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Using the social system of a supply chain to improve a focal organization’s operating performance

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Abstract

In this paper, we explore how a large organization, operating in a mature, asset-intensive industry, used the social system of a key supply chain to generate significant improvement in operating performance (e.g., inventory turnover ratio improved from 0.8 to 3.2 in 5 years). A case study approach was used to study a steel rail supply chain involving an Australian railway company as the focal company. This supply chain consisted of two other companies: a steel manufacturer and a bulk transporter. Multiple forms of data were collected and analyzed, including models and process maps of the supply chain, published and internal documents, Enterprise Resource Planning system reports, and in-depth interviews of 31 key personnel involved in the supply chain. We found that the organizations had invested heavily in formal systems, such as governance processes and information technology systems. However, it was the informal mechanisms across and within the social system which made the greatest contribution to the resulting improvements. This suggests that organizations may be able to achieve significant operating performance outcomes at far lower cost and in shorter time frames by working through the existing social systems instead of focusing excessively on formal governance and IT systems.

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Notes

  1. At the time of the study, the Transport Provider and the Railway Company were in a legal dispute over possession of a freight terminal which included the transshipment area for the steel rail. Both firms had also become competitors. In this sense, the two firms were engaged in co-opetition (Brandenburger and Nalebuff 1996), where competitors also cooperate with each other. The view was taken that even if subjects from the Transport Provider agreed to participate in this study, there was a risk that the strained context would affect their responses; therefore no subjects from the Transport Provider were interviewed. Fortunately, from this study’s perspective, the Railway Company’s direct relationship in this chain was with the Steel Manufacturer. The Transport Provider had contracted directly with the Steel Manufacturer and had no direct contractual obligations with the Railway Company regarding this commodity. However, all the transport performance information was available to the Steel Manufacturer and staff from the Railway Company were able to discuss their dealings with the Transport Provider’s staff. Secondary sources of information such as annual reports and legal documents were also examined in depth to gain a fuller appreciation of the Transport Provider. While the Transport Provider’s lack of participation was a potential weakness to the study, this situation itself helped raise interesting issues about the reality in which supply chain members have to work, and just how far collaboration and trust can be taken.

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Correspondence to Prakash J. Singh.

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Burgess, K., Singh, P.J. Using the social system of a supply chain to improve a focal organization’s operating performance. Oper Manag Res 5, 57–68 (2012). https://doi.org/10.1007/s12063-012-0065-y

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  • DOI: https://doi.org/10.1007/s12063-012-0065-y

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