Research report on business process

10.1.1.687.5596.pdf

Home >Information Systems homework help >Research report on business process

Research paper The development of a supply chain management process maturity model using the concepts of business process orientation

Archie Lockamy III and

Kevin McCormack

The authors

Archie Lockamy III is Professor of Operations Management in the School of Business, Samford University, Birmingham, Alabama, USA. Kevin McCormack is an Adjunct Professor in the School of Business, University of Alabama at Birmingham, Birmingham, Alabama, USA. He is also President of DRK Research and Consulting LLC, Birmingham, Alabama, USA.

Keywords

Supply chain management, Process management, Performance management, Modelling

Abstract

The concept of process maturity proposes that a process has a lifecycle that is assessed by the extent to which the process is explicitly defined, managed, measured and controlled. A maturity model assumes that progress towards goal achievement comes in stages. The supply chain maturity model presented in this paper is based on concepts developed by researchers over the past two decades. The Software Engineering Institute has also applied the concept of process maturity to the software development process in the form of the capability maturity model. This paper examines the relationship between supply chain management process maturity and performance, and provides a supply chain management process maturity model for enhanced supply chain performance.

Electronic access

The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister

The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Introduction

Today’s organizations are faced with increasing

levels of global competition, demanding customers

and employees, shrinking product lifecycles and

decreasing acceptable response times.

Competition in many industries has been based

mainly on strategic assets (investments in scale,

scope, brand equity) and on the ability to deploy

these assets. However, competition is now based

on capabilities, or “complex bundles of skills and

accumulated knowledge, exercised through

organizational processes” (Day, 1994).

Corporations are also extending outside their legal

boundaries as a normal way of organizing and

forming competitive networks of companies.

Thus, organizations need to develop strategically

aligned capabilities not only within the company

itself, but also among the organizations that are

part of its value-adding networks.

Owing to this new business approach, many

firms are now viewing processes as strategic assets.

Under the new approach, organizations are no

longer viewed as a collection of functional areas,

but as a combination of highly integrated processes

(Buxbaum, 1995; Hammer and Champy, 1993;

Hammer, 1996, 1999). Additionally, processes are

now viewed as assets requiring investment and

development as they mature. Thus, the concept of

process maturity is becoming increasingly

important as firms adopt a process view of the

organization. This concept proposes that a process

has a lifecycle that is assessed by the extent to

which the process is explicitly defined, managed,

measured and controlled. The process maturity

concept is analogous to that of a lifecycle, which

occurs in developmental stages. This concept also

implies growth in the areas of process capability,

richness and consistency across the entire

organization (Dorfman and Thayer, 1997).

The purpose of this paper is to present research

findings that suggest a significant relationship

between supply chain management maturity and

performance. In addition, the paper provides a

supply chain process maturity model that can be

used to help facilitate enhanced supply chain

performance. Contained in this paper is: . a discussion on the concepts of business

process orientation and process maturity; . a discussion on the relationship between

business process orientation, process maturity

and supply chain management; . the business process orientation maturity

model; . the supply chain management process

maturity model;

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · pp. 272-278

q Emerald Group Publishing Limited · ISSN 1359-8546

DOI 10.1108/13598540410550019

272

http://www.emeraldinsight.com/researchregister

http://www.emeraldinsight.com/1359-8546.htm

. statistical results relating supply chain

management process maturity and

performance; and . conclusions regarding the relationship

between supply chain process maturity and

performance.

Business process orientation

The concept of business process orientation

(BPO) is based upon the work of Deming (Walton,

1986), Porter (1985), Davenport and Short

(1990), Hammer (1996, 1999), Hammer and

Champy (1993), Grover et al. (1995) and Coombs

and Hull (1996). This body of work suggests that

firms can enhance their overall performance by

adopting a “process view” of the organization.

Although many firms have adopted the BPO

concept, little to no empirical data exists to

substantiate its effectiveness in facilitating

improved business performance. McCormack and

Johnson (2000) conducted an empirical study to

explore the relationship between BPO and

enhanced business performance. The research

results showed that BPO is critical in reducing

conflict and encouraging greater connectedness

within an organization, while improving business

performance. Moreover, companies with strong

measures of BPO showed better overall business

performance. The research also showed that high

BPO levels within organizations led to a more

positive corporate climate, illustrated through

better organizational connectedness and less

internal conflict. In addition, the study revealed

the following key BPO elements: . process management and measurement –

measures that include aspects of the process

such as output quality, cycle time, process cost

and variability, as compared to the traditional

accounting measures; . process jobs – jobs that focus on processes as

opposed to functions, and are cross-functional

in responsibility; and . process view – the cross-functional, horizontal

picture of a business involving elements of

structure, focus, measurement, ownership

and customers.

Process maturity

The concept of process maturity proposes that a

process has a lifecycle that is assessed by the extent

to which the process is explicitly defined,

managed, measured and controlled. It also implies

growth in process capability, richness and

consistency across the entire organization

(Dorfman and Thayer, 1997). As an organization

increases its process maturity, institutionalization

takes place via policies, standards and

organizational structures (Hammer, 1996).

The process maturity concept has been

developed and tested relative to the software

development process (Harter et al., 2000) and the

project management process (Ibbs and Kwak,

2000). However, there have been no published

studies to date which examine the concept relative

to supply chain management. In investigating the

maturity concept relative to the software

development process, the researchers used an

assessment instrument developed by the Software

Engineering Institute (SEI) (2002) along with

outcome measurements (e.g. quality and cycle time)

developed specifically for the study. The researchers

found that the net effect of process maturity was a

reduction in overall software development cycle

time and software development effort.

In examining the process maturity concept

relative to the project management process, Ibbs

and Kwak (2000) used the basic concepts of the SEI

model and developed specific questions from the

Project Management Institute’s Body of

Knowledge. This maturity model represented five

levels of project management maturity. The model

was then used to examine the level of maturity

across several industries. The relationship between

maturity and performance was examined through

interviews with participants. Although statistical

relationships between maturity and performance

were not examined, the interview results indicated a

general acceptance that higher levels of project

management maturity resulted in improved project

performance.

As organizations increase their process

maturity, institutionalization takes place via

policies, standards and organizational structures

(Hammer, 1996). Building an infrastructure and a

culture that supports BPO methods, practices and

procedures, enables process maturity to survive

and endure long after those who have created it.

Continuous process improvement, an important

aspect of BPO, is based on many small

evolutionary rather than revolutionary steps.

Continuous process improvement serves as the

energy that maintains and advances process

maturity to new maturity levels. The proposed

relationship between process maturity and BPO is

shown in Figure 1.

As processes mature, they move from an

internally-focused perspective to an externally-

focused system perspective. A maturity level

represents a threshold that, when reached, will

institutionalize a total systems view necessary to

achieve a set of process goals (Dorfman and

Thayer, 1997). Achieving each level of maturity

establishes a higher level of process capability for

an organization. This capability, as shown in

Figure 2, can be defined by:

Development of a supply chain management process maturity model

Archie Lockamy III and Kevin McCormack

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · 272-278

273

Figure 1 Relationship between BPO and process maturity

Figure 2 Relationship between process capability and maturity

Development of a supply chain management process maturity model

Archie Lockamy III and Kevin McCormack

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · 272-278

274

. control – defined as the difference between

targets and actual results, noting the variation

around these targets; . predictability – measured by the variability in

achieving cost and performance objectives;

and . effectiveness – the achievement of targeted

results and the ability to raise targets.

The BPO maturity model

A BPO maturity model was developed based on

the concepts of process maturity, BPO, and the

capability and maturity model developed by the

Software Engineering Institute at Carnegie Mellon

University (SEI, 2002). The model and a

description of each maturity level are shown in

Figure 3.

It is important to note that trying to skip

maturity levels is counter-productive, since each

level builds a foundation from which to achieve the

subsequent level. An organization must evolve

through these levels to establish a culture of

process excellence.

The SCM maturity model

Based on the BPO maturity model illustrated in

Figure 3, discussions with supply chain experts

and practitioners, and supply chain survey data

organized by variables relating to different

maturity levels, an SCM maturity model was

developed as illustrated in Figure 4. The model

conceptualizes how process maturity relates to the

supply chain operations reference (SCOR)

framework. The SCOR framework was chosen to

conceptualize the supply chain management

maturity model, owing to its process orientation

and wide adoption by the supply chain academic

and practitioner communities. The five stages of

maturity show the progression of activities

toward effective SCM and process maturity.

Each level contains characteristics associated

with process maturity such as predictability,

capability, control, effectiveness and efficiency.

The following is a brief description of each SCM

maturity level: . Ad hoc – The supply chain and its practices

are unstructured and ill-defined. Process

measures are not in place. Jobs and

organizational structures are not based on

horizontal supply chain processes. Process

performance is unpredictable. Targets, if

defined, are often missed. SCM costs are high.

Customer satisfaction is low. Functional

cooperation is also low. . Defined – Basic SCM processes are defined

and documented. Jobs and organization

basically remain traditional. Process

performance is more predictable. Targets are

defined but still missed more often than not.

Overcoming the functional silos takes

considerable effort owing to boundary

concerns and competing goals. SCM costs

remain high. Customer satisfaction has

improved, but is still low.

Figure 3 The BPO maturity model

Development of a supply chain management process maturity model

Archie Lockamy III and Kevin McCormack

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · 272-278

275

. Linked – This represents the breakthrough

level. Managers employ SCM with strategic

intent and results. Broad SCM jobs and

structures are put in place outside and on top

of traditional functions. Cooperation between

intra-company functions, vendors and

customers takes the form of teams that share

common SCM measures and goals that reach

horizontally across the supply chain. Process

performance becomes more predictable and

targets are often achieved. Continuous

improvement efforts take shape focused on

root cause elimination and performance

improvements. SCM costs begin decreasing

and feelings of esprit de corps take the place of

frustration. Customers are included in process

improvement efforts and customer

satisfaction begins to show marked

improvement. . Integrated – The company, its vendors and

suppliers, take cooperation to the process

level. Organizational structures and jobs are

based on SCM procedures, and traditional

functions, as they relate to the supply chain,

begin to disappear altogether. SCM measures

and management systems are deeply

imbedded in the organization. Advanced

SCM practices, such as collaborative

forecasting and planning with customers and

suppliers, take shape. Process performance

becomes very predictable and targets are

reliably achieved. Process improvement goals

are set by the teams and achieved with

confidence. SCM costs are dramatically

reduced and customer satisfaction and esprit

de corps become a competitive advantage. . Extended – Competition is based on multi-

firm supply chains. Collaboration between

legal entities is routine to the point where

advanced SCM practices that allow transfer of

responsibility without legal ownership are in

place. Multi-firm SCM teams with common

processes, goals and broad authority take

shape. Trust, mutual dependency and esprit de

corps are the glue holding the extended supply

chain together. A horizontal, customer-

focused, collaborative culture is firmly in

place. Process performance and reliability of

the extended system are measured and joint

investments in improving the system are

shared, as are the returns.

SCM process maturity and performance

On constructing the SCM maturity model, a

survey instrument was created to investigate the

relationship between SCM process maturity and

overall supply chain performance. Participants for

the study were selected from the membership list

of the Supply Chain Council. This list consisted of

523 key informants representing 90 firms.

Participants were asked to rate their performance

by each area of the SCOR model (i.e. “plan”,

“source”, “make”, “deliver”) on a scale of 1 (poor)

to 5 (excellent). The individual ratings were then

summed to develop an overall performance score.

The results are illustrated in Table I. In addition,

Figure 4 The supply chain management maturity model

Development of a supply chain management process maturity model

Archie Lockamy III and Kevin McCormack

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · 272-278

276

other overall performance questions were asked of

the participants. The results for these questions are

also presented in Table I. The distribution of the

answer to the performance questions was

acceptable, with no one grouping being over- or

under-represented. The only exception was that

the answers to the overall business performance

question were slightly skewed, since no one rated

their performance as being poor.

Next, a SCM process maturity measurement

instrument was developed to collect data from the

respondents used to analyze the relationship

between SCM process maturity and the supply

chain performance results exhibited in Table I.

Regression analysis was used to identify

statistically significant relationships between

variables. Beta and R 2

coefficients were used as

indicators of the strength and explanatory power of

the relationships. In this analysis, R 2

indicates the

fit of the linear relationship between the SCM

maturity scores and the performance variable

scores. R 2

also indicates the proportion of the

variation in the dependent variable (performance)

explained by SCM maturity (the independent

variable). For example, as illustrated in Table II,

11 percent (0.111) of the variation in days of sales

(DOS) inventory performance is explained by the

SCM maturity scores. The statistical significance

of each relationship is also shown in Table II. The

minimum result used to decide if a relationship

was significant was 0.1, or 90 percent. The

relationships that met this hurdle are marked with

an asterisk.

As illustrated in Table II, four relationships were

found to be significant. “Basicpp”, the sum of the

individual SCOR area ratings, had the strongest

correlation to SCM process maturity with a b of

0.825 and an R 2

of 0.68. RP3 (days of sales [DOS]

versus competitors), RP5 (delivery performance

versus commit date) and RP6 (order lead times

versus competitors) were also significantly

correlated with SCM process maturity. However,

it is clear that performance measured by SCOR

area (i.e. “plan”, “source”, “make” and “deliver”)

is the measurement of performance most related to

SCM process maturity. An explanation for this

result is that this measurement approach provides

a clear process context as provided by the four

areas of the SCOR model.

The other significant relationships are all

process measures that clearly reflect process

performance. There are very few factors outside of

most SCM organizations that can impact the days

of sales and order lead times process metrics. This

may explain their relatively strong relationship

with performance (b of 0.333 and 0.37,

respectively) and relatively large R 2

(0.111 and

Table I Supply chain performance results (percentage of respondents)

Rating

1 (Poor) 2 (Fair) 3 (Good) 4 (Very good) 5 (Excellent)

Please rate the overall performance of

your business unit last year 0.0 11.8 39.2 41.2 7.8

Please rate the overall performance of

your business unit last year relative

to major competitors 4.1 10.2 26.5 46.9 12.2

Compared with your major competitors your

overall days of supply (DOS) are: 10.0 32.0 24.0 22.0 12.0

Compared with your major competitors your

overall cash-to-cash cycle times are: 8.9 20.0 42.2 20.0 8.9

Compared with your major competitors your

delivery performance versus commit date is: 4.0 6.0 24.0 50.0 16.0

Compared with your major competitors your

quoted order lead times are: 2.0 14.3 40.8 26.5 16.3

Table II Regression analysis results: SCM maturity versus performance variable

Performance variable Description b R2 Significance

Basicpp Sum of individual SCOR ratings 0.825 0.680 0.000*

RP1 Overall business performance 0.182 0.033 0.202

RP2 Business performance versus competitors 0.157 0.025 0.282

RP3 DOS versus competitors 0.333 0.111 0.018*

RP4 Cash-to-cash cycle time versus competitors 0.044 0.002 0.775

RP5 Delivery versus commit date 0.237 0.056 0.097*

RP6 Order lead times versus competitors 0.370 0.137 0.009*

Note: *Significant at 0.1 or greater

Development of a supply chain management process maturity model

Archie Lockamy III and Kevin McCormack

Supply Chain Management: An International Journal

Volume 9 · Number 4 · 2004 · 272-278

277

0.137, respectively). In contrast, delivery

performance versus commit date has a weak

relationship. An explanation for this result is that

many firms do not measure this, and there are

other functions outside of the SCM organization

that may impact this measure (e.g. sales and

marketing).

It is interesting to note that overall business

performance and business performance versus

competitors were not significant. Perhaps this is

too broad a measure for this analysis, since there

are many factors that affect this variable, in

addition to SCM. Cash-to-cash cycle times versus

competitors was also not significant. An

explanation for this result could be that this is

outside of the responsibility of most SCM

organizations. In many organizations, this activity

is often under the control of the accounting

department, which, in most firms, still remains

outside the SCM process. Thus, performance in

this area is not influenced by SCM process

maturity.

Conclusions

This research illustrates the use of the SCM

maturity model as a valuable analysis framework

with a good theoretical basis. This research also

suggests that SCM process performance collected

by SCOR area is strongly related to SCM maturity.

Additionally, the research indicates that direct

process performance measures such as cycle times

and inventory levels are also related to SCM

maturity. These relationships suggest that the

SCM maturity measurement instrument can be

used for prescriptive purposes in SCM

improvement efforts by indicating which maturity

measurements are deficient, therefore focusing on

continual improvement efforts.

Although the relationship between SCM

maturity and overall business performance is not

shown as significant in this research, a case can be

made that process performance must impact

overall business performance. Perhaps the method

of measurement for overall business performance

in this research is not specific enough and needs to

be refined. Future research is needed in this area to

investigate the relationship of SCM process

maturity and specific supply chain-related

financial measures such as SCM costs (order

management, transportation, etc.). This may

provide the specificity needed to uncover the

relationships that are suggested by the relationship

of SCM process maturity to process performance

measures such as cycle time and inventory.

References

Buxbaum, P.A. (1995), “The horizontal company”, Transportation and Distribution, June, pp. 36, 82.

Coombs, R. and Hull, R. (1996), “The wider research context of business process analysis”, working paper, Center for Research on Organizations, Management and Technical Change, Manchester School of Management, Manchester.

Davenport, T.H. and Short, J.E. (1990), “The new industrial engineering: information technology and business process redesign”, Sloan Management Review, Vol. 31 No. 4, pp. 11-27.

Day, G.S. (1994), “The capabilities of market-driven organizations”, Journal of Marketing, October, pp. 37-52.

Dorfman, M. and Thayer, R.H. (1997), “The capability maturity model for software”, in Dorfman, M. and Thayer, R.H. (Eds), Software Engineering, IEEE Computer Society Press, Los Alamitos, CA, pp. 427-38.

Grover, V., Jeong, S.R., Kettinger, W.J. and Teng, J.T.C. (1995), “The implementation of business process reengineering”, Journal of Management Information Systems, Vol. 12 No. 1, pp. 109-44.

Hammer, M. (1996), Beyond Reengineering: How the Process- Centered Organization Is Changing Our Lives, HarperBusiness, New York, NY.

Hammer, M. (1999), “How process enterprises really work”, Harvard Business Review, Vol. 77 No. 6, pp. 108-18.

Hammer, M. and Champy, J. (1993), Reengineering the Corporation: A Manifesto for Business Revolution, 1st ed., HarperBusiness, New York, NY.

Harter, D.E., Krishnan, M.S. and Slaughter, S.A. (2000), “Effects of process maturity on quality, cycle time and effort in software product development”, Management Science, Vol. 46 No. 4, pp. 451-66.

Ibbs, C.W. and Kwak, Y.H. (2000), “Assessing project management maturity”, Project Management Journal, Vol. 31 No. 1, pp. 32-43.

McCormack, K. and Johnson, W. (2000), Business Process Orientation: Gaining the E-Business Competitive Advantage, St Lucie Press, Delray Beach, FL.

Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York, NY.

Software Engineering Institute (2002), “The rational unified process and the capability maturity model”, Software Engineering Institute, Carnegie Mellon University, Pittsburgh, PA, available at: www.sei.cmu.edu/cmmi/ presentations/rup.pdf

Walton, M. (1986), The Deming Management Method, Perigee Books, New York, NY.