approach
in supply chain (Zsidisin, Melnyk and Ragatz 2005, pp. 3401–3420).
5.3 Risk mitigation methods – results of research
Despite the abundance of literature on supply chain risk management,

the information on how companies manage supply chain risk is scarce.
The purpose of the research was to obtain detailed information on what
kind of threats are identified by businesses, how they manage the risk,
and what methods of risk mitigation they use in the case of outsourcing
and offshoring. The fundamental study that covered these topics was
divided into preliminary and final studies (see Introduction). The
preliminary study was a source of information on the maturity of the
supply chain within which a company operates. The final study helped
in obtaining detailed information on risk management. Below, the
issues of threat identification and risk mitigation are presented, divided
according to the segment of companies using outsourcing and compa-
nies using offshoring.
The preliminary study helped obtain information on which of the
researched companies dealt with analysis of risk caused by operation
on an international scale (Figure 5.2). The results of the research show
that the people responsible for risk analysis are most often the owner
or the president of the company. Only one company had appointed a
risk manager. As few as 13 respondents had chief financial officers. In
turn, 124 companies answered that no one is responsible for the risk
analysis.
5.3.1 Companies using outsourcing

Almost half of companies that declared they use outsourcing indicated
that they identify threats but do not manage outsourcing risk. As few
as 28 per cent of the researched companies identify threats and under-
take actions to curb risk in relationships with outsourcing partners. A
similar number of companies do not manage risk at all, which means
they do not see the significance of threat identification and risk mitiga-
tion in the supply chain. Such an approach demonstrates a low awareness
Owner 26
President 86
Managing Director 1
Chief Financial Officer 9
Purchasing/Sourcing Director 29
Sales Director 14
Import/Export Director 12
QC Manager 13
Rish Manager 47
Someone else 125
No one 124
0 20 40 60 80 100 120 140
Figure 5.2 Responsibility for the analysis of risk caused by operation on an inter-
national scale
Source: Own study.
regarding the issue of risk, a subject that has gained particular importance
in the 21st century. This is particularly important in the context of 34 per
cent companies declaring that their scope of outsourcing activities has
grown in recent years. Many of the analysed companies see outsourcing
risk management as risk assessment (44%) and/or risk monitoring and
control (39%). As few as 17 per cent of respondents focus on risk mitiga-
tion plans, which should actually be the consequence of risk assessment,
constituting the starting point for risk monitoring and control. This
means that companies see the supply chain risk management concept in
fragmentary form: they carry out only selected stages of the risk manage-
ment process, which may in turn mean the ineffectiveness of outsourcing
risk management.
Risk level monitoring is one of the most frequently used risk mitiga-
tion methods in outsourcing (31%) – Figure 5.3. This method certainly
permits a regular check of the risk of specific adverse events, and thus
constitutes an early warning mechanism for a problem as it grows, e.g.
untimely deliveries or a decrease in the technical quality of deliveries
from a business partner. However, it does not permit effective preven-
tion. What is alarming is the fact that companies increasingly mitigate
risk through penalties for failure to meet contractual terms (29%) rather
than adopting wide criteria for the selection and periodical assessment
of outsourcing services suppliers (20%). To some extent, penalties may
enforce the execution of orders in line with requirements; nevertheless,
they are associated with the occurrence of an adverse event (and assume
29% 20%
15% 31%
5%
Application of wide criteria for selection and periodical assessment of

partners
Risk level monitoring
Development of disruption response plans
Diversification of risk through cooperation with a number of suppliers
and/or alternative offers
Penalties for failure to meet contractual terms
Figure 5.3 Risk mitigation methods employed by researched companies in

outsourcing activities
Source: Own study.
such an occurrence). From the point of view of integration and maturity

of supply chain management, they should not be one of the major risk
mitigation methods. This position of the companies that are the subject
of the research appears somewhat opportunistic, even though half of
them have been outsourcing operations for over five years, pursuant to
long-term agreements. Only 5 per cent of the companies see the need to
develop disruption response plans, in line with the BCM concept. Some
of them secure their operations through diversification and coopera-
tion with a number of suppliers. Diversification is employed by 15 per
cent of respondents. Responses to the question also includes a variable:
preparing code of conduct for the service providers. What is interesting
is the fact that none of the companies pointed to this type of document
as a risk mitigation method.
The decision regarding outsourcing is related to speculative risk. The
decision-making process should be supported by risk assessment, both
before and during cooperation. At this point, companies use qualitative
(28%) and quantitative analyses (25%), which are indisputably methods
used for risk analysis. What is alarming is that the assessment of the
decision is often subjective (23%). On the other hand, in a decision-

making situation, coping with uncertainty resulting from a new rela-
tion is based on experience and intuition, given the absence of historical
data. This approach is not sufficient to assess the decision. It is possible
that the assessment of the decision using such analyses is supported by
the impressions and convictions of those responsible for outsourcing
strategies.
Companies are largely aware of the need to control and assess the
actions undertaken by outsourcing partners. They regularly (22%) or
periodically (40%) control all functions of service providers, depending
on emerging problems, which often determine the nature of the control.
Some respondents concentrate on controlling only the key functions
of partners: periodically (15%) or regularly (16%). Delegated/appointed
people are responsible for control. The control/assessment of actions
undertaken by logistics service providers (which mainly include carriers
and transport companies, freight forwarders and courier companies) is
carried out using various tools (Figure 5.4).
Some companies (39%) consider the opinions of their employees on
cooperation with an outsourcing companies to be a particularly impor-
tant source of information about the level of supply chain risk. The
employees build the relationships with business partners and face the
operational risk each day. That is why the top management looks for the
employees with following qualities: commitment, a willingness to solve
problems, sense of responsibility, diligence and reliability. This opinion
is, at the same time, supported by an end-customer opinion poll (22%).
The third most frequently used method of assessing an outsourcing
7%
Evaluation questionnaire
22% 14% Audits
Analysis of reports drawn up
by the purchaser
Company employees opinion
poll
18% End-customer opinion poll
39%
Figure 5.4 Methods used to assess an outsourced logistics services provider

Source: Own study.
5% 3%
37% 55%
Reporting comments to a representative of the outsourcing company

Imposing financial penalties on the outsourcing company
Application of other sanctions (non-financial)
Making attempts to solve the problem together
Figure 5.5 Methods used by companies to solve problems resulting from coop-
eration with an outsourcing company providing logistics services
Source: Own study.
company is the analysis of reports drawn up by the purchaser (18%).

The most rarely used methods are audits and evaluation questionnaires.
Undoubtedly, the low importance of audits may result from the fact
that the audit of transport companies and freight forwarders is not very
useful in the case of the provision of logistics services. However, the
number of companies evaluating their contracting parties is surprisingly
low (7%) when compared with the percentage of companies monitoring
outsourcing risk.
Another issue, separate though related to control and assessment, is
solving problems emerging during logistics outsourcing (Figure 5.5).
In this respect, companies are most willing to inform the outsourcing
company directly of the problem and encourage it to self-improve-
ment (55%). They rarely offer their commitment and help to solve the
service provider’s problem (3%). In most situations problems are solved
through penalties, which compensate losses (only countable, unfor-
tunately) and act as a deterrent (37%). This demonstrates low confi-
dence in suppliers, lack of commitment in building the partnership
with suppliers and reactive way of dealing with supply chain risk. Some
respondents said that other sanctions in the event of recurring prob-
lems include the resignation from cooperation and transfer of orders to
other service providers.
Conscious hedging against the consequences of outsourcing risk

consists in the application of penalties and clear terms of cooperation,
with the scope of liability specified in agreements. The transfer of risk
to insurance is a method rarely used. Half of respondents declared that
they do not use any protection against potential problems. Conflicts
and disputes are mainly resolved in line with formal procedures (64%).
Some of the analysed companies, however, demonstrate a certain flex-
ibility and conventionality (26%) as well as confidence (10%) in this
respect. This means that, to a certain extent, the relationship between
the supplier and the customer is based on partnership.
5.3.2 Companies using offshoring

In the area of international business relations, 58 per cent of the compa-
nies indicated they identify threats and manage risk, 34 per cent concen-
trate only on the threat identification whereas only 8 per cent do not
manage the risk at all (Figure 5.6).
Respondents also declared that they most often manage risk through
monitoring and control (42%) (Figure 5.7). These types of action form
the last stage of the risk management process. Monitoring means only
conducting a regular check, usually of risk indicators. Control, however,
comprises a set of procedures and policies assuring the implementation
of risk-mitigating measures. A relatively large number of the compa-
nies (17%) perform risk assessment. Almost one-fifth of the respond-
ents understand risk management as prevention and as taking action
to prevent the occurrence of adverse events. This is undoubtedly the
most active and effective approach. As few as 13 per cent of the compa-
nies draw up risk mitigation plans. Some companies (8%) manage risk
through the transfer . They use especially insurances and INCOTERMS.
8%
The company does not

manage risk
34% The company identifies threats
58% The company identifies threats
and manage risk
Figure 5.6 Managing risk in the area of international business relations

Source: Own study.
Focusing on prevention
Risk monitoring and control
8% Risk assessment
13% 20%
Development of risk
mitigation plans
17% Transfer of risk outside
42%
Figure 5.7 Risk management methods employed by companies in the area of

international relations
Source: Own study.
In the context of mitigating the analysed risk, companies demon-

strate a relatively high awareness. Most often (31%), respondents
diversify risk in international relations, which is especially justified in
the changing environment of international operation and, at the same
time, provides an opportunity to reduce supply chain risk. A consid-
erable number of the companies analysed (27%) build relations on
trust, which demonstrates a mature approach to supply chain manage-
ment. Moreover, they also focus on the development of foreign units
by training their employees, which includes sharing good practices
(15%) and the standardisation of organisational methods and proce-
dures governing the flow of goods and information (13%). Almost
every tenth company wanting to mitigate risk in international rela-
tions performs audits in their own foreign entities or foreign business
partners. Only 3 per cent of respondents draw attention to the envi-
ronment of foreign entities by monitoring environmental factors and
assessing local suppliers. This is a rather unsatisfactory result, as the
environment has a significant impact on the operation of entities. This
applies, in particular, to the near environment, which can be influ-
enced by risk-mitigating plans.
None of the respondents has drawn up plans for returning outsourced
processes to the home country. This is alarming, as this type of strategy
should be well thought out and ready in case of radical changes in the
environment in which the foreign entity operates. Similarly, none of the
companies analysed sees the transfer of processes from far away located
countries to neighbouring countries as an action that would mitigate
international supply chain risk. This is puzzling. The closer suppliers are
located the easier are: a supervision and control of the business partners
and the communication.
9% 6%
43%
18%
24%
0%
Application of extended criteria for selection and periodical

assessment of suppliers
Organisation of tranings for supplier employees, sharing good
practices
Implementation of shared planning initiatives
Having alternative emergency suppliers
Requirement that the suppliers implement international quality
management standards, e.g., ISO
Figure 5.8 Activities carried out by the companies to reduce the risk in relation-
ship with foreign suppliers
Source: Own study.
To reduce the risk in relationship with foreign suppliers, companies

concentrate on preliminary and periodical assessment, including the
development of adequate criteria in this respect (43%) – Figure 5.8. This
approach results probably from the fact that the processes carried out
abroad are burdened with high operational risk and have a large share in
creating end-customer added value. Almost 70 per cent of respondents
declared that they had transferred production processes abroad. Almost
every tenth respondent requires the suppliers to implement a quality
management system compliant with, e.g., the ISO 9001 international
standard. Every fourth company responded that suppliers’ employee
training was held and good practices were shared in supplier develop-
ment programmes. On the international market, some companies see
the possibilities to mitigate risk in relationships with suppliers through
defining the code of conduct (6%). On the other hand, almost every fifth
company prepares itself for the possibility of a disruption at suppliers
and has emergency suppliers. They may take over the unfulfilled orders
and serve as a production capacity buffer in situations of an unexpected
boost in demand.
Supply chain planning has fundamental significance; in particular from
the point of view of its integration and mitigation of risks, e.g. related
to deficit of inventories, long order completion cycle and inadequate
production resources planning. However, none of the analysed compa-
nies has undertaken any such actions to mitigate risk in relationships
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Audit conducted by the company

employees
Audit conducted by an outsourcing
company
Other purchaser opinion poll
End-customer opinion poll
Company employees opinion poll
Other
Figure 5.9 Foreign supplier assessment tools used by the companies

Source: Own study.
with foreign suppliers. This may be caused by the production environ-

ment. In the majority of companies i.e. 55 per cent is to make stock
production. Taking a closer look at the tools used to assess foreign
suppliers: the end-customer’s opinion poll is ranked first, according to
the questionnaire (Figure 5.9). The second most frequently used tool is
the employees’ opinion poll regarding suppliers (21%). A more impor-
tant tool for assessing foreign partners is the analysis of the opinions of
other purchasers (18%), mainly including commercial networks, whole-
salers and manufacturing sites. The opinion poll of customers may be
very well grounded. Customer satisfaction proves the effectiveness and
efficiency of supply chain management. Hence, customer satisfaction
should be the primary objective of any supply chain. A considerable role
in the assessment of foreign suppliers is also played by the audit of the
other party, performed by the company’s employees (21%). None of the
companies indicated that such an audit was performed by a third party,
i.e. an outsourcing company.
With regard to the reasons underlying an organisation’s interest in
risk management, companies indicated the following four reasons:
● systemic approach to risk management, stemming from ISO, QS and

BS standards recommendations;
● in-house standards, principles and guidelines;
● regulations binding in the company’s sector;
● customer requirements.
However, in the light of submitted responses, the significance of these

actions is very low. Each variable could be ranked between 1 and 5, where
1 stands for negligible impact/significance, 5, very high impact/signifi-
cance and 0, no opinion/not applicable. The results show that each reason
was ranked between 1.5 and 1.7. This means that companies recognise
the impact exerted by these reasons on risk management in international
relations; however, they do not acknowledge their importance.
To sum up, the companies draw more attention to offshoring risk
management than to outsourcing risk management. They demonstrate
the higher diversity of applied risk management methods and tools
regarding the former, and thereby presumably a higher awareness and
commitment. This surely influences the type of processes transferred
abroad, which mainly include manufacturing operations. Outsourced
services, in particular, include the transport and forwarding. It may be
concluded that these are not key processes in the supply chain; hence,
most frequently, the value of such relations for customers is relatively
low. Companies usually do not demonstrate a mature approach to logis-
tics outsourcing risk management. They instead resort to opportunistic
behaviours, reactively responding to risk by, for example, focusing on
the application of penalties. Respondents do not see an urgent need for
the development of service providers (it is possible they do not have the
relevant knowledge), and problems in the cooperation with outsourcing
partners more frequently lead to the disintegration of relations than is
the case with offshoring. Companies display a higher level of maturity
in building international relations by stressing the significance of assess-
ment criteria, the aspect of confidence and the excellence of foreign
entities and suppliers. Risk management in international conditions is
more comprehensive. That is why should be treated more responsibly.
To recapitulate, in the area of offshoring, the companies mostly
focus on prevention and improvement of relationships. On the other
hand, in outsourcing, mainly logistics, such practices are of secondary
importance. Admittedly, supplier assessment and risk monitoring
are applied to a similar extent; however, one can notice a consider-
able unwillingness to building relationships based on confidence and
shared objectives.
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6
Information Management in the
Supply Chain
Maciej Szymczak
6.1 Data, information and knowledge in

the supply chain
Apart from material flow, other flows also occur in supply chains,
including data, information and knowledge flows. The flow most
frequently described in the literature is information flow (Coyle, Bardi,
and Langley 1992, p. 71; Ballou 2004, pp. 7–8; Bowersox and Closs 1996,
pp. 28 and 33–34); one such flow is thus distinguished. This approach
displays (suggests) a uniform manner of communicatin between links in
the supply chain and a uniform set of tools involved. However, it does not
reveal the communication content structure. To build such a structure,
it is necessary first to define what is being considered as data, informa-
tion and knowledge.1 ‘Data’ include facts, images, characters and figures
taken out of context, considered separately and as yet unanalysed. The
term ‘information’ is defined as data systematically presented within a
certain context and assuming some act of communication. Data can be
transformed into information. This transformation is performed within
the information system (including the computer system) of an organi-
sation or a supply chain, and means adding value to data. The value
of information, however, depends on the recipient and the context in
which the information is being presented. Information may have major
significance for one recipient but be of no value to another. Data and
information are complemented by knowledge. ‘Knowledge’ comprises
information combined with an understanding of how this information
might be applied. This understanding is derived from knowledge-on-
hand, expertise and intuition. Knowledge includes facts and the princi-
ples governing their application – applied intuitively and acquired during
some period of apprenticeship. Therefore, knowledge can be said to be
160
Information Management in the Supply Chain 161
an effect of the cognitive processing of information, experience, and

learning (Perechuda 2005, p. 13). Knowledge is related to conclusions
that can be made based on information at hand; it is the possession of
information that underlies an organisation’s know-how. As Z. Malara and
J. Rzęchowski (2011, p. 9) put it: ‘information juxtaposed with context
and experience becomes knowledge’. Knowledge is a source of wisdom,
and wisdom is the precondition for intelligence. Knowledge allows the
reorganisation of data and information at hand. One may discover rela-
tions and ascertain their quality. Modern computerised information
systems could be called intelligent offer sufficient processing capacity
to generate knowledge, acquire it (from people), collect it, develop it
and update it. Expert systems or knowledge base systems are used in
many decision-making positions throughout modern companies. In a
knowledge-based economy, one cannot afford to overlook these issues.
The view presented below stems from research on artificial intelligence
or information science (Stefanowicz 2010, pp. 161–166 and 10). In the
economic approach, knowledge is regarded as information that can be
used in a decision-making process, hence serving to assist in making
(rational) economic decisions. Knowledge comprises assets used to
generate profit that are somebody’s property and, as a business asset and
commodity, it may be the subject of trade (Łobejko 2004, p. 33).
The flow of data and information is indispensable to the operation of
any supply chain. No good can be marketed or delivered without the
exchange of data and information between links in a supply chain. The
literature stresses the important role an efficient flow of data and infor-
mation plays in the supply chain (Fawcett et al. 2007; Simchi-Levi et al.
2003; Handfield and Nichols 1999; Gattorna and Walters 1996). For a
supply chain to set itself apart from its competition, as do the supply
chains of Apple, Walmart and Dell, it must increase customer value and
introduce new operational standards, meaning that multiple business
areas must be optimised. Even then, the flow of data and information –
even if it has been ideally tailored to perceived needs – may not be suffi-
cient. Knowledge must be shared in supply chains. The same applies to
tightening relationships between individual entities in the supply chain
(integrated supply chain): the distinct supply chains in which powerful,
world class market leaders operate are integrated supply chains in which
partner relationships dominate (Rutkowski 2000, p. 22).
The material scope of the data, information and knowledge transfer
in a supply chain must be broad, as the marketing and supply of a
product or service require measures involving research and develop-
ment, finance, purchase, production, logistics, marketing and sales.
162 Maciej Szymczak
Many business processes are shared by entities in the supply chain.

The literature on the topic suggests various approaches to record-
keeping. These approaches may be quite sketchy, covering the supply
chain operation in just three macro-processes (Chopra and Meindl
2004) or very detailed (Cooper, Lambert and Pagh 1997; Manganelli
and Klein 1998; Bovet and Martha 2000). However, without doubt,
the most important supply chain processes are the following (Croxton
et al. 2001, p. 14 ff.):
– customer relationship management;

– customer service management;
– demand management;2
– order fulfilment;
– production flow management;
– supplier relationship management;
– product development and commercialisation;
– returns management.
Thus, data, information and knowledge on the purchase market;

suppliers, product structure and design; the subjects of flow (raw mate-
rials, production materials, work-in-progress, finished products, pack-
aging, returns, waste and residual products); the sales market and
end-consumers are all transferred in supply chains. This means that
there are multiple sources of data, information and knowledge. These
sources are presented in Table 6.1, taking into account the internal and
external sources, divided into primary and secondary sources.
The data, information and knowledge about the product and its flow
(within the supply chain) are particularly noteworthy. From the point
of view of logistics, they are of key significance in the supply chain.
The first group (product data) includes data, information and knowl-
edge related to: new product development, design, production prepara-
tion and planning; the management of the bill of materials, products
variants, product configuration, work-in-progress, and product docu-
mentation, commercialisation and service. In short, it can be said that
data, information and knowledge on the product cover the entire life
cycle. The second group of data, information and knowledge (tracea-
bility data) results from the control of product flow in the supply chain
employed to trace the movements and origin of products (track & trace)
at every processing and flow level.3 These elements are generated each
time a product is transferred along its trail in the supply chain, i.e.
at reloading, receipt, handover, any collection points, order picking
Table 6.1 Supply chain data, information and knowledge sources
Internal External
Primary
Employees of all supply chain links External experts and consultants
Products and resources moved in the Third-party employees
supply chain* Universities and science institutes
Research results (of purchase Industry organisations, chambers of
market, sales market, new product commerce
development) Fairs, symposia, conferences
Observations (of competitors, Competitive products*
competitive supply chains) Customers** and potential customers
Secondary
In-house reporting Third-party documents, specifications,
Process specifications, technology data
Product specification Specialist publications: books,
Production system technical periodicals, newsletters
documentation Reports and analyses of research
Logistics system technical companies and state institutions
documentation Data and knowledge banks, repositories
Data and knowledge bases and news bulletins
Notes: * This phrase means that products and resources provide information on themselves
if their trail and status in supply chain are tracked; ** End-customers are not regarded as
supply chain links.
Source: Own study.
and packaging and – at the final stage – at the moment of retail sale.
Traceability may be understood both in a passive sense, which informs
where a specific resource is at a given moment, and in an active sense,
which means that the information is being used to optimise the supply
chain from the perspective of flow costs (Jansen-Vullers et al. 2003,
pp. 403–404). This should be carried out taking into account the phys-
io-chemical state of a resource. Thus, to the aforementioned should be
added data, information and knowledge which relate to the monitoring
of product quality parameters during the flow in the supply chain. The
management of product and flow data, information and knowledge
integrates processes and is used as a tool to aggregate and structure a
huge amount of related data generated in the supply chain. Most come
from specialised computer systems, e.g. CAD/CAM/CAE and WMS. The
significance of efficient data, information and knowledge management
has been confirmed in many publications (Philpotts 1996; Chu and
Fan 1999; Kropsu-Vehkapera 2009; Jansen-Vullers et al. 2003; Folinas
et al. 2006).
164 Maciej Szymczak
Separating a specific structure from the business network and naming

it an integrated supply chain is determined by a deeper partnership
between the entities involved. The issue of partnership in a supply
chain and its contents and functions has been drawing the attention
of scientists and practitioners for many years. They search for methods,
models and principles that might ensure the development of successful
inter-organisational relationships (Kanter 1994, p. 100; Tate 1996,
p. 8; Christopher and Jüttner, 2000, pp. 5–23; Murphy and Poist 2000,
pp. 121–133). Among the many quoted principles underlying a successful
partnership, authors cite the sharing of information and uninterrupted
communication as being necessary for a successful relationships. This
principle has been reflected in the trend towards info-partnering (Pokusa
1999; Szymczak 2001), one of the assumptions of which is the shared
commitment of all supply chain links in order to develop a partnership
based on information sharing, one which also requires that both raw data
and processed knowledge be taken into account. Entities also commit to
ensuring proper and uninterrupted data flow amongst themselves. This,
of course, pertains to that data, information and knowledge required for
supply chain operation and to achieve the desired effects (e.g. respon-
siveness, resilience to disruptions, flexibility). It should be added that,
apart from considerable openness to information, this approach requires
compatibility in the area of data sharing standards. These are not abstract
considerations, as business partners must assume some openness towards
one another in order to make closer collaboration possible. The compat-
ibility of ICT systems, on the other hand, is assured by modern enterprise
information systems using the internet, extranets and intranets (along
with their services), as well as electronic data interchange (EDI) and inte-
grated information systems that are largely already unified and based on
accepted international standards.
The need for info-partnering is emerging as the foundation of an
information-sharing strategy (ISS), which precisely specifies the circum-
stances under which a link within a supply chain will share information
and to what extent. Two aspects are taken into consideration: informa-
tion transfer and coordination. The first is focused on providing the
partners with adequate information related to their functions. The latter
takes into account the intended result of collaboration between supply
chain links: to assure the targeted boost in operational efficiency (Hung
et al. 2011, pp. 112 and 113–114).
The importance of info-partnering is also highlighted when we look at
how knowledge is used in an organisation. Four categories of work using
knowledge may be distinguished: experts, collaboration, rule book and
processes (Skyrme 2008, p. 34). They have been determined according
to the type of job and its relations with other jobs. However, in busi-
ness practice, many jobs are carried out that are difficult to describe due
to a vague structure. They may be significantly connected with other
jobs, including those that are performed under other, parallel processes.
Therefore, it may be concluded that the application of knowledge in
supply chain management means a constant need for collaboration,
which in turn requires a host of common practices and organisational
solutions. The framework for supply chain collaboration developed by
Simatupang and Sridharan (2005) includes:
– a collaborative performance system (CPS);

– information sharing;
– decision synchronisation;
– harmonisation of incentive system;
– integrated processes.
In this arrangement, information sharing plays a central role and deter-

mines the existence of the four other elements; however, mutual interac-
tions occur among all entities (Simatupang and Sridharan 2005, pp. 261
and 263). Min et al. (2005, pp. 244–248) similarly determined the basic
elements of supply chain collaboration:
– information sharing;
– joint planning;
– joint problem solving;
– joint performance measurement;
– leveraging resources and skills.
The two approaches complement one another, and information sharing

once more plays the central role. This means that knowledge cannot be
applied in a supply chain if the entities involved do not share informa-
tion. On the other hand, a synchronisation of decisions and harmonisa-
tion of the incentive system, or process integration of CPS development,
which is followed by the shared evaluation of achievements, requires
certain knowledge, which implies that a great deal of data must be
processed beforehand. This additionally strengthens the essential role
of information sharing, or – to put it in broader terms – it strengthens
the role of communication throughout the process of knowledge devel-
opment and application. On the same basis, the idea of collaborative
planning (CP), which became popular in the mid-1990s as part of the
integrated supply chain, is promoted. CP consists in real-time commu-
nication between the supply chain links; its purpose is to plan actions so
166 Maciej Szymczak
as to synchronise flow and to use resources efficiently. CP means a more

multi-faceted partner relationship based on the bilateral communication
for collaborative planning at the strategic, tactical and operational levels
(Barratt 2004, p. 74). This is an idea basically aimed at balancing supply
with demand by means of process design and action planning that are
driven by customer demand (Ireland and Bruce 2000, p. 82), which in
turn means the real-time transfer of demand forecast and sales informa-
tion from businesses or even individual points of sale to the next entities
down the supply chain. As the authors indicate, earlier ideas focused on
supplying the product to the market – to sellers – and not on meeting
the demand of specific customers. The idea of CP led to the development
of a formalised concept for supply chain collaboration, i.e. collabora-
tive planning, forecasting and replenishment (CPFR), which, after the
Voluntary Interindustry Commerce Standards Association (VICS) drew
up a set of guidelines in 1998, was implemented in many supply chains.
This strategic initiative is one of many similar initiatives that are based on
the collaboration of supply chain links, information sharing and supply
chain integration. The widely known concepts that are compatible with
or expand CPFR include (VICS Association 2008, pp. 3–5; Ireland and
Bruce 2000, pp. 81–82; Barratt and Oliveira 2001, pp. 267–268):
• VMI (vendor managed inventory);

• CR (continuous replenishment);
• ECR (efficient consumer response);
• JIT (just in time);
• QR (quick response);
• initiatives of large retailers, such as Walmart’s ‘RetailLink’, Kmart’s
‘Workbench’ and Target’s ‘Partners Online’.
Sales transaction data sharing, the use of mutually agreed metrics, and
targets to be achieved in a specific period play a vital role in all these
concepts. The same applies to the benefits that follow the increase in
supply chain efficiency, namely the reduction of the costs of sales, storage
and transport, a shortening of lead times, the better use of production
capacity or an increase in supply reliability.
6.2 Data processing and information

management models
Data processing in modern supply chains should be organised so as to

follow the 3V principle (visibility, velocity, versatility) in supply chain
management, i.e. assure transparency, speedy action and universality.
Visibility is focused on resources and, in particular, inventories (inven-

tory visibility). This means that resources are visible in the supply chain
and can be noticed from any link, thus making it possible to monitor
the inventory level in the entire supply chain. Velocity means the
capacity to meet needs (fulfilment velocity) or fulfil a contract in a short
time. Versatility consists in the capacity to collaborate with suppliers
and purchasers when faced with various terms of delivery (coordina-
tion versatility). These are the three pillars of adaptive supply chains.
According to Ivanov, Sokolov and Kaeschel (2010, p. 411), a supply
chain may be called adaptive ‘if it can adapt to:
• changes in the market environment and uncertainty impacts;

• changes in the operations execution environment;
• internal changes in the supply chain itself
by means of additional structural–functional reserves and better coordi-

nation through an extensive application of information technologies,
especially Web services’. The concept of adaptive supply chains is related
to many other modern approaches to supply chain management, which,
in order for the business to compete successfully on the market and
maintain its profitability, must be responsive, flexible, agile, proactive,
robust and sustainable.
Fulfilment of the 3V principle requires that the traditional, insufficient,
data-processing models be abandoned. New models offering a higher
potential to integrate functions and processes and providing flexibility
and swiftness of action are becoming predominant. They provide the
foundation upon which real-time enterprises (Malhotra 2005, p. 17) and
consequently real-time supply chains are developing. Simultaneously,
these models impede the development of areas in the supply chain that
are computerised in line with different principles and which use legacy
systems. These become isolated environments that cannot be integrated
with modern solutions – so-called information islands. These models
include:
● service-oriented computing;
● cloud computing;
● software agents;
● workflow management systems.
Service-oriented computing, a concept based on service-oriented archi-

tecture, is targeted at better connecting business processes with the ICT
resources available in an organisation over a dispersed environment. This
168 Maciej Szymczak
is accomplished by defining the services provided by software within the

information system that are best fulfilling specific functions and proc-
esses from the customers’ perspective. The services made available in the
system are carried out independently from the users’ computing plat-
form. They operate in a heterogeneous environment and are provided
in a shared network. The services may be reconfigured by creating new
functionalities for applications that reflect changes in the business envi-
ronment. As K. Butner (2007, p. 9) noticed, the key aspect of SOA for
supply chain management is the sharing of services, which is a tool for
the implementation of globally integrated supply chains. Services may
be designed and maintained in one place and made available in another
by incorporating them into various functional applications.
Cloud computing has become a very popular processing model. This
model is based on services delivered by external suppliers and is an
important step forward to earlier solutions consisting in gaining access
to various types of content through the network regardless of the hosting
infrastructure.4 Cloud computing eliminates the need to purchase and
install user software. Moreover, it does not require any maintenance or
software administration costs. The user only pays to use the software
(service), while access is gained on demand, through a client, i.e. a
regular internet browser. This pertains to the Software as a Service (SaaS)
model, which consists in the sharing of applications stored on a remote
server and made available via the internet with other users. It may also
pertain to Platform as a Service (PaaS), under which a set of applica-
tions of a uniform interface is made available. These solutions are best
suited to supply chains on account of their flexibility, although there are
no major possibilities for customisation. Only in supply chains domi-
nated by a large corporation might one think of a private cloud in which
customised software is stored in the cloud (including in-house software)
but is not shared with users outside the supply chain. Cloud computing
often follows the Infrastructure as a Service (IaaS) model, under which
the customer purchases only external servers, computing capacity and
disk space. On the principle of outsourcing, cloud computing creates a
separate, parallel, dispersed but uniform and integrated platform that
guarantees the interoperability of dynamically shared services (Buyya
et al. 2009) for the transfer of data, information and knowledge between
collaborating companies. This may be the driving force behind one of
the largest changes supply chains have recently gone through. Extensive
supply chains that operate in various places in the world will require
the dynamic integration of many clouds assigned to many different
business domains (Buyya et al. 2009, p. 600). One might expect that
cloud computing services will soon be offered by 4PL providers (‘4th

party logistics’), which offer comprehensive solutions for supply chain
management based on data and information processing.
Software agents are autonomous, remotely executed software enti-
ties (e.g. operating on another computer in the network), operating as
the user requires, which are able to interact with the environment. An
agent may be executed by another agent and may control own actions
and status (active or standby). The agents communicate with the user
application, with the operating system and with one another. As W.
Wieczerzycki (2012, p. 223) believes, agent technology represents an
opportunity for supply chains, since it permits the autonomous acqui-
sition of data in a dispersed environment and for the high mobility of
software. Building extended supply chains means creating vast networks
of data, information and knowledge sharing; therefore, an environment
for agent technology is created naturally, in particular with regard to
logistics. A multi-agent approach is adequate for data acquisition and to
control actions in dispersed structures; it serves collaborative planning,
scheduling, evaluating actions, and decision making, and as such has
high potential for the improvement of supply chain management (Kong
et al. 2009, p. 15). In this respect, search agents (e.g. that search for infor-
mation on available means of transport) may be usable, as well as moni-
toring agents (e.g. that monitor inventory balance); in particular, the
most advanced management agents (e.g. resource flow managers), which
are already used in some SCM-class information systems (Wieczerzycki
2012, pp. 227–228). Also, the use of multi-agent system for dynamically
configuring and reconfiguring a supply chain (Kawa 2011, pp. 109–117)
shows how agent technology may be used to increase the flexibility of
supply chains.
The execution of supply chain business processes requires the flow
of data, information and knowledge between various entities, business
units and workstations. In the area of human resources, this is the flow
of documents between workgroups and employees performing specific
jobs. This flow is directly related to the sequence of activities (workflow)
and is governed by principles resulting from technology, the organisa-
tion of labour and management procedures. The complexity of many
processes (both physical and management) and associated procedures
and the endeavour to increase the efficiency of actions have forced the
development and formalisation of guidelines for workflow management
and, as a result, the need to create dedicated workgroup-assisting soft-
ware.5 The essence of workflow management is control over the work-
flow between various resources: people, applications, machinery and
170 Maciej Szymczak
tools. Such software is used to define the jobs for each process and to
determine the desired outcome. Workflow management systems help
automate many aspects of workflow management, e.g. the performance
of many repetitive jobs or protection against non-performance of the
task in its entirety. They also help eliminate hardcopy flow. Control of
document flow in an information system takes document conversion
into account, if need be. In workflow management systems, business
processes comprise a separate service component of the business envi-
ronment (Aalst van der and Hee van 2002, pp. 25–26). According to L.D.
Xu (2011, pp. 189–191), workflow management will play a significant
role in collaborative business structures, in particular when the devel-
opment of e-business, e-commerce and virtual organisations requires
workflow management extending beyond companies and typical organ-
isational structures.
Information management in an organisation consists in the acquisi-
tion, classification, collection, processing, presentation, dissemination
and implementation of information. Information management involves
the basic skills used to generate the knowledge needed to perform jobs,
achieve a company’s objectives on the market and obtain leadership.
Market globalisation and growing competition require the development
of new information management concepts and models (Malara and
Rzęchowski 2011, p. 140).
Knowledge management is based on a similar arrangement of basic
jobs, as is the case with information management. It covers knowl-
edge capturing, coding, storing, filtering, disseminating and applying
knowledge, and its continuous updating, evaluation and improvement.
According to M. Morawski (2006, p. 31), knowledge management as
a ‘comprehensive management idea’ is the central theme underlying
management in an organisation and comprising the leading strategy,
basic methods, techniques and tools facilitating the performance of
selected functions and processes. As K. Perechuda (2005, pp. 17–18)
claims, to gain a full perspective, knowledge management should be
broken down into four aspects: functional, process, instrumental and
institutional. In functional terms, knowledge management encom-
passes management functions (planning, organisation, control) and
the aforementioned operational functions facilitating the applica-
tion of knowledge in the organisation. In process terms, a code of
conduct that will ensure adequate fulfilment of operational func-
tions is important. In instrumental terms, knowledge management
is concentrated on methods, instruments and tools, i.e. on entire
organisational systems comprising knowledge-related processes. In
institutional terms, this includes the system of posts in an organisa-

tion, workgroups and third parties that are involved in implementing
knowledge-related jobs. Knowledge management is a systemic process
for acquiring, organizing and communicating employees’ knowledge
in order for other employees to use it in a more effective manner
(Alavi and Leidner 1999, p. 6). As results of research made over ten
years ago show, approximately 26% of knowledge in an organisation is
still stored on paper, only 20% is stored digitally and 42% is stored in
employees’ heads (Malhotra 2001). Even if these figures improved in
favour of knowledge in digital form, the major portion of knowledge
would surely still dwell in human resources; this is the type of knowl-
edge that is the hardest to acquire and formalise. Therefore, one may
conclude that the capacity to convert tacit knowledge into explicit and
formal knowledge remains one of the major challenges of knowledge
management. The results of research (White and Croasdell 2005) prove
that the consolidation and centralisation of knowledge, that originates
in a network, are important for its efficient application in an organisa-
tion. This is confirmed in companies operating in various sectors and,
moreover, such knowledge repositories help the organisation to learn.
Knowledge transfer, inherent in knowledge dissemination, is neces-
sary for consolidation and centralisation. Transfer occurs in three basic
directions – person to person, person to computer and computer to
computer – and is supported by various ICT technologies, e.g. emails,
video-conferencing, computer forums, document management, knowl-
edge bases, decision support and expert systems, text mining, neural
networks and intelligent agents (Skyrme 2008, p. 33). The tools for the
consolidation of knowledge resources include various ICT solutions
based on dispersed functional modules and central databases and repos-
itories, e.g. ERP systems. Knowledge management is now becoming
the key competence in companies wanting to succeed in the dynamic
and demanding conditions of the modern global economy (Skyrme
and Amidon 1998, p. 20). ‘The concept of knowledge management is
a systemic approach to organisation and management and treats the
knowledge as an element determining corporate success and a factor
influencing the building of strategic competitive edge’ (Nogalski and
Kowalczyk 2004, p. 159). According to Reuters, in as many as 90%
of companies that have implemented knowledge management, it has
improved the decision-making process, and 81% of them recorded
productivity boost (Malhotra 2001). Knowledge aggregation and its
multi-dimensional analysis are possible thanks to such tools and tech-
niques as (Olszak 2003, p. 341):
172 Maciej Szymczak
• data warehouses;
• query languages, query & reporting, and data visualisation
tools;
• multi-dimensional on-line analytical processing (OLAP)
analysis;
• data mining tools.
Knowledge management is strongly connected to business intelligence

(BI) systems development, which arises from the fact that the possession
of and ability to use knowledge determine intelligence, whereas intelli-
gence, when transposed to the business level, qualifies to refer to organi-
sations as intelligent organisations that can best handle the demanding
and competitive global market. BI covers a wide group of manage-
ment-assisting applications, including the most advanced ones – those
offering the highest data productivity gains: decision support systems,
knowledge-based systems and expert systems. BI may be presented as a
total process for transforming data into information and information
into knowledge in an organisation. When analysing the status of an
ICT application in an organisation, one can conclude that it is heading
in the direction of business intelligence, a fact that implies knowledge
management in this organisation (Drelichowski and Drelichowski 2005,
p. 31). Data warehousing is becoming the critical element of BI, which
makes it possible to collect data from various information systems in the
company and thus determines the development of knowledge within
the organisation and its efficient application.
The effects of information and knowledge management are experi-
enced by the users of various information systems. They are most visible
in higher-level systems combining a number of functionalities that are
used as a tool for strategic management in an organisation, e.g. the
executive information system (EIS). The EIS is an integrated system for
a dispersed structure and provides executives with access to information
on operations they handle in various parts of the world. Such a system
(Kumar and Palvia 2001, p. 153) is a computer-based information system
that provides access to both domestic and international information for
senior executives working at headquarters and in subsidiaries world-
wide of a global organisation, to support their analysis and decision-
making functions. Such a system must be adapted or even adaptive to
various needs of users across the organisation. It should not only take
into account the personal requirements and predispositions regarding
the manner of communication and presentation of data, information
and knowledge, but also information needs of a specific post in an
organisation. In this case, the following technologies are distinguished:

push, when the data transmission is requested by the sender (data admin-
istrator, server), and pull, when the data transmission is requested by
the recipient (requesting party, customer). The latter technology means
that the user obtains data whenever he or she wants. The EIS system is
supposed to serve the organisation, i.e. follow the needs of the users and
respond to their commands (subservient technology).
6.3 ICT solutions for the supply chain
ICT is of fundamental significance for information and knowledge

management. Good and reliable ICT assures the efficient transfer of
data and information at all management levels and in the supply chain,
providing an adequate environment for developing info-partnering
in the supply chain. These are also conditions conducive to the crea-
tion and accumulation of knowledge and increasing the business intel-
ligence level. The more reliable a system that can provide more and
new opportunities, the better. Therefore, the latest generations of ICT
systems increase (gain) in importance. They are purchased by companies
almost immediately after their launch.
The relevant literature has extensively covered the positive impact of
ICT solutions on supply chain excellence. Research results have been
presented that confirm the positive effects generated by the application
of one or another ICT technology. The assumption of the salutary role of
ICT on the supply chain and its market success has become the default
view. However, Ramayah et al. (2008) presented results of research
conducted in Malaysia that show that there is no significant correlation
between the application of ICT and the effectiveness of supply chain
operation. Malhotra (2005) made similar observations on the basis of
an analysis of case studies, which confirmed that the volume of invest-
ment in ICT does not go hand in hand with improved business results,
and even showed that the results may be quite the opposite. Hence, it is
necessary to change the simple way of thinking that mere investment in
ICT will by default improve the results of undertaken actions. The success
of a supply chain is based on mutual relations, on human interactions,
which can only be supported and not replaced by ICT. The technology
itself does not give the competitive edge, though it does facilitate the
use and strengthening of an organisation’s potential, thereby helping to
achieve a competitive edge and retain this edge over a longer period.
If we look at the ICT solutions for the supply chain in a horizontal
arrangement of flows as presented in Figure 6.1, the hierarchy of systems
174 Maciej Szymczak
can be clearly seen: from independent tools used for data acquisition,
through transaction processing systems, up to complex and integrated
domain-oriented management support platforms. The axis of the
diagram presented in Figure 6.1 is a set of processes related to manage-
ment of the physical flow of resources: from receipt to handover. During
these processes, data related to resource identification, location or char-
acteristics is acquired. The technologies used to that end are presented
in the lower part of the diagram. They include:
● automatic identification systems, including radio frequency identifi-

cation (RFID);
● vision systems;
● global positioning systems (GPS);
● automated storage and retrieval systems (AS/RS);
● automated internal transport and handling systems and automatic
guided vehicles (AGV);
● picking systems, including voice picking systems;
● flexible manufacturing systems (FMS).
Adequate equipment and equipment conglomerates work in a local

network that spread throughout a particular company, a building or
process location. This network transfers the collected data to the trans-
action processing systems connected with a specific process, e.g. receipt,
storage and inventory management or order processing, loading and
handover of goods. These modules also work in a local network and use it
to communicate. The data they process are then transferred to planning
modules, which work at the corporate or supply chain level and not at the
single business level. At this level, various tools for multi-dimensional data
analysis and mining are used, also for multi-criteria decision support and
knowledge aggregation. The Q&R and OLAP tools supplement planning
systems operating in the multi-organisation environment of the supply
chain; these are introduced at this level and complement the traditional,
integrated information systems: CRM, WMS and in particular SCM with
advanced planner and optimiser (APO) tools. On the other hand, data
warehouses assure the possibility of the collection and management of
data from various sources in the supply chain and quick access to them
from any planning application. Planning modules communicate with one
another through a vast corporate network, through extranets and via the
internet. To that end, EDI is also used. EDI is used between consecutive,
independent supply chain links and between 3PLs.
Office Financial Marketing Logistics

Suppliers Customers
automation information CIM/MRP information information
systems system system system
3PLs 3PLs
WAN
EDI EDI
Materials Shop-floor Finished goods Order Picking, merging, Shipping
Receiving mgmt mgmt inventory mgmt processing completion
LAN
Auto Vision GPS Picking

ID RFID systems receivers AS/RS AGVs systems FMS
Figure 6.1 ICT system hierarchy in the supply chain

Source: Own study based on Hill 1999, p. 56.
A wide stream of mobile technologies and applications supporting

various areas of management is becoming available to the supply chains;
in particular, those related to field service. They include technologies for
inventory management, purchase, sales and maintenance. Mobile solu-
tions are now so popular that the possibility of mobile supply chain
management (MSCM) has been mentioned. A number of factors may be
indicated that stimulate the increasing interest in mobile technologies
in supply chain management and their implementation. They include
(Ruhi and Turel 2005, pp. 101–106):
• the need for internal integration of business processes (within a

specific organisational unit);
• the need for external integration of business processes (between
various organisational units), which is troublesome even for
modern ERP systems;
• globalisation, which often requires taking actions where there
are no permanent telecommunication connections, fixed wired
networks or landline telecommunication systems;
• the need for real-time information management and the related
need to acquire and transfer data directly from a specific process
location;
• servicing new business processes, which is related to the imple-
mentation of process innovation;
• the phasing-out of obsolete systems;
• the reduction of operational costs.
176 Maciej Szymczak
Figure 6.2. presents MSCM in comparison with other popular ICT

solutions used in the management of supply chains, taking into account
the range of services and reach of communication.
Mobile technologies ideally fit the concept of adaptive supply chains
and the 3V idea. As for visibility, mobile technologies allow detailed
tracing of the flow of resources in each enterprise from the collection
of materials through to their use in the manufacturing process, up to
and including the handover of a finished product. This is performed
regularly, as each worker collecting, using or sending a resource in
any way confirms the activity performed at each stage of the flow by
using a mobile bar code reader and/or radio frequency identification.
This pertains in particular to warehouse and manufacturing employees,
drivers and couriers. That is how material inventories, raw materials and
parts, and the inventory of production in progress and finished goods,
including in-transit inventories, i.e. such resources that have been loaded
and are in delivery, can be monitored on an ongoing basis. This trans-
lates into velocity by preventing items from becoming out of stock and
by allowing a quick response to events of this nature (e.g. movement
of resources from another location). The ongoing tracking of resource
flow6 helps in distribution planning to meet contractual terms regarding
time, place and amount. Meeting the terms is confirmed immediately
by electronic proof of delivery, which is given to the forwarder. Mobile
technologies have resulted in a situation where transport, as a dispersed
Reach – to whom can we easily connect?
Anyone, anywhere MSCM

(future)
Customers, suppliers
regardless of IT base e-Commerce
Customers, suppliers with EDI
same IT base as ours MSCM(current)
Across different business
units abroad
Across different business
ERP
units domestically
Across geographically
spread single business APS
unit locations
Within a single business MRP I
unit location MRP II
Send Access to Perform simple Perform
messages information transactions complex
Examples transactions
Send memo Check Take Process
inventory order order
Range – What services can we share seamlessly?
Figure 6.2 Positioning ICT solutions for the supply chain in the range/reach
framework
Source: Ruhi and Turel 2005, p. 113. Courtesy of Taylor & Francis Group, Oxford, UK.
operation, may be fully integrated in terms of information and deci-

sions, by both the sender and the recipient company. Versatility, on
the other hand, is most visible in customer service. Mobile technolo-
gies facilitate response to various types of emergencies and events. The
aforementioned possibility of keeping in touch with drivers helps in
responding to any failures, and allows the loading or delivery place to
be changed flexibly and ad hoc. A full view of the quantity of indi-
vidual goods in various warehouses facilitates the response to a sudden
increase in demand and, if need be, allows for the swift exchange (from
the closest warehouse) of an item in the event of a complaint.7 Mobile
technologies also support the staff who are in direct contact with the
customer, i.e. door-to-door salespeople or service staff. The results of
their work are instantly entered in the company’s computer system,
which helps in meeting their future needs in terms of availability of
goods and spare parts.
Recently, the use of mobile phones – in particular smartphones – for
business purposes has increased. According to research conducted by
the ARC Advisory Group, 69% of supply chain executives declared that
they use smartphones for bar code scanning (22%) or to take and send
photos of delivered products (22%). Moreover, smartphones are used to
send proof of delivery (13%), for signature verification (11%), to access
the performance dashboards and reports (10%), to track shipments (8%),
to conclude transactions in TMS/WMS systems (6%), to hand over cargo
to forwarders (4%) and to purchase transport services (2%). Users point
to an increase in productivity and an improvement in customer service
as the main results from using such devices (Cooke 2011). Also, access
to social network services via smartphones is important: it helps main-
tain personal contacts, which are in turn conducive to the generation of
knowledge in supply chains, something that pertains in particular to the
operation of competitive supply chains. Smartphones currently have
the largest share among mobile devices used for supply chain manage-
ment – see Figure 6.3.
The use of mobile technologies and tools dedicated to field service
helps put the idea of e-commerce, e-sourcing and e-fulfilment into
practice, i.e. the conclusion of transactions via the internet allows us to
speak of an e-business or e-supply chain or, to be more precise, e-SCM or
web-based SCM. In this respect, basically two forms of execution may be
indicated (Vorst van der et al. 2002, p. 123):
● focus on improvement of existing supply chain results, which is

related to the effects of information exchange improvements;
178 Maciej Szymczak
0% 10% 20% 30% 40% 50% 60% 70% 80%
Smartphones
Handheld computers
Cellular networks (voice and data)
Mobile bar code scanners
Global positioning system (GPS)
Environmental sensors (temperature, humidity, etc.)
Telematics (engine and vehicle sensor data)
Mobile voice recognition headsets
In-cab computers
Wearable (hands-free) computers
Passive (no battery) RFID tags
Not using any mobile technologies
Active (battery-powered) RFID tags
Figure 6.3 Application of mobile technologies in supply chain management

Source: Napolitano 2011, p. 48. Courtesy of Supply Chain Management Review, Peerless
Media, LLC, Framingham, MA, USA.
● introduction of new business models, which is related to the building

of new supply chain structures.
The latter is connected with establishing new and specialised interme-

diates in the supply chain (in particular those with unique information
and knowledge), with changing roles of existing intermediates or with
eliminating former intermediaries. New business models also require
reorganisation in terms of processes carried out by individual entities,
resulting in assigning them new jobs or cancelling the existing ones.
The basis for such actions may be specialization of entities, their compe-
tences, their resources, infrastructure, experience and economies of scale.
These measures fit the pattern of value generation principles in modern
supply chains, as specified in the literature (Andrews and Hahn 1998,
p. 10). Thus, it may be seen that building supply chain value is powerfully
determined by the implementation and development of digital economy
solutions. Simultaneously, the growing saturation of supply chain with
digital solutions makes them more like virtual organisations.
Questions regarding information management were included in a ques-

tionnaire used in the second stage of the fundamental study – the final
study (see Introduction). This means that they were addressed to compa-
nies that apply outsourcing and/or offshoring and expressed in the
preliminary study a willingness to participate in further research. This
helped in linking results with the respondent company’s supply chain

maturity level, determined by the preliminary study results. The ques-
tions regarding information management were used both in the ques-
tionnaire drawn up for the purposes of the computer-assisted telephone
interview (CATI) and in the questionnaire prepared for the face-to-face
interview. The final study helped obtain detailed descriptive knowledge
on information management in a dozen or so companies.
In the respondent companies, the primary purpose of information
management is to support internal relations. This is what nearly half
of the respondents declared (45%). A slightly lower number (40%) indi-
cated external relations in the supply chain as the priority. Information
management is supposed above all to serve external relations beyond
the supply chain in only 15% of respondent companies – Figure 6.4.
This suggests that 45% of respondents do not rely on information flow
in the supply chain integration process, do not apply info-partnering
and do not use ICT for that purpose. This is surprising, given that supply
chain integration on the level of information exchange is the easiest to
carry out, and integration can be started this way to yield the quickest
and most visible results. It is all the more surprising since companies
are well equipped with various devices for data processing and trans-
mission. The juxtaposition of these results with the supply chain matu-
rity demonstrated by the respondents allows for even more surprising
observations. Namely, information management is largely subordinated
to external relations in the supply chain, indicating a maturity level
I according to Poirier’s scale. As many as 67% of entities representing
this level declared this to be the case and, concurrently, 74% of enti-
ties that indicated that external relations were the priority in supply
chains were placed at maturity level I.8 It would seem that the focus on
internal functions and processes, in the interest of internal integration,
is typical with respect to this type of company. This is confirmed by the
fact that an identical percentage of respondents at the I supply chain
maturity level (67%) declared information management to be primarily
used for the purpose of developing internal relations in the company.
This suggests that these companies, perhaps convinced by the positive
effects of internal integration, will now apply information management
to external relations with the purpose of integrating their supply chains
and reaching the next steps of integration.
The areas which largely determine information management in
a company and those areas which manifest the most significant and
favourable results of information management were analysed; and this
analysis yielded a very wide range of results – Figure 6.5. Information
180 Maciej Szymczak
External
relations outside
SC
15%
Level I
External 74%
relations in SC
Internal 40%
relations Level II
45% 7%
Level III
15%
Figure 6.4 Priorities in information management

Source: Own study.
management in the analysed companies was most often linked to distri-

bution, sales and production management.9 This is understandable,
because in these areas benefits are quickly visible. Efficient distribution
and effective sales guarantee revenues, while proper production manage-
ment helps reduce downtimes, the number of necessary changeovers
and better use of resources at hand. In any case, the effect is visible in
a very short time in financial terms. Procurement and quality manage-
ment were ranked lower. If information management is applied mainly
to these areas, they should also yield the highest benefits. As it turns
out, this is the case and it can be seen clearly when we refer to the
aforementioned leading areas to which information management is
subjected. The comparison of these results with the supply chain matu-
rity level does not allow any significant conclusions. We can only state
that the higher the supply chain maturity, the more positive effects of
information management can be seen in various areas. Some compa-
nies indicate that information management is an instrument that helps
retain the position in the supply chain (11%). This may mean one of
two situations:
● Information management helps control the supply chain from the

company’s perspective (a leading company, leader of the chain),
helps integrate it (supply chain integrator) and gives the company
the feeling of control over suppliers and purchasers and over the
Subordination Benefits
Procurement
management
Production
11% management 16% 10%
15%
14% Distribution and 14%
22% sales 30%
9%
29% Risk
3% 27%
management
Quality
management
Other
Figure 6.5 Areas to which information management is subordinated, and which

display the highest benefits from information management
Source: Own study.
flow of goods in the supply chain by influencing the supply chain’s

visibility.
● Those supply chain links gain importance that have unique resources,
and formalised and efficient information management helps in the
acquisition thereof (with respect to information resources) both by
external acquisition and, more importantly on account of potentially
greater uniqueness, through processing (e.g. knowledge generation
in the organisation).
When we talk about control of the supply chain and its visibility, the
issue of information sharing and exchange, i.e. info-partnering, gains
primary importance. Indeed, the research results show that 61.5% of
entities that combine information management with keeping their
position in the supply chain declared that the development of internal
relations in the supply chain was a priority for them in information
management.
The most important tools in information management, according to
companies, are decision support and expert systems (32%), followed
by data mining tools (23%) and database systems, including query
& reporting mechanisms (13%) – Figure 6.6. The last group also
includes the popular transaction processing systems. Many companies
responded that their implementation of decision support and expert
systems (i.e. management support systems) had resulted from the
considerable degree of sophistication of business reality and relations
that has occurred over the last few years and from the need to make
182 Maciej Szymczak
Data mining
Database systems +
23% Q&R
32% OLAP tools
Decision support and
13% expert systems
I don’t know
32%
0%
Figure 6.6 The most important information management tools

Source Own study.
better executive decisions in view of increasing competition. What is

surprising is the fact that as many as 32% of respondents could not
point to any tool in this regard. In direct discussions, some respond-
ents mentioned the significance of mentoring in information manage-
ment, pointing to the development of partner relationships between
experienced staff and younger, less experienced, employees. These
relationships are supposed to transfer knowledge, understanding of
the work environment, inspiration and stimuli to engage in specific
behaviours.
It turns out, nevertheless, that the respondent companies are aware of
the fact that ICT tools may be used to reduce risk in international business
relations. The most important role in this respect is ascribed to ERP-class
integrated information systems. They were indicated by 43% of respond-
ents. They combine various areas of management in a company and there-
fore allow risk reduction in an international corporate system based on
many business units across the world. Twenty-nine per cent of respond-
ents indicated the SRM and CRM systems, 21% referred to EDI systems.
SRM and CRM systems may be regarded as classical solutions supporting
relationships between companies, complementing ERP systems with the
support of external relations of companies: suppliers and purchasers. The
EDI system is a popular medium for communication between companies
concluding international transactions and having contacts with interna-
tional collaborators. This is especially the case in the large and medium-
sized enterprises covered by the research. SCM solutions are much less
popular and this is probably why only 7% of respondents appreciated
their usefulness in risk mitigation processes in international supply chains.
This also indicates a low awareness of the potential of these systems. The
results of the research on information management tools were similar for
companies representing supply chains of various maturity levels.
The companies analysed have a comprehensive approach to infor-

mation management and perform data analysis in all the most impor-
tant areas of operation. Even so, some areas stood out, key areas of data
analysis being marketing at 67% and customer service, procurement
and material inventory management at 42% each (Figure 6.7). This is
connected to the market orientation of companies, which is of primary
importance in business. Marketing is a very wide category, encom-
passing many instruments and measures undertaken to acquire (win)
customers, keep them and exert an impact on the market. Customer
service, which is oriented towards adding value to product by meeting
the needs of the customer in product supply or order completion, is now
one of the most significant areas of competition. To be distinguished
in this respect, a company must have the product in stock and assure
production continuity, which may be why so many companies indi-
cated the importance of data analysis in the area of procurement and
material inventory management. This may also suggest the application
of an optimisation calculus within the scope of developing the best raw
materials and production materials sourcing policy, something that
would minimise the total cost of an inventory management system. The
available mathematical methods are quite extensive in this case. It turns
out such areas as production management, logistics, finance and human
resources management, which were much discussed in the context of
data analysis,10 have been pushed aside. In the research, the primary
70%
60%
50% 67%
40% 42% 42% 35%
30% 35%
25%
20% 15%
10%
0%
ice
g
e
s
t
t
t
en
en
en
tin
tic
nc
rv
em
gis
em
em
na
ke
se
ar
Fi
Lo
ag
ur
ag
er
M
oc
an
an
m
Pr
m
sto
m
n
HR
Cu
tio
uc
od
Pr
Figure 6.7 Key areas of data analysis

Source: Own study.
184 Maciej Szymczak
6% 6%
9% Developed in-house
Imposed by the head office
Imposed by the main
supplier/purchaser
Developed for a third-party
and adapted
79%
Figure 6.8 Origin of information management models employed

Source: Own study.
position of data analysis in these areas was indicated by only 35%, 25%,
35% and 15% of companies respectively.
The analysed companies applied various information manage-
ment models. In the majority of cases, the standards and practices
employed regarding information management had been developed by
the companies themselves (79%), which means these are original solu-
tions – Figure 6.8. Over half of respondents (52%) customise an adopted
information management model depending on their changing needs
once every few years, and slightly more than a third of respondents (34%)
do so once a year. Since the companies develop their own in-house infor-
mation management standards, they are competent to amend them.
The frequency of information management system modification does
not depend on the maturity of the company’s supply chain; it depends
on the sector in which the company operates. Frequent changes in the
information management model are typical of sectors that must display
high efficiency due to a large number of substitute products and, as a
result, competitors. This applies, for instance, to the pharmaceutical,
power, petrochemical, telecommunication, automotive, and construc-
tion industries. Thus, changes to the information management model
are forced by the market. This was confirmed in the study, as 37% of
companies admitted that the changes they make in information manage-
ment result from changes in demand and 35% said the amendments are
caused by changes in the current business model, which means that
they adapt their information management model to the one applied
by major competitors. Market-induced reasons also include the need to
boost performance and the efficiency of actions (30%) and changes in
supply (19%). Only 19% of respondents indicated the need to adapt to
the guidelines of the head office or the supply chain leader as a reason
for changes. The latter applies to companies operating in supply chains

at maturity level III and IV according to Poirier, i.e. the highest iden-
tified in the research, which means that they collaborate closely with
(even direct) suppliers and /or buyers in a supply chain. In this respect,
the relation of research results to supply chain maturity level was unam-
biguous. The results of the research pertaining to changes in informa-
tion management are presented in Figure 6.9.
The outsourcing of information management is not as popular as in
the case of transport or less sophisticated processes, such as cleaning or
security. It is, however, already significant, even though most respond-
ents (55%) do not outsource information management. Among those
who do (45%),11 outsourcing pertains mostly to software (71%), hard-
ware (48%) and information management process services (29%) –
Figure 6.10. Fourteen per cent of respondents outsourced comprehensive
information management, i.e. covering hardware, software and service,
and 19% outsourced hardware and software services.
Outsourcing does not preclude changes in information management.
As many as 61% of companies that amend their information manage-
ment models every few years use outsourcing in this area of business
operation. Of the companies who modify their models frequently, i.e.
once a year, 40% outsource this operation. What is interesting is that
none of the companies who make changes less often outsource infor-
mation management (in any aspect). This may mean that insourcing
companies are not willing to pay excessive attention to information
40%
30% Less often

Every few years
20% Once a year
10%
0% Frequency
fic
e
d er ge ost g es g es
of n
lea ha bo an an
ad el
c y ch ch
he SC nc y d
e he od ie pl an
th t m fic p
by s Ef Su m
by es De
ed c ed in
rc or us
Fo F B
Reason
Figure 6.9 Changes in information management model

Source: Own study.
186 Maciej Szymczak
80% 71%
70%
48%
60%
50%
40% 29%
30%
20%
10%
0%
Hardware Software Human resources
(service)
Figure 6.10 Scope of information management outsourcing

Source: Own study.
management and to take on new challenges and that self-service in

this respect is a sufficient burden. This last observation may encourage
companies operating in changing market environments and with
strong competition to outsource information management. No rela-
tion between the tendency to outsource information management and
supply chain maturity was observed. Therefore, we may conclude that
operation on higher maturity levels, which require more collaboration
with partners, does not increase the level of confidence in outsourcing
of companies in the scope discussed above.
The companies analysed were also asked about their vision for the
future with respect to preferred information management models.
Almost two-thirds (64%) of respondents have no specific view on the
matter. In the interview, representatives of the companies warned
that they had ‘no knowledge’ on the matter or that it was ‘difficult to
pinpoint’ the desired solutions for the future today. In other compa-
nies, one may encounter specified views; however, companies are wary
of formulating bold ideas for the future. The results are presented in
Figure 6.11. Workflow management is regarded as the most appropriate
information management model for supply chains in the future, and
thus are the solutions that are already used to a lesser or greater extent
in the surveyed enterprises. This attitude was predominant, shared by
72% of respondents, which may suggest that they were thinking of the
foreseeable future or planned implementations. SOC and associated
SOA were the second most frequently selected response (17%). Cloud
computing and software agents do not occupy the attention of execu-
tives yet; at least, with regard to the foreseeable future of supply chains.
These solutions were indicated only by 5.5% of respondents. What is
5.5%
Cloud computing
SOC/SOA
Software agents
17.0% Workflow management
5.5%
72%
Figure 6.11 The most appropriate supply chain information management models
for the future
Source: Own study.
worth mentioning is that the most advanced solutions were picked only
by companies that operated in supply chains at maturity level I.
As much as information management is a collection of actions in
which the analysed companies rely mainly on their own resources, capac-
ities and competences and are not willing to use third-party resources,
experience and competence without displaying a considerable tendency
for outsourcing, knowledge management is a process carried out collec-
tively. Companies realise that considerable and significant knowledge
resources exist outside the organisation. For now, this collective collabo-
ration to generate knowledge mainly involves the closest partners in the
supply chain (33% of respondents) and therefore at least selected direct
suppliers and purchasers. Only 8% of respondents admitted collabora-
tion with a larger network of partners or supply chain links, but this is a
good sign for the future. This collaboration will grow in supply chains.
Collective knowledge management is, in particular, the domain
of companies whose supply chains are at maturity level III. Other
researched companies generate knowledge on their own, i.e. at the level
of a specific business unit (29.5%), or at corporate level, i.e. in many
(often dispersed) business units (29.5%). This situation is presented in
Figure 6.12. In the knowledge management process, companies focus
on training and attracting qualified staff. These aspects were the most
frequently indicated in the research (74%) – Figure 6.13. Also, the
transfer of knowledge through sharing experience with third parties and
partners during meetings, teleconferences, symposia, etc. and corporate
knowledge transfer – from company branches and specialised business
units – were indicated by, respectively, 49% and 33% of respondents.
188 Maciej Szymczak
8.0% Individually, at business unit

29.5% level
Individually, at corporate
33.0% level
Collectively, with closest
partners
29.5%
Collectively, in collaborative
network
Figure 6.12 Knowledge generation in the supply chain

Source: Own study.
80% 74% 74%
60% 49%
40% 33% 29%
20%
0%
g D
l
t
g
in
ve
en
R&
in
r
le
ha
in
tm
n
ti
tra
s
ui
at
e
en
cr
nc
ee
or
re
rp
ie m
oy
er ve
ee
co
pl
p ol
Em
oy
at
Ex Inv
pl
r
fe
Em
ns
tra
e
dg
le
ow
Kn
Figure 6.13 Main actions in the knowledge management process

Source: Own study.
This confirms an observation that in modern business practice more and

more non-routine, interrelated tasks with a vague structure are under-
taken. With reference to the specified categories of knowledge work
(see Section 6.1.), in the companies researched, knowledge-based ways
of working dominate, which consist of the development (training) of
in-house experts, winning outside experts and collaboration conducive
to the transfer and development of knowledge. The companies assigned
the lowest value in knowledge management to involvement in research
3.8
4 3.2 3.0
3 2.0
2
1
0
Level I Level II Level III Level IV
Figure 6.14 Average number of actions undertaken in the knowledge manage-

ment process
Source:Own study.
and development (29%). This last result may be surprising if one takes
into consideration the fact that the researched companies prefer to use
in-house resources in product development and design in almost all the
applied assessment criteria, such as innovativeness, creativity, flexibility,
diversification, knowledge of the sector, knowledge of customer needs
and project costs. Thus, companies perfectly understand the potential
that dwells in the research and development units and the importance
of knowledge they generate. When relating these results to supply chain
maturity, we find that the companies with supply chain maturity level I
display relatively high initiative in knowledge management. Their level
is slightly lower than in companies at maturity level II but comparable
to those at level IV. This is proven by the number of measures indicated
in the questionnaire (Figure 6.14.). The lowest activity in this respect was
demonstrated by companies operating in supply chains at at Poirier’s
maturity level III.
Notes
1. Various approaches to define said terms are adopted, particularly when taking
the perspective provided by the engineering and economic sciences into
account. Here, one should especially take note of the management sciences.
That we often use the term ‘information’ may also stem from the fact that we
regard this term as a primitive notion – something not requiring any defini-
tion (Stefanowicz 2010, pp. 11–13).
2. Covers demand forecasting and sales planning.
3. This is particularly significant for safety purposes and chiefly pertains to food
supply chains. Therefore, the EU introduced the requirement to label and
trace the origin of foodstuffs (substances, semi-finished and finished prod-
ucts) and feed as of 1 January 2005. This obligation is specified in regula-
tion (EC) No. 178/2002 of the European Parliament and of the Council of 28
January 2002.
190 Maciej Szymczak
4. At this point, cluster computing and grid computing should be mentioned.

Cloud computing has qualities of both these previous solutions (Buyya et al.
2009).
5. The notion of ‘workflow management’ in the literature usually pertains to
data processing models and related technology (in the area of ICT) supporting
business process management (BPM), which is a widely understood term and
a specific management area in a company (Hill et al. 2008). In Polish, there
are various terms for workflow management, as there is no agreement on
naming this type of software solution. Business process automation systems
are one of them. The first version of workgroup-assisting systems was the
groupware or collaborative software used in the last decade of the 20th
century, and one of the first commercial products of this type was Lotus
Notes software.
6. Not only in a relay approach: from loading, through reloading to unloading,
including online using satellite navigation, GPS receivers and wireless phone
systems: landline (GSM, UMTS) and satellite.
7. Mobile technologies permit on-site preparation of photo documentation
of any damage made during storage and transport, and immediate transfer
of such data to the appropriate unit in the company for quick complaint
processing.
8. The supply chain maturity level could not always be explicitly determined
on the basis of the preliminary study results – see Section 2.4).
9. This is quite a high percentage, despite the fact that not all enterprises were
manufacturing companies.
10. Various dedicated transaction processing systems have been successfully
used in these areas for a dozen or so years. Companies often use production
control systems, material flow and transport management systems, financial
and accounting systems, HR and payroll systems.
11. Only outsourcing to third parties was taken into account; captive outsourcing
(to own business units) was excluded.
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7
Social Capital Management in
the Supply Chain
Anna Baraniecka
7.1 The importance and role of social capital

in the supply chain
Most, if not all, publications pertaining to supply chains stress the

growing importance of the nature of the contacts between supply chain
links; these contacts largely determine the durability, effectiveness and
efficiency of operation. Usually, it is suggested that collaboration between
the supply chain links be based on partnership, as opposed to transactional
or confrontational relationships (Ferguson 2000, p. 65). These should be
long-term relationships, closely binding the parties, and based on mutual
trust, openness and the sharing of risk and profits (Dudzik 2000, p. 179).
Building such relationships within a supply network is a challenge. It
requires the time, willingness and commitment of all parties.
The decision to continue a relationships or concerning the intensity
of future collaboration between entities should be based on trust. The
problem of trust as a basic factor determining the development of long-
term collaboration has been discussed by many authors. For instance,
Morgan and Hunt (1994, p. 12), ascribe the key role in relations models
to trust. They created partner marketing theory, which is based on trust
and the binding together of partners that follows from trust. They define
trust as the conviction of one entity that the other party will act to
generate positive outcomes and the expectation that the other party will
avoid unexpected undertakings that may affect outcomes. Thus, trust
becomes the main factor affecting the mutual commitment of partners
to continue a relationship (Światowiec 2001, p. 14). This factor is under-
mined by opportunistic behaviours, i.e. behaviours demonstrating the
absence of impartiality and honesty towards the partner, or actions that
195
196 Anna Baraniecka
involve deceit employed to gain unilateral benefits. The aforementioned

authors point out two major components of trust. These are:
● credibility, which refers to the extent to which one party believes the
other party has the required competence to perform their profession
(tasks) in an effective and reliable manner;
● goodwill, which refers to the extent to which a party believes the
other party is driven by intentions and motives that are mutually
beneficial, even in unexpected circumstances.
Sinclaire and Siemieniach (quoted in Knolmayer, Martens and Zeier

2002, p. 16) indicate that the following factors are important in building
cooperation between and among companies:
● identification of shared objectives and implementation policy;

● transparency of problems and working methods;
● willingness to share benefits;
● mutual understanding and use of terms;
● respect for differences;
● effective promise-keeping;
● personal relationships built over time.
Partnership is founded on the trust most often developed during long-

term contacts between companies and is based on the generally known,
positive market opinion of the company.
Trust in relationships between supply chain links is also the key to
achieving a substantial reduction in transaction costs or, at the very
least, to guaranteeing a network’s economic profitability. This mainly
results from the fact that wherever there is trust, the need to secure
the division of future results is considerably lowered, as is the need for
mechanisms to prevent or reduce opportunistic behaviours. Moreover,
opportunistic behaviours quickly damage reputation and, nowadays,
reputation is an economic value held in high regard – especially when
starting a collaboration. Therefore, companies active in a system based
on good reputation must base their contacts on trust. Their reputation is
a like a ‘hostage’ they have handed over to their business partners.1 The
value of trust increases in line with the internationalisation of supply
chains. Transactional costs in this case become higher. Therefore, the
opportunity to reduce such costs by, e.g., eliminating opportunistic
behaviours, which improves the possibility of coordinating activities on
a global scale, may determine a network’s competitive advantage. Lack
Social Capital Management in the Supply Chain 197
of a proper level of trust in contacts between partners may become a

reason for choosing another form of collaboration or even for resigning
from the internationalisation of operation (Jarillo 2002, p. 161). Schary
and Skjott-Larsen (2002, p. 59) pointed this fact out when describing the
negative results of opportunistic behaviours and prescriptive forms of
trust building.2 J.C. Jarillo (2002) presents a similar approach, assuming
that a supply chain can operate efficiently and effectively only on the
basis of freely developed and trust-based partnership; he attempts to
discount other ways of network contact building. The author suggests
that the appropriate forms of business collaboration between companies
should be made on the basis of the observation of the level of the trans-
actional cost (Table 7.1).
In relation to the issue of trust between parties to a transaction in a
network, the following sources of trust are indicated: the credibility of
the partner and their tradition of collaboration (Grudzewski et al. 2009,
pp. 83–145; Fukuyama 1995, pp. 149–245; Sprenger 2009, pp.130..
On the other hand, as many researchers of the issue conclude (e.g.
Putnam 1995; Coleman, Fukuyama and Matysiak 1999), trust between
collaborating companies also has an external dimension. This dimen-
sion is social capital. The category of social capital has not yet been
duly discussed by researchers of supply chains. This is surprising; differ-
ences in interpreting the CM concept notwithstanding, there is wide
agreement that the essence of this concept is a change in relationships
between the supply chain links from confrontational and involving the
exercise of bargaining power, towards long-term relationship relations
based on trust and mutual benefit. The socially fair distribution of risk
and benefits among supply chain links is stressed in many definitions of
SCM (Witkowski 2010, pp. 36–42). The reasons for the low recognition
of relations between social capital and supply chains may result from
the difficulties in operationalising social capital. Individual supply chain
links appreciate and research social capital extremely rarely; it is not
Table 7.1 Reasons for undertaking select ways to collaborate in supply chains
Situation observed during collaboration Recommendations
EP < IC; TC low in general Normal market relations

EP < IC; TC high in general Vertical integration
EP < IC; TC gradually lower Strategic supply network
Notes: EP = external prices of selected actions paid by the company; IC = internal costs of
selected actions; TC = transactional costs.
Source: Own study based on Jarillo 2002, pp. 160–162.
198 Anna Baraniecka
supported by any computer system and its ‘soft’ nature makes it difficult
to search for the financial benefits to be gained from its improvement.
The aforementioned arguments, when compared with the developed,
computerised and standardised traditional concepts underlying supply
chain management, definitely reduce interest in the supply chain’s
social capital (Baraniecka and Witkowski 2011, pp. 8–9).
When discussing these limitations, associated with little interest in
social capital on the basis of the theory and practice of supply chain
management, it is worth analysing all dimensions of social capital
affecting supply chain management. This means that it is necessary to
refer to both the macroeconomic approach to social capital, wherein it
constitutes external conditioning of supply chain operation, and the
microeconomic approach (social capital of the supply chain itself and
individual companies), in which social capital forms a part of internal
supply chain potential.
7.1.1 Macroeconomic approach to social capital

Social capital has been widely discussed in the social sciences, most
widely in economics and sociology. This intangible resource of the macro
environment of companies has drawn the attention of, e.g., J. Coleman
and R. Putnam, and then F. Fukuyama, who searched for the correlation
between the extent of economic development of regions and something
they called social capital or ‘potential’, which comprised the network
of social relations that actually provide the opportunity for collabora-
tion in various areas of activity. In the 1980s, J. Coleman concluded
that social relations that emerge when individuals try to make the best
use of their individual resources may be regarded as a community’s
capital. This capital helps solve social problems and regulate the func-
tioning of the local community. Moreover, it helps to develop business
entrepreneurship. As an attribute of the social structure, social capital
helps it attain goals that could not be achieved in its absence or only
at higher cost (Grosse 2002). Coleman develops the concept of social
capital by referring to notions of physical and human capital. The first
comprises machinery, tools and other tangible and financial assets used
for manufacturing purposes. The second is made up of the skills, abili-
ties and knowledge of individual employees. Social capital, on the other
hand, is the least tangible. It dwells in human relations. These relations
include power, standards and social trust. In the opinion of Coleman,
the opinion that everyone should give up some individual benefit in
order to act in favour of the community to accomplish goods that are
shared generally is a very strong social good. This type of value, backed
by social support, status and other awards, is the social capital that
drives individuals to work for the public good (Grosse 2002). Based on
long-term studies of social capital, Coleman defined it as skills related
to human cooperation in groups and organisations for the purpose of
achieving common interests. He sees social capital in such qualities of
social organisation as trust, standards and relations, which may improve
the efficiency of a society by facilitating coordinated actions (Matysiak
1999, p. 61). A similar definition of social capital has been proposed
by Fukuyama, who called it the ‘moral network’ of society – a group of
social norms shared and practised by the majority, e.g. characteristics
such as reliability, loyalty and solidarity (Grosse 2002).
According to another famous researcher of social capital, R.D.
Putnam, social capital refers to the qualities of social commitment, such
as networks, standards and social trust, that facilitate the coordination
of actions and collaboration yielding mutual benefits (Putnam 1995,
p. 258). Putnam’s considerable contribution to the social capital theory
came from distinguishing the two forms of social capital: bonding and
bridging capital. Bonding capital is observed in internally focused groups;
it strengthens their cohesion, identity and homogeneity. This type of
capital relates to relationships between similar entities (persons). This
type of strong relationship between and among individuals in a commu-
nity is accompanied by the inclination to build barriers protecting the
group from the surrounding world and excluding ‘individuals who
disrupt homogeneity’. Bridging capital, on the other hand, is focused
externally – it connects people from different environments and builds
connections between and among heterogeneous groups. Although
relationships built on such capital are weaker, they are inclusive (i.e.
connecting), in that they shorten the distance separating various social
categories.
Bullen and Onyx (quoted in Bratnicki, Dyduch and Zabierowski 2002,
p. 269) contributed to our understanding of social capital structure
(components of capital). They believed that social capital, understood
as a network of relations developed both internally and externally by an
organisation, comprises six elements:
● network structure;
● standards within the network;
● trust;
● mutual action;
● communities;
● pro-activity.
200 Anna Baraniecka
All these elements are used in many common definitions of social

capital. The approaches and related purposes of defining the influence
of social capital stress one or the other component(s). The intensifica-
tion of social capital research helped to determine the areas of its influ-
ence accurately. These areas include principally:
● a reduction in the uncertainty of social and economic life;

● a reduction in the individual costs of reproducing property rights, in
transactional costs, and in signalling costs (information targeted at
the market);
● an increase in business activity;
● an improvement in investment efficiency;
● the coordination of economy-related individual and group actions;
● the creation of opportunities for people to act spontaneously.
The main objective of social capital is to reduce uncertainty in social and

economic life. Without social capital, uncertainty would be a serious
obstacle to business activities and cooperation between people and
organisations. Social capital replaces those individual resources needed
to reduce uncertainty in business activity and collaboration, e.g. the
costs of protecting one’s own resources and goods, expenditures made to
collect information on the business environment (including partners),
expenditures on signalling own traits that induce the trust of the envi-
ronment. Thus, social capital reduces the individual cost of reproducing
property rights, transactional costs and signalling costs (information
targeted at the market). Social capital boosts business activity, which is
often restricted by capital deficits; it modifies the direction of develop-
ment and improves investment efficiency. However, the most important
function of social capital is in coordinating economy-related individual
and group actions. In this context, A. Matysiak (1999, p. 63) reduces the
function of social capital to the ‘invisible hand of the market’ which
drives human actions. As this author admits, perceived benefit to oneself
is the main motive behind human action; however, social capital helps
prevent one negative effect of this motive, i.e. conflict, and the ensuing
social instability. This is so because social capital determines the frame-
work of benefit to oneself by defining the attributes of individual and
global actions in a way that assures that everyone receives these benefits
(Matysiak 1999, p. 63).
When studying the literature regarding social capital, one encounters
various opinions regarding its presence in global society. Some authors
suggest that social capital can be found in all regions of the world, though
they suggest that it differs in power or structure. Others emphatically

insist that social capital is found only in open societies that believe in
such values as rationality, tolerance, criticism, brotherhood and mutual
trust and that have a structure that allows for the relative independence
of the economy, politics and culture. This independence prevents one
sphere from dominating social life through ideology or coercion.
As F. Fukuyama (quoted in Matysiak 1999, p. 63) states, ‘the most effec-
tive organisations are based on communities of shared ethical values’.
With regard to networks, this means that from this criterion’s perspec-
tive regional relationships are the most beneficial.3 This is clearly visible
in the Japanese supply networks, i.e. so-called keiretsu. In the opinion
of social capital researchers, Japanese society has high social capital, its
source deriving mainly from national culture and considerable state
protectionism, which strengthens the internal relationship structures in
companies. The high social capital of Japan is demonstrated in the ways
business collaboration is started and handled, which are difficult to
reproduce under other social conditions. Without negating its share of
rational premises, one can conclude that keiretsu structures have been
mainly developed as a reflection of Japanese cultural dimensions (Pigot,
Schneider and Lam 1997). If these dependencies are ignored when trans-
ferring and applying the principles typical of keiretsu into another socio-
cultural environment, one can expect failure, and benefits lower than
one might otherwise anticipate from collaboration in the network.
Japanese keiretsu are the most widely known network structures.
However, the European, or to be more precise, the Italian example
confirms dependence on social capital when creating stable and
competitive supply chains. Italian regions are often described as perfect
examples of network systems: they are territorial units that include a
multitude of small and medium-sized enterprises that operate according
to the principles of both solidarity and competition, and which may,
thanks to this, achieve a competitive edge comparable to that of large
companies.4
The examples presented clearly show the power of social capital,
which implies the capacity for commitment, spontaneous trust and
collaboration among groups or individuals, contributes to the estab-
lishment, permanence, efficiency and effectiveness of supply networks.
What should, however, be stressed is that this is mainly observed at the
regional level. On the other hand, might not strong social capital, in
the event of a considerable internationalisation of a network, become
a major obstacle to that network’s development? Referring to the views
cited earlier, one can conclude that, in this case, it is mainly the structure
202 Anna Baraniecka
of social capital that determines what influence that capital has. And
thus, in societies with strong social capital, assuming that other cultures
are tolerated and accepted, it is possible to transfer the positive influence
of this social capital onto the collaboration with foreign companies (the
Netherlands is regarded as such a society). In the case of countries with a
highly individualised culture and strong social capital, the creation and
coordination of a strongly internationalised network may be difficult
(Baraniecka 2005, p. 24).
As A. Matysiak (1999) showed, social capital may be created in a society
with an individualistic culture (e.g. the United States) or a community-
based culture (e.g. Japan), though the reproduction mechanisms may
differ. A community-based culture provides better conditions for collabo-
ration, whereas an individualistic culture supports competition. A high
level of (or strong) social capital directly determines the capacity to estab-
lish a knowledge-based society: one that is creative, innovative, tolerant,
open to change and able to develop lasting socioeconomic relation-
ships. The high social potential mildens market habits, something that
is demonstrated by the domination of ethical market behaviours. High
social capital influences factors conditioning collaboration based on the
principles of mutual benefit and trust, such as (Witkowski 2002, p. 31):
• a strong ability of people to connect with socioeconomic groups

spontaneously (this capacity depends on the degree of recogni-
tion and capacity to perceive ethical norms typical of a specific
community);
• the power of cultural traditions focused on balancing the
economic interest of an individual with an interest in and
commitment to the community;
• the long-term cooperation of supply chain links that develop and
consolidate the organisational culture based on a moral system
of values and attitudes.
When using the term ‘high social capital’, one should ask how the
capital’s level may be determined. To date, no universal and gener-
ally accepted model or formula for calculating social capital has been
proposed in the literature. This indicates that social capital is highly
complex and intangible. Despite difficulties in the classification of
social capital, attempts have been made to measure it (Baraniecka 2005,
pp. 15–25). The methods used to measure social capital are reviewed in
Table 7.2.
Just as economic analysis usually omits the influence of social
capital on the stability of market exchange, the theory of supply chain
Table 7.2 Selected methods of social capital measurement
Name of method Manner of measurement Notes
New network links indicator The social capital level is The faster it happens, the
determined by the speed higher the social capital.
with which new links are
made between units in an
organisation.
Network multiplier This determines the total Informational isolation
social capital value based of network members.
on the total amount A multiplier equal to 1
of knowledge and indicates the absence of
information available social capital.
to the entrepreneur as a
member of the network.
Measurement of mesh in social Social capital, viewed as the Mesh number in the
relationships network strength of relationship network indicates
joining one member of the so-called ‘negative’
organisation with another social capital and this
within the network, is forms the basis for
determined on the basis estimating the proper
of mesh. Mesh means the level of social capital.
absence of relationships.
Measurement of social capital The evaluation of the The evaluation takes into
as network efficiency social capital comes account the results of
down to assessing the interaction between
social relationships tangible capital and
network structure and social and human
describing entrepreneurial capital which are then
behaviours. taken into account as
a factor that has an
impact on efficiency.
Measurement of social capital Social capital is evaluated The author of the
as a scale of commitment, through the analysis of indicator (F. Fukuyama)
cohesion and trust in the the product of the total pointed out the negative
network number of members of the aspects of social capital,
same group (network) and i.e. the exclusion of and
the following coefficients: lack of trust of units
group cohesion, the outside the network.
scope of trust within the
network, and the inverse
of the coefficient of the
range of trust of persons
outside the network.
Measurement of social capital Assessment based on surveys The replies are given
using a questionnaire with questions regarding weights, which are used
the level of trust and to calculate the level of
collaboration. social capital.
Source: Own study based on Bratnicki, Dyduch and Zbierowski 2002, p. 273.
management does not focus much on this issue. Meanwhile, failing

to include the social factor in designing supply chains (determination
of their costs and benefits included) may lead to discrepancies in this
area and these, in turn, may result in dissatisfaction of the parties with
204 Anna Baraniecka
collaboration, or even its termination. The above described dependency

is particularly important for international companies and companies
collaborating with entities located in regions with different cultures,
values or traditions. The impact of social capital on supply chain
management is confirmed by the fact that the most efficient and effec-
tive projects of this type are most frequently carried out by companies
operating in a single country (Mitchell 1996).
When observing its scale and strength of impact as an element in a
supply chain’s environment, one should consider social capital as one of
the factors influencing the choice of the chain’s configuration, ways to
coordinate it and ways to predict the costs of operation, and perspectives
for future development. In the discussion of the influence social capital
has on the operation of supply chains, a slight, but noticeable, influence
of supply chains the social capital in the environment. Social capital
determines the susceptibility of organisations to creating networks or
voluntary participation therein, but also the very process of undertaking
such initiatives has an impact on the shaping of social capital. Similarly,
as is true of the creation of any other form of capital, the accumulation
and development of social capital requires continuity of actions over the
long term. The supply chain, regarded as an extended enterprise, is – to
some extent – a social institution. Its operation on the basis of concepts
of partnership and trust makes it possible to create and multiply social
capital. The development of social capital through the attainment of
shared benefits considerably increases the number of innovative actions
undertaken by members of the organisation, thus establishing grounds
for gaining and maintaining a competitive edge. The differences among
enterprises most of all represent differences in the identification and use
of social capital (Baraniecka 2005, p. 24).
7.1.2 Microeconomic approach to social capital

Until recently, the notion of social capital was only widely discussed in
economic and sociological writings. This resulted largely from a tradi-
tion of researching this phenomenon and related academic achieve-
ments that demonstrated a strong correlation between the level of social
capital and the development of societies and economies. Enterprises,
which perceived social capital as part of the environment, did not see
how to make an individual impact on capital; hence, as in the case of
other macroenvironmental elements, they adopted a passive approach.
However, globalisation and the resulting internationalisation of busi-
ness operations, including the development of global networks, drew
the attention of researchers and management practitioners to the ‘soft’
conditions and elements of business operations, including social capital.

The notion of ‘intangible’ capital is gaining importance, mainly due
to its proven influence in major areas on adding value or improving
competitiveness, which include: information and knowledge (driving
innovation), trust and credibility (image creation), commitment and
loyalty (influencing productivity).
In the context of these tendencies, the extra-economic approach and
definitions of social capital have begun to appear in the management
literature; also, the terms ‘external’ and ‘internal’ social capital have been
coined. Researchers and practitioners have noticed a new dimension to
social capital that is different from macroeconomic or social capital in
that businesses may form it any way they want, while adjusting it to
their vision of strategic development.
Compared with the macroeconomic approach to social capital, under
which the capital is regarded as an external category in the operation of
companies, the microeconomic approach, i.e. the approach dedicated
to individual businesses, is still in the phase of scientific development.
R.S. Burt can be seen as a pioneer in the microeconomic approach to
social capital. He assumed that both the internal and external relation-
ships of a company constitute its social capital (Burt 1992, p. 58). Many
authors who deal with issues of social capital in companies agreed with
this concept and proposed the following, classification of social capital
(Grzanka 2009, p. 102):
1. The internal social capital of a company is made up of all employees,

including executive staff. This form of social capital covers the
connections and relations that transfer the standards, attitudes, prin-
ciples and customs that are manifested in the so-called ‘spirit of the
organisation’ or the organisational climate, in knowledge coding
methods, product development and conflict resolution, etc. Internal
capital determines the quality of relationships between and among
employees and departments within the entire company.
2. External social capital is based on the company’s involvement in rela-
tionships with customers and suppliers and other entities in the busi-
ness environment.
I. Grzanka, who researched the impact social capital has on customer

relations, defined a company’s social capital as ‘a category resulting
from the involvement in the networks of relations which, based on
shared standards, principles, values and trust, grant the parties access to
resources, in particular knowledge and competence. All this is focused
206 Anna Baraniecka
on gaining adequate benefits by the company, such as: improvement

of the efficiency of operation, development, competitive advantage’
(Grzanka 2009, p. 88). The author of this definition assumes that a
company’s social capital contributes to the achievement of specific goals
and strategic objectives. The development of social capital in a company
is manifested by increases in the potential of its individual dimensions,
i.e.:
● an increase in the level of trust in interpersonal contacts;

● the establishment of closer contacts with colleagues;
● the development of new abilities and competences by employees.
In the opinion of T. Kaźmierczak, social capital that conditions reci-

procity and trust influences a readiness to collaborate and efficiency of
collaboration. Social capital helps in achieving goals which otherwise
would remain unrealised or would require higher costs (Kaźmierczak
2007, p. 47).
Taking into account the potential benefits of using a company’s social
capital for its development, one should consider how to measure this
category of social capital. Unfortunately, the microeconomic approach
to social capital, which offers fewer research results and academic discus-
sions, has not yet developed a universal set of assessment indicators.
Therefore, in the literature on the subject, macroeconomic solutions are
transferred to microeconomic area. A popular set of indicators includes
the ‘six sources of social capital according to the World Bank’. They
include (Herbst 2007, p. 88):
– organisational participation and its differentiation;

– trust and solidarity level;
– the scale of collaboration and readiness to collaborate;
– information and communication (e.g. number of information sources
used);
– social integration and inclusion (stratification scale, scope of minority
group integration);
– feeling of subjectivity – perceived impact on the environment, in
particular on key institutions.
The cited sources are used to provide grounds for the measurement and
assessment of the company’s social capital. Unfortunately, among those
specified, the only research tool that can be used at company level is
related to trust (Grudzewski et al. 2009).
Understanding the components of social capital may prove helpful in

identifying, measuring and developing it. The elements of social capital
include (Theiss 2005, p. 61):
1. structural elements, such as social networks, groups, social insti-

tutions, acquaintances and information channels;
2. normative elements, which include social standards, dedicated
to the collaboration with other entities, most important values,
trust, solidarity, customs;
3. behavioural elements, i.e. collaboration (helping others, volun-
tary service), group actions, information sharing.
A set of simple indicators may be drawn up for the structure of social

capital. They may include the number of business relationships in an
organisation, the level of trust and the amount of information shared
or shared initiatives (Baraniecka and Witkowski 2011). Investments in
social capital are important, as they indirectly support the use of other
capital: human, physical or financial. Social capital supports the opera-
tion of an organisation that has a deficit of other types of capital (Moroń
2009, p. 36).
What is extremely important to recognise within the microeconomic
approach to social capital discussed above, is that the development
or modification of a company’s social capital is a process that can be
planned, organised and controlled. This means that a company’s social
capital can be managed. This conclusion is significant for the future of
social capital as an increasingly important factor determining the devel-
opment of companies and supply chains.
7.2 Social capital of the supply chain
A supply chain, considered subjectively as a group of companies and

objectively as a group of processes and resources, is influenced by the two
aforementioned categories of social capital (social capital of the environ-
ment and social capital of companies comprising the supply chain). This
means, when managing a supply chain, that one needs to take account
of social capital both in the assessment and in the planning and veri-
fication of actions undertaken in the chain. Unfortunately, as observa-
tion of market behaviours and research carried out by the authors show,
companies are not interested in the level and type of social capital in
any dimension. Meanwhile, environmental social capital does form the
background of many decisions undertaken in the supply chain, and the
208 Anna Baraniecka
capital of companies comprising the supply chain is an element of the

potential they contribute to the shared concept of development. In the
context of the above deliberations, the first material conclusion dedi-
cated to the SCM concept is that the social capital of the environment
and individual systems which form a part of the supply chain should be
widely researched and used to improve the supply chain. This recom-
mendation will be specified more precisely later in this chapter.
When writing about an integrated supply chain, almost all authors,
regardless of the context of their deliberation, use the term ‘extended
company’. This means that any solutions dedicated to the development
of companies may be discussed and applied at the level of the supply
chain. This conclusion also applies to the management of a supply
chain’s social capital. In the author’s opinion, a supply chain’s social
capital is theoretically a ‘difficult’ category. This means that this topic,
due to its innovative nature, is not only hard to analyse and interpret,
but also ‘unrewarding’ given the unwillingness within business prac-
tice to participate in its discovery.5 Meanwhile, it is worth noting that
ignoring the social factors in supply chain development contradicts
the idea of a partnership between supply chain links and frequently
confirms that a company is integrating its supply chain in a prescriptive
manner (cf. Section 2.2).
Methodological problems regarding the research of a supply chain’s
social capital result, inter alia, from the fact that, as opposed to other
types of capital, e.g. financial, tangible or even human, the social capital
of the supply chain is not the total social capital of individual entities
in the chain. The components of social capital, such as specific values,
trust level, cohesion, commitment or loyalty, must be planned and organ-
ised to meet the needs of the entire supply chain. With reference to the
above deliberations, the author defines the supply chain’s social capital as
a collection of inter-organisational relationships of a specific quality. The
quality of relationships is determined on the principles and values, trust,
commitment and consistency, which are common to all companies in
the supply chain. Inter-organisational relationships of a specific quality
allow companies of supply chain to achieve shared goals and the resultant
mutual benefits.
Unlike the microeconomic concept of social capital, and in line with
Putnam’s classification of social capital cited earlier, the author proposes
that the set of relationships (and their traits) between and among the
supply chain and other entities in the environment – which include
competitive supply chains, independent organisations, the society of
region or country and regional or local authority governments – reflect
the type of social capital the chain has. This means that internal social
capital can be bridging or bonding. Such an interpretation of the supply
chain’s social capital permits faster identification and measurement. The
social capital of supply chains may be determined on the basis of an
analysis of the scale, direction and quality of its relationship with the
environment (e.g. using supply chain integration models) and measured
using indicators e.g. dedicated to the company’ social capital.
Social capital has universal functions – in society, the company and
the supply chain. They are mainly:
● reduction of transactional costs based on trust building;

● reduction of process costs through the increased commitment and
credibility of entities in the supply chain;
● increased effectiveness and efficiency of supply chain integrating
actions.
What should be stressed, on account of its particular importance to the

group of entities in the supply chain, is the possibility of using the supply
chain’s social capital to eliminate the negative results of the impact made
by the social capital of the environment in which the chain is operating,
as well as the negative social capital of individual companies comprising
the chain. The internal social capital of a company is not that powerful
(i.e. powerful enough to eliminate the negative results of the impact
made by the social capital of the environment in which the chain is
operating, as well as the negative social capital of individual companies
comprising the chain), as it is limited by the external dimension of the
relationship (with collaborators). It should be noted that collaboration
to achieve shared goals and benefits, which is the central characteristic
of the supply chain management concept, strengthens relationships
between the companies; this is the beginning of the need to build rela-
tionships of an adequate quality. The nature of a partnership, i.e. the
freedom to undertake and maintain mutual actions, is conditioned
by the planned development of the internal capital within the supply
chain, i.e. management.
According to A. Baraniecka, managing social capital in a supply chain
consists in (Baraniecka and Witkowski 2011, p. 9):
1. identifying the level and traits of the social capital in a supply chain’s
environment and considering this information when planning the
development (in particular the internationalisation) of the supply
chain.
210 Anna Baraniecka
The identification of the level of social capital in the supply chain’s

environment may determine the choice of how to configure the
chain, expected expenditures and the effects of its operation. At this
level of aggregation, social capital is a significant background for
supply chain management. Thus, the impact of the level of social
capital in-group and individualistic cultures on the dominant rela-
tionships in supply chains is presented in Table 7.3.
2. planning the supply chain’s internal capital on the basis of the
chain’s objectives and in reference to data on social capital in the
environment.
If capital in the environment is not conducive to implementing the
supply chain strategy, adequate strategic decisions should be made
and tasks set for the development of internal capital, the qualities of
which may reduce the negative impact of the environment should be
directly defined.
3. organizing internal social capital by a set of actions related to change
management in a specific area.
Awareness of needs in the area of internal capital helps establish
the cultural pattern of an organisation; it helps draw up an ideal
profile of social capital and prepare the process of its development
and implementation in the supply chain. The tempo for procedures
and tools for forming social capital should be based on the identified
differences between the desired and actual condition of the capital
(actual profile).
4. controlling the level and qualities of the internal social capital in the
context of its impact on the supply chain development.
At this stage, a steady measurement of the social capital is made
based on the profile and dedicated indicators developed earlier.
The measurement of social capital is a key element at all specified

stages. Given benchmarking deficits, this element may prove to be the
hardest and the worst functioning in the management of social capital
in the supply chain. A solution may be found in the achievements of
the supply chain management concept, namely supply chain excellence
models (Baraniecka 2011, pp. 150–152). These models include groups of
phenomena, e.g. the components of social capital which determine the
level of a supply chain’s advancement, and which indicate the chain’s
competitiveness. Building on the selected supply chain excellence
models and taking into account the scientific achievements of social
capital, A. Baraniecka included the following in the group of indicators
of social capital in supply chains:
● the cohesion of companies operating in the supply chain understood

as the implementation of the shared strategy;
● the number of actual vs. declared relationships;
● the average of trust levels for individual relationships;
● the amount of information available vs. amount of shared
information;
● the number of participants carrying out projects dedicated to
the development of the supply chain vs. the total number of
participants;
● the number of complaints recorded by the customers vs. the number
of complaints recorded by suppliers in the supply chain;
● the number of contracts vs. the number of network participants over
a specific time (t);
● the growth rate of the number of contracts between network
participants;
● the number of pro-development visits against the total number of
visits.
These indicators require more detailed description, along with valida-

tion and practical application; however, even as they are, they prove
that the social capital in a supply chain may be easily measured.
When measuring the level of a supply chain’s social capital, one may
also take the declarations of participants regarding trust, commitment
Table 7.3 Impact of social capital and level of group orientation on supply chain
configuration
Social capital Group orientation Impact on supply

(trust) level level chain configuration Examples
High Individualism Flexible (including Scandinavian

virtual) supply countries,
networks Canada, USA
High Collectivism Integrated supply Keiretsu structures
chains with a central in Japan
coordinator
Low Individualism Low integration and Central and
strong centralisation Eastern
of power in supply European
chains countries,
former USSR
Low Collectivism Local and family supply China and Arab
networks countries
Source: Own study based on Baraniecka and Witkowski 2011, p. 10.
212 Anna Baraniecka
or loyalty into account. These seem an important source of informa-

tion regarding the supply chain’s social capital, however much they may
be perceived as a weak method of measurement, due to the declarative
nature of responses (which may be modified depending on changes in
attitudes towards the collaborators).
As suggested earlier, researching a supply chain’s social capital is not an

easy task. The major obstacles in the research are:
● a lack of knowledge or understanding of social capital among

respondents;
● too little awareness of benefits resulting from the understanding of
the social capital category;
● excessively complicated research tools, which discourage
collaboration;
● a general unwillingness on the part of modern organisations to
participate in scientific research (at least in Poland).
Despite these limitations, the authors managed to establish some

dialogue with Polish companies regarding the social capital of their
supply chains. Questions regarding social capital were included in
a questionnaire used in the second stage of the fundamental study –
the final study (see Introduction). The questions regarding the supply
chain’s social capital were used both in the questionnaire drawn up for
the purposes of the computer-assisted telephone interview (CATI) and
in the questionnaire prepared for the face-to-face interview.
The screening tests during indirect reasoning showed the considerable
importance of social capital in undertaking initiatives in supply chain
management. The companies researched indicated that the lack of trust
and commitment of collaborators in the supply chain and ensuing
restrictions in access to data, as well as the growing uncertainty of busi-
ness operations were a major barrier to the implementation of actions
towards improvement.
What seems reassuring, in particular given the fears presented herein
that the practitioners ignore the issue of social capital, is that the
majority of researched companies (74%) see the considerable influence
of the supply chain’s social capital (trust, commitment, loyalty of collab-
orators in supply chains) on their market success. Almost 10 per cent
of respondents recognised social capital as the most important factor

influencing the effectiveness of market actions (Figure 7.1.).
The companies see many benefits from high social capital in the
supply chain, the most important benefit (indicated by 32% of respond-
ents) being the increase in the competitiveness of the supply chain (and
of individual companies within it). Other areas influenced by the supply
chain’s social capital are presented in Table 7.4.
In the context of the demonstrated awareness of the significance of
the supply chain’s social capital, it seems paradoxical that a consider-
able percentage of researched companies (49%) do not analyse the level
of this capital. Only 27 per cent declare that they analyse the social
capital of their own supply chain, and 22 per cent plan to undertake
such research. This situation is presented in Figure 7.2.
As the deliberations presented herein show, a supply chain’s
social capital is not much discussed in theory or applied in business
practice. It seems that tradition and the effective promotion of the
macroeconomic approach to social capital have dominated the appli-
cation of any relevant theories in practice in the public sector. This
is probably why social capital is regarded by business environments
as an unknown and uncontrollable external factor of company and
supply chain operation. A similar situation is found with respect to
the social capital of companies. It was concluded, too quickly and
easily, that this ‘invisible’ resource of individual organisations could
not be accurately measured, and that one could therefore not influ-
ence its structure or level in order to adjust it to the needs of supply
chain management.
10% 6%
20%
Not important
Not very important
Very important
Most important for the
64% success of shared
initiatives
Figure 7.1 Responses to the question: is social capital important for the success
of companies?
Source: Own study.
214 Anna Baraniecka
Table 7.4 Responses to the question: what are the benefits of

high social capital?
Response Share
Reduced collaboration costs 16%

Increased product quality 25%
Reduced product price 12%
Increased competitiveness of the company 32%
Comfort and satisfaction with work 15%
Source: Own study.
No
22% No, but we have
49% participated in such
an analysis carried out
by our partners
Yes, we analyse the social
27%
capital of our supply chain
We are planning to analyse
the social capital of our
supply chain
2%
Figure 7.2 Responses to the question: do you analyse social capital?

Source: Own study.
In this chapter, the author has attempted to prove there is a practicable

method for controlling the influence of the environment’s social capital,
as well as the social capital of individual companies, on the operation
of supply chains. This method consists in conscious, organised and
consistent social capital management at the supply chain level. It refers
to the social capital of the environment, of the companies, and of the
supply chain itself, as it is a specific social binder of integrating initia-
tives. The results of the research presented herein are promising. Even if
almost half of the respondents show little interest in social capital today,
the majority appreciate its importance in building future competitive
advantage.
Notes
1. The analogy of medieval society is often used, wherein lords exchanged close
relatives (hostages) to confirm their commitment and guarantee the perma-
nence of treaties.
2. In their opinion, ‘excessive pressure on guarantees preventing opportunistic

behaviours is not conducive to the employees’ initiative, their willingness to
cooperate and to get involved’.
3. Regional differences in starting long-term collaboration were also described by
J. Bleeke and D. Ernst (1993).
4. The research on Italian supply networks was carried out by R. Putman. See also
Raszyński 2002.
5. Author’s note: The author presents this opinion with strong conviction, as
only 1 in 50 companies achieving best global results in supply chain manage-
ment (according to the Gartner ranking for 2010) was willing to take part in a
short interview regarding social capital (it was Dow Chemicals, and the author
hereby extends her gratitude).
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Summary
Today, companies want to improve the operation of their supply chains

because they have learned that supply chains are the source of market
power. Many companies outsource and offshore selected business proc-
esses. The scope and scale of outsourcing and offshoring are constantly
growing. The results of the conducted research helped expand knowl-
edge of modern supply chains in terms of the risk, information and
social capital management methods employed by companies (supply
chain links) in the outsourcing and offshoring decisions they make. The
results help assess the differences in approaching these issues and differ-
ences in the applicacion of risk, information and social capital manage-
ment methods on different supply chain maturity levels within the
context of Ch.C. Poirier’s model. They also present an overview of what
effects these methods have.
The primary goal of the project intended a significant application
value of the research. The conclusions drawn from the study, resulting
from detailed research, can be used by businesses to hedge speculative
risk inherent in outsourcing and offshoring. It may be concluded that
the results of the research are a specific guide to effective information,
risk and social capital management through the promotion of good
practices in these areas. These practices may be regarded as an informal
framework model of risk, management and social capital management
in the face of the outsourcing and offshoring of business processes. The
research results may be used by businesses as a basis to develop and
adapt the risk, information and social capital management method
in the context of the operational excellence of the supply chains they
operate in: to increase their efficiency and, as a result, competitiveness.
The results of this research can be translated into concrete recommen-
dations for companies operating within supply chains that want to excel
and achieve ever higher levels of maturity:
● Reaching the highest level of supply chain maturity is guaranteed by

initiatives based on deeper collaboration.
Supply chain management projects should focus on trying to
change the nature of connections with collaborators from transac-
tion-oriented to relation-oriented. In parallel there is a need to share
218
Summary 219
a consistent vision of supply chain development across supply chain

members.
● Estimating the efficiency of supply chain development cannot be seen
as the one and only compelling signpost in the development process.
Each stage of supply chain maturity is related to specific profits,
both for the company and for its collaborators. However, due to a
long period of some initiatives and related expenditures, one needs to
be cautious in estimating the efficiency of the development process.
● Partnership development within the supply chain should not be
understood as an attempt to harmonise the ways of collaborating.
Diversification of the ways the collaborators contact one another is
justified, especially in the context of differences in competence and
social or cultural conditions.
● There is a strong need to implement a holistic approach in risk
management.
Companies with complex structures that operate in fast-changing
and turbulent international environments need to manage risk in a
mature way. A responsible and holistic approach (including suppliers,
buyers and other stakeholders) to risk assessment and risk reduction
is a must under such circumstances.
● Risk mitigation should include active prevention.
The research results show that many companies concentrate on risk
identification and risk assessment, and ignore risk mitigation. This is
due to a reluctance to build long-term relationships with suppliers.
Some companies decide to exit from cooperation rather than imple-
ment improvements. In this case cooperation means an opportunistic
approach based on penalties. This does not guarantee a reduction in
the number of disruptions in relationships with suppliers.
● Risk management should be included in business strategy.
That is why the involvement of the top management and a formal-
ized approach (e.g. in accordance to the requirements of ISO 31000
or ISO 28000) are crucial. The results show that companies are not
involved in the whole process of risk management, since they forget
about active risk treatment. Both strategic and operational levels of
managing risk are vital. Using various methods of risk management
depending on the type of risk can guarantee effectiveness. Moreover,
taking preventive actions and mitigating risk using continuity plans
(prepared and tested with partners) result in fewer disruptions and less
vulnerability. This practice supports the avoidance of supply chain
crisis and ensures flow processes’ resistance to disruptive events.
220 Summary
● Information management should change with supply chain busi-

ness model evolution to follow the 3V principle (visibility, velocity,
versatility).
The study confirms that changes in information management
model are in general forced by the market. Market-induced reasons
also include the need to boost performance and the efficiency of
actions. It can be achieved by implementation amendments and
major changes to the current business model. Operation under a new
business model entails changes within the dependent information
system. This in turn means a new approach to information manage-
ment to follow the 3V principle within the supply chain in the long
run to support business model flexibility.
● Managers should be prepared to implement more advanced informa-
tion management solutions in the near future.
ICT is developing rapidly and offering new and better business
tools and solutions. The research shows that companies see work-
flow management and SOC/SOA as the most appropriate informa-
tion management models for supply chains in the future. There
are already many successful implementations of these solutions in
supply chains around the world. More advanced solutions, such as
cloud computing and software agents, do not occupy the attention
of supply chain executives yet. But they should be prepared to imple-
ment them in the foreseeable future. If they may guarantee a compet-
itive advantage now, they will certainly become the decisive factor in
competitivity with time. These solutions can be thought of as a lever
to reach higher levels of supply chain maturity.
● Collective knowledge management is a ticket to supply chain
maturity.
The study clearly showed that collective knowledge management
is the domain of companies whose supply chains are at the highest
maturity levels. Other researched companies generate knowledge
on their own – at the level of a specific business unit or at corpo-
rate level (i.e. many business units). In the era of knowledge-based
economy the role of knowledge management will certainly grow.
In the modern supply chain more and more non-routine tasks are
undertaken. Neither algorithms nor procedures but knowledge can
perform such tasks well. Knowledge becomes the most desirable
resource. For this reason, supply chain members have to transfer
knowledge and share experience with their branches, business units
and partners in order to achieve the best results. This collaboration
should also include development of knowledge throughout the
supply chain.
Summary 221
● Ignoring social factors in supply chain development contradicts the

idea of a partnership between supply chain members.
It confirms that a company is integrating its supply chain in a
prescriptive manner. The social issues of supply chain develop-
ment are growing more important, in particular in the context of
the considerable degree of supply chain internationalisation and the
increase in outsourcing and offshoring of operations. Social capital
has ceased to be merely an external factor determining relation-
ship development in the supply chain. It has become an important
element in the internal potential of the supply chain. Social capital
of the supply chain is conducive to relationships between the parties
involved. High levels of trust, commitment and loyalty of partners
make the supply chain more visible, stable and efficient.
● The supply chain’s social capital should be managed in a conscious,
organised, and consistent way.
It is necessary to use both a macroeconomic and a microeco-
nomic approach to social capital. All dimensions of social capital
affect supply chain management. Social capital in macroeconomic
perspective constitutes external conditions of supply chain opera-
tions. A microeconomic perception of social capital refers to the
social capital of the supply chain itself and individual companies. It
forms a part of internal supply chain potential. Social capital seems
to be a binder of supply chain initiatives. Due to its large scale and
the strength of its impact one should consider social capital as one
of the factors influencing the selection of supply chain configura-
tion with costs of operation and perspectives for future develop-
ment in mind.
As the research was conducted on businesses operating in Poland (both

domestic and foreign) that carry out some processes abroad or collab-
orate with outsourcees at home and abroad, the results and conclu-
sions made and presented herein are not materially limited to the area
covered by the research. Also, the selection of the test sample does not
limit the universality of the conclusions. Therefore, the authors offer
their opinion that the results of the research may be used in companies
operating in supply chains based on the outsourcing and offshoring of
processes, both in Poland and abroad. However, it should be stressed
that the results of the research may be particularly significant for Polish
businesses, especially those building or extending supply chains due to
the development or internationalisation of operations, and for foreign
enterprises that are transferring and organising their business in Poland
through direct investments or mergers, acquisitions or joint ventures.
222 Summary
Undoubtedly, the research and conclusions do not exhaust such a

complex topic. Moreover, the research revealed other interesting and
academically inspiring areas, as well as certain patterns, which deserve
empirical verification. This is yet another result of the work conducted.
The authors hope that the reading of this chapter will encourage other
researchers, both in Poland and abroad, to expand knowledge of how
modern supply chains operate, leading to new research and interesting
academic publications.
Index
Aberdeen Group, 26, 40, 133, 158 Christopher M., 11, 16, 21, 24, 39, 47,
Activity Based Costing, 54, 65, 66, 82 87, 96, 107, 125, 134, 139, 164
adaptive supply chains, 167, 176 cloud computing, 167–169,
Advanced Planner and Optimiser 186–188, 220
(APO), 174 cluster computing, 190
adverse event, 89, 95, 100, 134, 137, cognitive processing of
140, 143, 147, 149, 153 information, 161
AEO, 145 Coleman J., 197–199
agent technology, 169 Collaborative Planning, Forecasting
AGV, 174, 175 and Replenishment (CPFR), 33,
APO, 174 54, 139, 166
ARC Advisory Group, 177 co-dependence, 26
AS/RS, 174, 175 collaborative relationships, 14–15
assessment of suppliers, 30, 70, 155 Collaborative Planning, 165, 166
A.T. Kearney, 64 co-manufacturing, 13, 14
Authorised Economic Operator communication, 25, 28, 36, 47, 54–56,
initiative (AEO), 145 61, 63, 74, 82, 89, 91, 100, 107,
automated storage and retrieval 110, 111, 127, 141, 142, 154, 160,
systems (AS/RS), 174 164–166, 172, 175, 176, 182, 206
automatic guided vehicles (AGV), 174 compass model, 64
automatic identification, 174 computer system, 160, 163, 177, 198
automation and computerisation of computerised information
flows, 38 system, 161
conflict of objectives, 54, 57, 64
BI, 172 confrontational relations, 195
BIA, 147 congruence models, 54, 63
BPM, 190 Continuous Replenishment (CR),
BPO, 4 58, 166
Business Impact Analysis (BIA), 135, contract manufacturing, 13, 21
147 contract packing, 14
business intelligence (BI), 172, 173 co-opetition, 15
business process automation (BPA), co-optrol, 15
190 co-packing, 14, 15
business process management (BPM), core processes, 107, 112, 113
190 CP, 165, 166
business process outsourcing (BPO), 4 3C paradigm, 14, 25
CPFR, 33, 54, 58–60, 63, 166
CAD, 163 CPS, 165
CAE, 163 CR, 166
CAM, 163 Credibility, 49, 51, 68, 196, 197,
captive outsourcing, 190 205, 209
categories of knowledge work, 188 CRM, 27, 174, 182
223
224 Index
C-TPAT good practices, 145 e-SCM, 177

Customer Relationship Management e-sourcing, 177
(CRM), 11, 27, 162 e-supply chain, 177
Executive Information System
data, 6, 53, 54, 57, 63, 68, 70, 74, 78, (EIS), 172
91, 92, 100, 101, 134, 135, 140, expert system, 161, 171, 172, 181
143, 145, 151, 160–175, 190, 193, extended enterprise, 11, 31, 65,
210, 212 67, 204
access to, 34 external supply chain integration, 32
analysis, 6, 29, 57, 160–174,
183, 184, Fisher’s model, 54
confidential data, 128 flexible anufacturing systems
cost, 65, 78, 79 (FMS), 174
exchange, 61 FMS, 174
flow of, 160–164, 169 Forrester effect, 36
lost of, 102, 144 forwarder, 17, 22, 117, 119, 151, 177
mining, 160–172, 181, 182, Fukuyama F., 197–199, 201, 203
processing, 53, 54, 160, 166, 167, funds flow, 11
179, 190, future competitive advantage, 214
sharing, 25, 61, 140, 141, 160,
164, 166 Global Positioning System (GPS),
sharing standards, 164 174, 178
sources, 92, 128, 134, 135, 151, GPS, 174, 178
160–175 green purchasing, 30
transfer, 74, 160, 173, 175 green suppliers, 30
visualisation tools, 172 grid computing, 190
warehousing, 172
database systems, 27, 37, 53, 63, 78, hazard, 88, 97, 146
82, 161, 171, 181
decision support systems, 171, 172, 181 IaaS, 168
Deloitte, 141, 143 ICT, 23, 25, 27, 29, 53, 54, 62, 63, 65,
democratic integration, 49 66, 68, 69, 73, 74, 78, 89, 92, 97,
distributor, 14, 16, 62, 83, 95 98, 100, 101, 108, 111, 116, 142,
144, 145, 164, 167, 171–173, 175,
e-business, 170, 177 176, 179, 182, 185, 190, 217
e-commerce, 65, 99, 170, 177 ICT solutions, 173, 176
ECR, 54, 60–63, 66, 166 info-partnering, 164, 173, 179,
EDI, 53, 63, 82, 164, 174–176, 182 181, 193
Efficient Consumer Response (ECR), information, 2–7, 10–14, 17, 24–27,
54, 166 36, 45, 46, 54–57, 60, 61, 66, 70,
e-fulfilment, 177 74, 81, 87, 88, 91, 93, 96–100,
EIS, 172, 173 108, 111, 119–121, 126, 134, 136,
Electronic Data Interchange (EDI), 139–144, 147, 148, 151, 154,
53, 164 160–189, 200, 203, 205–212, 218,
environment trends, 34 220
Ernst & Young, 101 flow of, 2, 10, 11, 14, 17, 21, 24, 25,
ERP, 53, 63, 67, 82, 171, 175, 176, 182 36, 46, 54, 61, 66, 87, 97, 102,
ERP system, 53, 63, 67, 82, 171, 108, 141, 143, 145, 154, 160
175, 182 security, 93, 142–144
Index 225
sharing, 57, 139, 165,166, 207 flow of, 67, 160–174

sources of, 53, 151, 212 generation, 35, 91, 160–174, 181,
information & communication 187, 220
technology (ICT), 54 management, 7, 37, 52, 93, 148,
information management, 7, 139, 160–174, 179, 188, 189, 220
160, 189, 220 outsourcing, 35, 187
defined, 2, 160 sources of, 26, 50, 114, 160–174, 187
models, 6, 160, 220 tacit knowledge, 171
outsourcing of, 98 transfer of, 37, 160–174, 182, 187
tools, 4 work using knowledge, 35, 112,
information system, 12, 54, 66, 97, 134, 141, 164, 177, 187, 188
143, 161, 168, 170, 172, 220 knowledge base system, 161,
information technology (IT), 54 171, 172,
information transfer, 17
Infrastructure as a Service (IaaS), 168 lead time, 21, 22, 25, 28, 99, 115, 119,
insource services, 37 120, 122, 124
insourcing, 106, 185 leadership (in the sector), 65, 77
integration, 2, 3, 11, 12, 16, 20, 23–27, lean management, 36, 39, 54, 70
30–37, 45–57, 62–76, 81–83, 97, logistics operator, 1
99, 139, 149, 155, 157, 165–168,
175, 179, 197, 206, 209, 211 management agents, 169,
benefits of, 46 managing social capital, 209
intelligence, 161, 172, 173 Manufacturing Institute of Stanford
internal excellence, 65–67, 81 University, 144
internal social capital, 205, 209, 210 maturity level, 3, 65–69, 78–82, 126,
international supply chain, 13, 20, 87, 179, 180, 182, 185–190, 218, 220
141, 154, 182 Matysiak A., 197, 199, 200, 201, 202
inventory, 10, 16, 17, 21–25, 27, 30, mobile phones, 177
33, 37, 39, 53, 56–62, 65, 68–70, mobile solutions, 175
88, 95, 98, 99, 114, 115, 117, 119, mobile supply chain management
124, 125, 139, 144, 166, 167, 169, (MSCM), 175, 176
174–176, 183 mobile technologies, 175–178, 190
ISS, 164 monitoring agents, 169
MSCM, 175, 176
JIT, 166 multi-agent approach, 169
just-in-time, 19, 22, 88, 111, 114, mutual dependence, 26
119, 166 mutual independence, 26
Keiretsu, 19, 201, 211 network building, 65

Kempny D., 47, 58, 64 New Product Development (NPD), 30,
Kisperska-Moroń D., 39, 46, 49, 50, 64 162, 163
knowledge, 1, 4, 6, 7, 17, 26, 33, 35, non-core processes, 37, 113
37, 50, 52, 72, 91, 93, 112, 114, NPD, 30, 162, 163
134, 141, 148, 160–174, 177, 178,
181, 182, 186–189, 198, 202–205, offshore outsourcing, 110, 116
212, 218, 220, 222 offshoring, 109, 113, 115, 124, 129,
active, 26, 27 153, 157
defined, 1, 4, 35, 72, 160–173, 203 areas of, 111
explicit, 171 investment, 4
226 Index
offshoring – continued resilient supply chains, 11

purpose of, 110 responsive supply chains, 11, 167
risk, 122, 157 Reuters, 171
offsourcing, 110 RFID, 174, 176
Ohmae K., 14 risk
OLAP, 172, 174 assessment, 133, 135, 149, 150,
On-Line Analytical Processing (OLAP), 153, 219
172, 174 commercial, 94, 95
operational partnership, 26 control & monitoring, 133, 137,
opportunistic attitudes, 33 140, 149
opportunistic partnership, 26 defined, 88
Original Equipment Manufacturer, 36 dynamic, 91
outsourcing, 73, 106–110, 111–113, evaluation, 133, 136, 141
116–120, 127, 128, 138, 148, 149, classification of, 92
150, 152, 168, 185–187 factors, 90, 96, 97, 101, 121
centres, 4 financial, 94, 95, 97
risk, 2, 120, 121, 148, 149, 151, management, 2, 96, 126, 133–142,
152, 157 145, 147, 148, 149, 153, 154, 156,
services, 4, 147, 149 157, 218, 219
purpose of, 107 manufacturing, 94, 95
rationale for, 107 measurement, 133
scope of, 108, 127, 149 mitigation, 2, 3, 133–142, 148–153,
155, 182, 219
PaaS, 168 negative, 91, 135
partnership relationship, 2, 3, 27, operational, 92, 93, 96, 97, 99, 101,
35, 38 139, 151, 154
4th Party Logistics (4PL), 169 positive, 91, 135
4PL, 70, 169 pure, 91, 95, 134, 138
Platform as a Service (PaaS), 168 sources of, 96–99, 101, 125, 134
Poirier Ch.C., 2, 3, 64, 65, 66, 67, 68, speculative, 1, 91, 150, 218
69, 73, 76, 81, 82, 126, 179, 185, static, 91
189, 218 strategic, 92, 93, 97
Porter M.E., 47, 83 treatment, 133, 137–138, 145, 219
preliminary supplier assessment, 28 upside, 91
prescriptive integration, 49, 208, 221
proactive supply chains, 11, 167 SaaS, 168
product flow, 10, 36, 47, 49, 96, 162 Sales and Operations Planning
PRTM/PMG, 64 (S&OP), 53, 56–57, 63, 72
purchasing centre, 20 SCM concept, 31–33, 34, 35, 36, 37,
pure cooperation, 15 68, 72, 74–75, 81, 82, 83, 208
Putnam R.D., 197, 198, 199, 208 SCM information system, 169, 174, 182
SCOR model, 35, 53, 54, 78, 82, 83
QR, 166 SCRM, 133–134, 141, 142
query & reporting, 172, 181 SCSM, 142, 144
query languages, 172 search agents, 169
Quick Response (QR), 166 service-oriented architecture (SOA),
167, 168, 186, 220
radio frequency identification (RFID), service-oriented computing (SOC),
174, 176 167, 186, 220
Index 227
shared service centres (SSC), 4 supply chain assessment criteria, 28,

smartphones, 177 157, 189
SOA, 167, 168, 186, 220 supply chain collaboration, 165–166
SOC, 167, 186, 220 supply chain development model of
social capital, 37–38, 57, 72, 197–198, A.T. Kearney, 64
199, 200, 201, 202, 204, 206, supply chain disintegrator, 51
207–210, 212–214, 221 supply chain evolution model, 64
bonding of, 199, 209 supply chain flexibility, 12, 139
bridging of, 199, 209 supply chain integration, 30, 31,
elements of, 207 45–46
indicators of, 210–211 barriers to, 51–52
macroeconomic approach to, 198, concepts, 51–63
205, 213 methods and tools, 63
microeconomic approach to, 198, types of, 48–51
204, 205, 206, 207, 221 reasons for, 46–48
measurement of, 203, 210 Supply Chain Management (SCM)
sources of, 206 concept, 31–33, 34, 35, 36, 37, 68,
software agents, 167, 169, 186, 220 72, 75, 76, 78, 80, 81, 82, 208
Software as a Service (SaaS), 168 defined, 45
S&OP, 53, 56–57, 63, 72 development of, 31–32
sources of data, information and principles, 32, 64, 69
knowledge, 162–163 supply chain maturity, 3, 5, 72–83,
sourcing, 13, 106 126, 179, 180, 185, 186, 189, 190,
global, 17, 20, 87, 124 218, 220
international, 13, 124 models, 2, 63–64
single, 87, 95, 98, 99 stages / levels of, 78, 64–69
strategy, 18, 95 supply chain processes, 11, 30, 46, 68,
SRM, 29, 69, 70, 162, 182 69, 162
strategic alliance, 15, 26, 35, 79, 82 supply chain proficiency model, 64,
Sulejewicz A., 14 68, 69, 70–72
supplier-buyer relationship, 24, 25, Supply Chain Risk Management
27, 28, 29, 31 (SCRM), 133–134, 141, 142
supplier development, 30, 70, 137, Supply Chain Security Management
140, 155 (SCSM), 142, 144
Supplier Relationship Management supply networks, 2, 14–15, 36, 64, 65,
(SRM), 29, 69, 70, 162, 182 67, 82, 139, 141, 142, 195, 197,
supply chain 201, 211
as a network, 9, 39
defined, 9–10 traceability, 163
description of, 9 data, 162
development of, 31–32, 33, track & trace, 162
34, 64 transactional costs, 196, 197, 200, 209
examples of, 12
hierarchical coordination of, 14, 15 unbalanced dependence, 26
network coordination of, 14 unbalanced independence, 26
of the future, 38
resilience (robustness) of, 93, 144, value adding, 10, 20, 39, 61, 65, 119, 147
146, 164 value chain, 13, 47, 139
vulnerability of, 96 velocity, 166, 167, 176, 220
228 Index
Vendor Managed Inventory (VMI), 33, 3V principle, 166, 167, 220

53, 57–58, 63, 67, 70, 72, 166
versatility, 166, 167, 177, 220 web-based SCM, 177
VICS, 58, 166 WMS, 163, 174, 177
visibility, 27, 37, 52, 67, 99, 139, 144, warehouse management system
166, 167, 176, 184, 220 (WMS), 163, 174, 177
vision systems, 174 Witkowski J., 9, 11, 31, 59, 64, 197,
VMI, 33, 53, 57–58, 63, 67, 70, 72, 166 198, 202, 207, 209
voice picking, 174 workflow management, 169, 170, 186,
Voluntary Interindustry Commerce 190, 220
Standards Association (VICS), workflow management system, 167,
58, 166 170

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List of Figures viii

Notes on Contributors xiii

1 Supply Chain Management 9

2 Supply Chain Development Process 45

3 Supply Chain Risk 87

4 Outsourcing and Offshoring as Factors Increasing Risk in

5 Supply Chain Risk Management 133

6 Information Management in the Supply Chain 160

7 Social Capital Management in the Supply Chain 195

0.1 Analytical diagram of the fundamental study 7

5.6 Managing risk in the area of international business relations 153

1.1 Establishment of an international supply chain 13

4.1 Core and non-core processes 113

Scientific research and development require a long period of hard,

Anna Baraniecka is Assistant Professor of Business Administration

Grażyna Wieteska is Assistant Professor of Business Administration at

Supply chains have been widely discussed in the academic literature

are especially exposed to the risks of various disturbances in their oper-

The discussion presented here includes the results of research carried

diversification of answers depending on (i) the operation or process

operational results to provide an overview of the effects of the applica-

Impact of social capital

Figure 0.1 Analytical diagram of the fundamental study

maximum potential to yield knowledge and understanding. The results

1.1 The essence, structure and objectives of

In the face of the growing rate of globalisation processes, stronger compe-

The subjective structure of the supply chain covers companies which

resources, trading companies, service providers and waste treatment

Putting a product onto the market involves many actions: research

– customer relationship management,

From the perspective of these three complementary approaches, a

Storage Wholesaler or Independent

Figure 1.1 Examples of supply chains

supply chains that can dynamically adapt to changes in their environ-

– product flexibility (customisation),

The success of the supply chain depends on the integration of the

Table 1.1 Establishment of an international supply chain

Type of process, stage of supply chain Home country Abroad Both

units of the company or by third parties located in the respective coun-

in the preparation of products for distribution and sales (co-packing,

Pure cooperation is based on a collective strategy with a negotiated

1.2 Basic areas of management in the supply

The supply chain is a network of organisations that are involved, through

information among supply chain links. Information exchange among

● assuring efficient procurement by obtaining raw materials, produc-

● selection of packaging, in particular its material, to assure easy

The type of manufactured product is significant in the choice of sourcing

‘already sourced some suppliers in emerging markets and are looking

have translated into growing specialisation and the diversification of

by a single, central distribution centre, which serves all customers in

– the increased internationalisation of production;

Companies that favour in air transport include manufacturers of short

1. consolidation of supplies combined with reduction in the number of

Application of this model leads to a reduction in the number of produc-

integration as the extent to which a company has, in its own structures,

1.3 Relationships in supply chains (Grażyna Wieteska)

A supply chain consists of various types of organisation, among which

Supplier Supplier-buyer Buyer

Entity 1 relations Entity 2

Supplier’s resources relations Buyer’s resources

Supplier’s actions relations Buyer’s actions