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IMDS 109,1

Supply chain strategy in a global paper manufacturing company: a case study

Pekka Koskinen
Oy Condea Business Consulting Ltd, Espoo, Finland
Abstract
Purpose The purpose of this paper is to analyze the relationship between corporate and supply chain strategy, as well as its implementation in a multinational paper producing company. Traditionally paper producing companies have had a strong interest in developing a physical infrastructure for their customer deliveries. However, supply chain thinking is still an unstructured issue in the case company. Design/methodology/approach This research work is mainly based on the case companys strategy material and interviews with senior management, is mainly qualitative and is based on a constructive research approach aimed at trying to nd a workable and forward looking solution based on the three strategies. Findings The core ndings concern the individual business division strategies, which jointly comprise the corporate strategy. Some of the business divisions do have a certain amount of supply chain management aims in their strategies. Furthermore, there is no real corporate supply chain strategy. Research limitations/implications The research was conducted at a company with strong presence in Northern Europe, which limits its applicability. Thus, the research results mainly reect a Northern European business environment and cannot be generalized on a global level. Practical implications The conclusions of the research work include a recommendation for a new management model for the corporate supply chain strategy, which is based on cooperation between the business divisions and logistics organization. Originality/value The value of this paper is based on the practical analysis of the case companys business divisions strategies and interactivity between the logistics organization and the implementation of its strategy. Keywords Multinational companies, Supply chain management, Corporate strategy, Distribution management, Paper industry, Finland Paper type Case study

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Received 1 June 2008 Revised 1 August 2008 Accepted 21 August 2008

Industrial Management & Data Systems Vol. 109 No. 1, 2009 pp. 34-52 q Emerald Group Publishing Limited 0263-5577 DOI 10.1108/02635570910926582

1. Introduction The global pulp and paper industry is a major contributor to the overall health of the worlds economy. With a strong presence in almost every region of the world, the industry produced more than 360 million metric tons of paper and paperboard in close to 9,000 mills (The Confederation of European Paper Industries CEPI, 2006). The forestry industry, according to a general denition, includes all types of products such as timber, plywood, paper and pulp. The paper industry is dened in this context so that only paper and paperboard production are included in this denition. There are 913 paper and pulp producing companies in Europe. These companies have a total of 1,244 paper and pulp mills. The production capacity of these CEPI-members mills is 99 million tons of paper and paper board products and 43 million tons of pulp. The annual turnover of these companies is 76 billion EUR.

The European forest industry cluster (all types of forest industry products) and their suppliers generate an annual turnover of more than 400 billion EUR. The forest cluster directly employs 275,000 employees in Europe. Its contribution to indirect employment is approximately 3.5 million persons in Europe (CEPI (2006) Annual Statistics). Finland has always been considered to be one of the paper making nations. At the end of 2006, the paper and paperboard capacity of the Finnish companies was 38 million tonnes. 23 million tonnes of the Finnish owned production capacity (62 percent) is located outside Finland (Finnish Forest Industries Yearbook 2007, 2007). Currently, there are 28 paper mills in Finland. The paper and paper board production capacity of the Finnish paper mills was 14.1 million tons in 2006 and approximately 90 percent of the production was exported. The forest industry in Finland has also been a major contributor to the Finnish national economy. The forest industrys share of industrial production in Finland in 1999 was 19 percent, in 2000 it was 22.4 percent and in 2004 its share of industrial production was 17.1 percent. Its share of Finnish industrial production has been declining due to the fact that the industry has been investing more in production capacity in foreign countries than in Finland (FFIFF, 2005 statistical web-service). Owing to the geographical position of Finland, the Finnish forest industry has a 10 percent additional transport cost compared with its Central European competitors. Each year the forest industry transports about 100 million tonnes of goods within the country (FFIFF, 2005). The role of supply chain management in the Finnish forest industry is increasing as all companies wish to deliver their products by using more economical logistics solutions. Global competition is also playing an increasingly strategic role in developing supply chain solutions for the whole global forest industry. The role of supply chain management in a large paper manufacturing company has a very strategic role because most of a companys production has to be delivered to customers outside the country of production. This research describes the development process that has occurred between the business divisions strategy development and the development of the logistics and supply chain strategies. The business divisions strategies have jointly created the companys corporate strategy. The case companys business divisions strategies and the corporate logistics strategy are primary sources for this research work. The strategy analysis was then completed through selected interviews conducted with the corporate divisional and logistics top management representatives. The research is structured so, that after the introduction, a review of the literature on the subject is presented in Section 2. Section 3 discusses the research methodology and the motivation behind this study. In Section 4, the case companys basic facts are presented and discussed. These are; case company selection, introduction to the business environment, customer service strategy, logistics strategy, supply chain ownership, preferred partner strategy and logistics key performance indicators (KPI). The research is concluded in a discussion section and in a conclusions section. 2. Literature review A general trend in supply chain relationships is a shift from an arms length to a true partnership approach, in which a supply chain partnership is placed on a strategic level.

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The supply chain partnership has two directions. The rst direction runs from the logistics organization to the business divisions, who are internal customers for a corporations logistics. The second dimension of the partnership is the traditional partnership with logistics service providers. The strategic partnership includes such elements as, risk and benets sharing, the exchange of operating and nancial information, joint investments in facilities and continuous improvement as well as new product and service development programs (Carbonara et al., 2002; Moody, 1993; Simatupang and Sridharan, 2005; Cassivi, 2006; Kampstra et al., 2006; Lambert et al., 1996; Cooper et al., 1997; Friis Olsen and Ellram, 1997; Bensaou, 1999). Cooper et al. and Bensaou argue that the number of real partners in supply chains is limited because of a companys resources. Hence, the issue of resources should be addressed when building the right relationships, which requires careful planning and strategic decision making. One of the key elements for distinguishing logistics from supply chains is the partnership aspect. Partnership is one of the strongest indicators of a successful supply chain partnership. McAdam and McCormack (2001) have identied some risk elements with the partnership thinking. For instance, common goals will be more difcult to agree on between the partners because the number of partners may become too large. Partners can also become more dependent on each other, which may lead to a companys management feeling insecure if they feel that they are no longer in total control of their companys future. Sako (1992), Lamming (1994) and Doran (2002) describe some business processes in supply chain management, which can lead to improved performance for partners in supply chains. Among these business processes are collaborative planning, long-term information exchange, coordinated capacity planning, small quantity JIT delivery practices, price variations, attitude to quality and the role of R&D. Sako (1992) states that trust and control are key elements in supply chain partnerships. He describes three different types of trust: contractual, competence and goodwill trust. Contractual and competence trust are breached by a failure to meet contractual agreements including agreed performance measurements. Goodwill trust exists when supply chain partners act at all times for the benet of both parties. Popp (2000) dene supply chain partnership as starting from transparency and quality of information ows. Uncertainties arise due to a lack of perfect information about other members in the supply chain. The co-operation necessary for increasing information sharing among a supply chain is called supply chain partnership.Lambert et al. (1999) supply chain partnership model includes seven main elements: (1) Joint planning. This can be achieved by joint teams, which are assigned to discuss current performance, possible improvements and long-range plans. (2) Joint performance measurement tools. These are a natural step after the joint planning. The performance measures are jointly developed and each party may make changes to the others system without prior approval, meaning that the operating controls are often so closely linked that it is hard to tell where one organization ends and the other begins. (3) Balanced two-way, multilevel communication. It means that communication can be understood as human communication between the partnering organizations.

(4)

(5)

(6)

(7)

The communication can also be understood as communication between the computer applications (EDI, web-based solutions). Risk and reward sharing. It means that the partners may take a controllable risk in order to improve the performance of the other partners. Risk and reward sharing is normally measured more over a long-term partnership than on a day-to-day basis. Trust and commitment. A good partnership is based on this. Each partner believes completely that the other is totally committed to the others long-term success. The scope of a partnership. It means that the intent of both parties is to maximize the amount of activity performed. Each partner brings either a large percentage of business and/or key value added processes to the partnership. Reciprocal investments. This partnership means that investments will bring benets to all partners in the supply chain.

Supply chain strategy

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The authors, who have been cited in the area of supply chain partnership, share many similar opinions on partnership structure. There are three main elements, which are cited by the authors. The rst element is collaborative planning, which refers to the fact that supply chain partners have to understand the other partners business processes and have to move from business co-ordination to business integration. The second element deals with the human factor and emphasizes that each partnership has to have a promoter, who tries to achieve change in the thinking of the people who are daily involved in maintaining a partnership. The third element deals with information exchange, the transparency of information and joint measurement tools for joint supply chain management. Trust in ones partners is a common element for all the abovementioned supply chain partnership elements. 3. Research methodology and the motivation for the study The behaviour of the case companys supply chains has been discussed by the case companys divisional and logistics management. Thus, it is known that there are several reasons which explain the length of lead times of the current supply chains. In fact it is generally known that paper industries based in Finland have relatively long lead times to their main markets. In a previous study (Koskinen and Hilmola, 2008) on paper industry supply chains it was found that only 30-35 percent of the lead times for customer orders from Finland to the UK and the USA kept to their planned lead times. This general statement is also valid for the case company in this research study. Customer behaviour is one of the explanations, but the supply chain management rules of the case company also explain the length of the lead time. A third explanation, which has not been analyzed in depth, is the logistics strategy of the case company. The case companys internal discussion refers to the fact that the structure of the logistics organization does not support the operations of the logistics structure, which enables the supply chain management (Case Company, 2005c, d). The strongest motivation for this research is to reach an in depth understanding of the logistics strategy of the case company and how it is implemented in the companys daily operations.

IMDS 109,1

This research will give answers to three specic research questions: RQ1. Do the case companys business divisions have a clear SCM strategy? RQ2. What is the logistics strategy of the case company and how it is being implemented?

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RQ3. Which organizational unit has the ultimate responsibility for the SCM/logistics within the case company? This research is based on the strategy material of the case company. The strategy implementation material has been added to by the conducting of interviews with key persons in the business divisions and in logistics. The interviewed persons represented both corporate business development (senior vice president, corporate development) and senior logistics management (senior vice president, logistics). The main target of the interviews was to form a deeper understanding of the case companys corporate and logistics strategy. The interviews lasted approximately three hours and all of them followed the same pre-planned structure. The interviews took place in 2005 when the case companys strategy process was completed. In order to gain an understanding of the development process between the business strategy and logistics strategy the research is descriptive and based on qualitative material such as the strategy material and interviews. This allows further research into the implementation of the business and logistics strategy to be also based on quantitative material. This research is also inductive in character as the main target is to nd an understanding and propose better solutions for co-operation between the corporate and logistics strategies. The results of this research are valid only for the case company as long as the case company continues to use the same kind of logistics structure and operational model. Benchmarking with other paper producing companies is possible. However, logistics strategies vary from company to company. The objective of this research is to nd out how the companys logistics strategy is developed and then later on implemented in the case company. 4. Case company, corporate strategy and basic information 4.1 Case company selection Selecting a case company for a research study is not an easy task. Two Finnish paper producing companies were contacted during the planning phase of this research work. Both companies had, by that time, their logistics network and supply chain operations working in a similar way, which means that they were using the same logistics service providers. One of the companies had a large internal logistics network development project ongoing and no resources were available for an external research project. The other company, which was then selected as the case company, conrmed that they would like to share data and human resources for an external research study as the results could benet the development of their logistics and supply chain management operations. Time from both the senior logistics management and from the senior operational management was allocated to the research project. 4.2 Case company, an introduction to its business environment The case company had sales of approximately 10 billion EUR in 2005. The case company has 16 production plants in Europe and another six production plants outside Europe.

The biggest markets measured by annual turnover in 2005 were Germany, North America, UK, Finland, France and other EU countries. The case companys market position is number one both in Europe and globally for magazine papers. For newsprint the case companys market position in Europe is second but fth on the global market. For ne papers, the Case Companys (2005a) European market share rank is third but fth on the global market. 4.3 Case companys customer service strategy The case companys strategy template (Case Company, 2002) contains ve main items: Purpose, vision, key success factors, behavioural principles and corporate responsibility. These items describe the basic values of the case company. The purpose is We create human and economic value by innovative paper solutions for printed communications. The vision is The most attractive paper company. The keys success factors are listed as follows: customer success and corporate brand. The case company should have cost leadership in all cost categories (variable, xed and capital costs). The companys value is increased through growth that is organic and also acquisitions. The behavioural principles contain such values as: openness, trust and initiative. Corporate responsibility includes social and environmental responsibilities. The case companys customer service strategy is at the top of the business divisions strategies as a joint element for all business divisions including the logistics operations. 4.4 Case companys logistics strategy Strategic development in the case company is rst made by the business divisions and then the divisional strategies are summarized into the corporate strategy. The customer service strategy has a direct link to divisional and corporate strategies. The customer service strategy contains promises of new logistics and supply chain services for customers. The interaction between the divisional, customer service and logistics strategies creates the strategy process of the case company. The strategy evolution follows a four step model. The divisional level customer service strategy requires new logistics services to be developed by the logistics organization (step one). The logistics strategy includes the preferred partner strategy towards the main logistics service providers. The preferred partners perform the logistics operations and develop new logistics services. The preferred partners strategy is one component of the logistics strategy (step two). Steps one and two show how strategic requirements are derived from the case companys strategy and then communicated to the logistics service providers. New service processes are developed jointly by the case company logistics organization and by the preferred partners. The preferred partners report the collaborative strategy implementation to the logistics organization and follow the guidelines of the logistics strategy (step three). The logistics organization communicates the logistics strategy implementation to the customer service strategy division in order to match the new requirements of the customer service strategy (step four). The interaction between the customer service, logistics and preferred partners strategies is shown in Figure 1.

Supply chain strategy

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IMDS 109,1

Corporate Strategy (Including customer service strategy) Business Division A Strategy Step 1 Business Division B Strategy Business Division C Strategy Step 4

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Logistics Strategy

Figure 1. The interaction between corporate strategy and logistics strategy in the case company

Step 2 Preferred Partners Strategy

Step 3

The logistics mission of the case company is dened as follows (Case Company, 2005b):
Our mission is to become a world class logistics function that is fully integrated with the four business divisions and supports both customer management and supply chain management processes. This will be achieved by implementing logistics strategies, competencies, organization structure, processes and metrics.

In this research work the case companys logistics strategy has been modied and summarized into four main elements: The rst element is the integration into the business divisions and the preferred partners. The second element is sales forecasting and logistics planning information. The third element is supply chain management and the fourth element is management systems with preferred partners. This new grouping of the logistics strategy elements is motivated by the fact that the logistics strategy implementation will be tested by analyzing the lead time as an explanatory factor for the logistics strategy implementation in the case company. The rst strategy element is the integration into the business divisions and the logistics service providers. This means in practice that the case companys logistics department has professional know how about future logistics demands from the business division. The logistics organization converts the logistics business needs into strategic actions, which are then carried out together with the logistics service providers. The business divisions manage the sales network and the production capacity planning. The results from the production capacity planning are then communicated to the logistics organization, which communicates the logistics forecasting information to the logistics service providers. The two directions of the logistics integration are shown in Figure 2. The second strategy element is the sales forecasting information, which is the basis for the logistics planning (Figure 3). The business divisions deliver the sales forecasting information to logistics, where the sales forecasting information acts as basis for

Integration

Supply chain strategy

Integration to preferred partners = Logistics service providers

Integration to business divisions

Case company logistics strategy, element one: Integration

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Production capacity planning

Logistics forecasting information

Figure 2. Case companys logistics strategy; the two directions of the logistics integration

Source: Modified from Case Company (2005b)

Sales forecasting and logistics planning

Sales forecasting Information from the business divisions

Case company logistics strategy, Element two: Forecasting and logistics planning

Logistics planning information to the logistics service providers

Production capacity planning Source: Modified from Case Company (2005b)

Logistics planning information

Figure 3. Case companys logistics strategy; sales forecasting and logistics planning

operational planning. The sales forecasting information is supported by the production capacity planning information. The sales forecasting and production capacity planning information is also communicated to the logistics service providers for annual planning purposes. The third element of the logistics strategy is supply chain management, which has two sub elements, new supply chain management service offerings to the business divisions and joint supply chain management concept development, which is jointly developed with the preferred partners. The main elements of the supply chain management in conjunction with the business divisions are the demand forecasting concepts and responsibilities, a proactive approach to developing the logistics role in customer management and global customer management team support. The case companys denition of a supply chain sees it as the complete set of activities, resources and information needed to plan, source, manufacture, store, sell and deliver

IMDS 109,1

42

product and service to customers (Case Company, 2005b). Logistics is thus an integrated part of supply chain management. The supply chain management element of the logistics strategy is shown in Figure 4. The fourth strategy element is management systems with preferred partners. The result of this strategy element is that management systems should be able to provide more efcient supply chain management control and reporting systems for the business divisions. Consequently, management systems have to be developed jointly with the logistics service providers. The management systems are developed rstly with preferred partners and not with all logistics service providers. Management systems with preferred partners are shown in Figure 5. The case company calls its logistics strategy a logistics strategy, not a supply chain management strategy. This reects the fact that the logistics organization concentrates more on the development of the physical infrastructure of the transportation and port network than on the management of the supply chain itself. In the current governance model of the case company the issue of supply chain management belongs to the business divisions, not to the logistics organization. 4.5 Supply chain ownership in the case company The traditional way of discussing the supply chain ownership of the paper industries says that the supply chain ownership belongs to the paper mills as they are the business units with prot making purposes. Those companies that follow this type of supply chain ownership have a dedicated supply chain manager at each mill. The main
Supply Chain Management

New SCM service offerings to the business divisions

Figure 4. Case companys logistics strategy; supply chain management

Case company logistics strategy, element three Supply Chain Management

Joint SCM-concept development with the logistics service providers

Source: Modified from Case Company (2005b) Management Systems with Preferred Partners

Figure 5. Case companys logistics strategy; management systems with preferred partners

More efficient SCM control and reporting to the business divisions

Case company logistics strategy, element four Management Systems with Preferred Partners

Joint development of management systems (KPIs, IT, etc)

Source: Modified from Case Company (2005b)

task of the mills supply chain manager is to develop the supply chains on a structural level. Their daily operations are managed by the central logistics organization and by the logistics service providers. The supply chain ownership discussion of the case company is based on the companys customer service strategy. The reasoning behind that is that the customer service team, which belongs to the sales network, is responsible for supply chain management to every one of the customers. This philosophy can be highlighted with some practical examples. The sales organization including the customer teams reserve production allocation at the mills and the mills conrm production. The sales organization is also responsible for the products in stock. The logistics organization acts as logistics service provider towards the mills and sales organization. The role of the mills is considered by the production units with the nancial responsibility for the production. The sales organization has an overall responsibility for supervising the supply chains in an operational and nancial way. The customer teams are also the closest interface to the customers (Case Company, 2005e). The ownership roles of the case company supply chains are not clearly dened in the logistics strategy and ownership is not implemented in a uniform way in all the different global marketplaces. Hence, the supply chain ownership issue should be dened in more detail and follow the development stages of the logistics strategy. 4.6 Preferred partners strategy The preferred partners strategy is a dominant entity in the case companys logistics strategy. The case company has hundreds of logistics service providers globally. Those logistics service providers, who manage the supply chains with large volumes of products (such market areas as Germany, UK, France, Italy, Belgium, etc.), are called preferred partners. It is generally said that a preferred partners strategy tries to avoid situations where the case company considers the logistics service providers to be partners. This is because providers do not share the same attitude due to the manner in which such contracts are awarded (Gentry, 1996). The trend has been for companies to move from transactional exchanges to relationship exchanges with the preferred partners (Attaran and Attaran, 2007; Dunne, 2008; Maheshwari et al., 2006). Fontenot and Wilson (1997), Sharma and Sheth (1997), Sheth and Parvatiyar (2000) and Esposito and Passaro (1997) describe the evolution in supply chain partnership with reference to the aircraft industry. Technological performance used to be the main criteria in the selection of sub-contractors. Over the last few years, management, logistics and organizational skills have received higher value in the selection of subcontractors. The case company acts as a channel captain towards the logistics service providers. The channel captain concept is described by Kumar (1998) and Kumar and Motwani (1995) as the most effective way of aligning the business processes in a supply chain. The channel captain sets the strategic objectives for the whole supply chain, including the sub-objectives for the logistics service providers. Cooper and Ellram (1993) discuss the same type of supply chain leadership but refer to it as a channel leader. The supply chain partnership covers several areas of various business processes, which can be changed over time. Hughes et al. (1998, p. 70) state that partnerships can become closer and they can also go to arms length relationships.

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Many intensive partnerships may gradually turn into relatively standardized, business as usual contracts. The preferred partner strategy of the case companys logistics has six main components (Case Company, 2005b): (1) integration with the preferred partners; (2) integration with the strategic management of the preferred partners; (3) supply chain management; (4) management systems with preferred partners; (5) e-logistics; and (6) transport risk management. The main philosophical components are long-term commitment, shared risks and benets, joint management and open books. The overall target of the case company is that two thirds of all volumes are routed through preferred partners. Integration with preferred partners (1) expresses the case companys interest to commit themselves to selected, reliable logistics service providers for long-term cooperation. The integration with the strategic management of the preferred partners (2) is dened as logistics is part of annual planning, market organization and target setting on divisional, product group, mill and customer segment level (Case Company, 2005b, pp. 10-15). Several authors (McAdam and McCormack, 2001; Armistead et al., 1996; Hamel and Prahalad, 1989; Dale, 1999) support the role of managements commitment and leadership as the most important driver for successful change in supply chain thinking. The supply chain management strategy (3) is dened as follows:
The starting point for supply chain management is that all the business divisions should have a clear picture of the supply chain management offering given by the corporations logistics strategy (Case Company, 2005b, pp. 10-15).

The strategic target for management systems (4) with the preferred partners is to reach the position of market leader (a perspective of 5-15 years) in terms of the quality to price ratio. E-logistics (5) is the fth component of the preferred partners strategy. The rst sub-component of e-logistics is the development of electronic connections with partners, suppliers, customers. The second sub-component is the monitoring of market place developments in freight exchanges and third party e-logistics. Transport risk management (6) belongs to management systems with the preferred partners. Transport risk management includes damage reporting on a whole supply chain and development steps for avoiding damages in the supply chain. The case companys logistics managements view on the preferred partners strategy clearly indicates that the preferred partners in most cases are not the most active drivers for joint development. The partnership between the Finnish paper industry and port operators is one of the strongest partnership links in the supply chain management. The vice president of logistics from the case company (Case Company, 2005d) conrmed that the port communities follow the requirements of the paper industrys supply chain management and thus adapt their business and IT-development according to the needs of the paper industry.

4.7 Case company, logistics key performance indicators The case company has dened the use of the performance indicators (PI) and of the KPI in the logistics strategy. These are used for measuring the logistics performance from a customer service point of view and from a nancial point of view. Some of the KPI are used for measuring internal business processes. The PI are dened as concrete translations of the vision and strategy of the logistics function. The KPI are dened on a concrete level in addition to the PI (Case Company, 2005b, p. 1). The main features of the KPI are related to activities and processes, which are vital or can make a signicant difference in quality or costs compared to competitors. Keebler et al. (1999) and Holmberg (2000) have analyzed corporate performance measuring systems. Furthermore, Holmberg (2000) has categorized measurement problems and placed them in four main problem areas. The rst area covers strategic issues. Holmberg states that a companys strategy and measurement tools are not always connected. In practice this means that the measurement tools are not derived from the strategy and therefore do not support the business (Adams et al., 1995). The second area is that the companies rely on nancial metrics, which shows yesterdays performance. This statement is also supported by Ganeshan et al. (2001) who state that the companies have been mainly concentrating on inventory-based KPI in supply chains such as determining optimal inventory policies and analyzing the costs and benets of technology and information sharing. Another instrument would be the following of operations with the use of more operative measurement tools such as handling capacity per hour linked to the resources used. The lack of real time reporting means delays occur in taking corrective actions. The third problem area is that there are many isolated and incompatible measurement indicators. The number of metrics used in organizations tends to increase over time and requires more resources to produce. Another aspect is that if there are several partners in the supply chain, the question of the incompatibility of the measurement tools should be seen as an issue calling for a joint strategic management tool. The fourth problem area is context in a supply chain. The context of a supply chain is understood in different ways inside the individual companies and between the partners in the supply chain. The case companys KPI for customer service are managed on two different levels: the internal customer perspective and the delivery customer perspective. The internal customer perspective (business divisions, etc.) includes performance measuring on the service level, which includes exibility and pro-activity and communication. The internal customer PI are measured by a logistics scorecard questionnaire, which is based on individual comments from the employees. The main target is to use the results as basis for joint initiatives aimed at continuous improvement. The customer delivery perspective includes performance measuring on the service level and includes exibility and pro-activity, and communication. The supply chain performance measurement includes the measuring of ex mill date (ex mill date is dened as the date when customer orders are produced at the mill) versus the delivery date per leg in the supply chain, measuring the capacity usage of vessels, train, lorries and other transport means and measuring the development of transport damages to cargo. The main target is to reduce cycle times and stock levels.

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The perception of logistics staff members will be measured systematically. These measurements includes team work, work organization and quality, pay and benets, customer focus, performance management and development, management effectiveness, supervision, organizational identication, organization image and the companys values. The main target is to take initiatives on bridging gaps between perceived performance and actual performance. The case companys KPI are summarized Table I. The above mentioned KPI are partly used on a daily basis by the case company. The nancial KPIs are reported in great detail by the logistics organization. Those KPIs that cover the internal business perspective and supply chain measuring are partly made in a monthly follow up report. The transport damage KPIs are used very actively to analyze the performance of the logistics service providers. The internal customer service KPIs have not been implemented in practice. However, a KPI measuring concept has been developed on a theoretical level. The KPI summary table also reveals that the implemented KPIs do not include such measurement tools as lead time and working capital. 5. Discussion This research reveals that the roles for supply chain management and for logistics management are not entirely clear in the case company. The daily operations and management responsibilities are clear, but there are still some missing links in the whole supply chain ownership. It was discussed whether the supply chain ownership should belong to the sales network or to the mills or to the logistics organization? In the current supply chain management concept of the case company, production at and dispatching from the mill belong to the mills organizational responsibilities. The mills IT applications provide necessary data to the logistics organization for the planning and managing of the monitoring process phases. The logistics organization manages transportation from the mills to the loading port. Transportation by sea also falls within the scope of the business responsibilities of the logistics organization. The warehousing processes and customer delivery process at the discharging ports should clearly belong to the business divisions and the logistics organization should also have the fourth party logistics service providers role at the destination ports. The sales network, which is part of the business divisions, should be trained in order to improve the understanding of the supply chain management including the cost elements and lead times. This would lead to better planning of the customer deliveries and thus to shorter warehousing times at both the loading and discharging ports. The future supply chain management responsibilities of the case company are shown in Figure 6. The basic idea is that the logistics organization would have the responsibility to maintain and develop the logistics network (transport routes, ports, etc.) and also make contracts with all logistics service providers covering freight and handling costs. The business divisions would have three main roles, whereas the supply chain management would have a central role that includes the lead time and working capital issues. The supply chain management would also strategically manage the logistics network structure including freight and handling costs, which organizationally belong to the logistics organization.

Internal business perspective

Method for measuring

Strategic objective Two-third of the volumes transported by preferred partners

Measuring levels

Supply chain strategy

Efciency of the logistics Share of volumes function in the supply chain transported by preferred partners

Corporate level Logistics unit level Production of objective data Market Measurement progress on area level the environmental aspects of and showing a consistent progress from year to year Logistics logistics (ISO 14001 unit level practices) Finding out the perception of Corporate Measurement of the level good feeling by staff perception of staff, team Logistics work, work organization and members and taking unit level initiatives to bridge gaps quality, customer focus, company values Increasing effectiveness by Corporate Measurement of process automating processes level automation in the partner Logistics and supplier connections unit level Corporate level Market area level Logistics unit level Corporate level Market area level Logistics unit level

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Supply chain measurement Comparison between ex mill Reduction of lead times and stock levels and delivery date Measuring the capacity usage of vessels, trains and lorries Transport damages Internal customer perspective Logistics scorecard Service level questionnaire Flexibility Pro-activity Communication Delivery customer perspective Logistics scorecard Service level questionnaire covering Flexibility two-third of the delivered Pro-activity volumes Communication Continuous improvement

Joint development initiatives Corporate with the customer teams level Market area level Logistics unit level Financial perspective of KPIs Measuring dimensions Strategic objective Measuring levels Corporate Information to support Measuring logistics costs in Invoice and delivery to level management decisions customers relation to volumes and regarding the supply chain Market budget versus actual costs Delivery region, mill area level Product group, transport leg Logistics unit level Table I. Summary of the case companys KPI

(continued )

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Internal business perspective Evolution of logistics cost tariff

Method for measuring

Strategic objective

Measuring levels Corporate level Market area level Logistics unit level

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Logistics cost tariffs are Sea freights included in the partnership Port handling costs Rail and road transport costs and supplier agreements. The strategic objectives are: benchmarking of partners and suppliers; controlling the tariff evolution over a long period of time; measuring the results of the win-win initiatives

Table I.

Source: Case Company (2005b)

Logistics organization Logistics network

Business divisions

Business divisions Working capital

Lead time

Logistics organization Freight and handling costs Supply chain management Business divisions

Figure 6. Proposal for the division of the case companys future supply chain management responsibilities

The future evolution of the roles for the logistics organization and the business division of the case company is highlighted in Figure 7. The supply chain management on the customer order level should belong to the business responsibilities of the business divisions. The freight and cargo handling costs, which are normally measured in e/ton should belong to the responsibilities of the logistics organization. The lead time reects the total time, which the customer orders stay in the distribution pipeline and is measured in days. Lead time management should belong to the business divisions as well as the working capital management. Working capital is normally calculated by multiplying the tons of a customers order by the value of the customers order or by the cost of capital and nally by multiplying the number of lead time days. The logistics organization should also manage the logistics network and logistics service providers including the warehouses in the loading and discharging ports. Furthermore,

Steering on customer order number level (business divisions)

Supply chain strategy

Rail/truck Distribution transport centre Warehouse

Paper mill

Rail/truck transport

Port of loading

Sea transport

Port of discharge

Rail/truck transport

Customer

49

Warehouse

Warehouse

Warehouse

Freight and handling costs ( /ton) (logistics organization) Lead time (days) (business divisions) Working capital (tons value days) (business divisions)

Figure 7. Case companys evolution of roles for the logistics organization and business divisions

the mills should control the mill warehouses and the distribution centres, which are located in an inland destination, and are controlled by the business divisions. It is further recommend that the logistics organization should be considered as an internal logistics service provider with a fourth party logistics service provider role. In the proposed new supply chain management governance model of the case company, the logistics organization has nancial responsibility for the daily logistics operation costs and the sales network has nancial responsibility for the working capital. It is further recommended that the logistics organization should be the producer of the supply chain performance data. Current logistics strategy does not include concrete KPI, which could be used by the mills. The current key performance indicator discussion thus better supports the logistics organization and does not provide relevant supply chain follow up data to the business divisions. 6. Conclusions The results from the research show that the business divisions own the problems of capital costs, warehousing costs and customer interface. The logistics department is a facilitator for contracting the logistics service providers. It is very clear that supply chain thinking should be more clearly dened as a strategic target in the case companys logistics strategy. This can be achieved by closer co-operation between the logistics organization and the business divisions. The business divisions (mills and sales organization) should have a more clear supply chain management responsibility in the future. The logistics department should be seen as a fourth party logistics service provider/company that sells services to the business divisions. The case company should move the supply chain management from a fragmented management model to an internally integrated management model, where the operational roles are located only in two organizational

IMDS 109,1

50

units. The head ofce logistics organization could be responsible for all the processes from mill dispatching until the orders arrive at the discharging port. The local sales and logistics organization at the discharging port would then have operational responsibility from the discharging port to the nal customer. The proposed organizational issues would most probably simplify the roles of the logistics organization and business divisions for supply chain management. The streamlining of the responsibilities also naturally leads to the better efciency of the supply chain management and to lower delivery costs, which would improve the competitiveness of the analyzed case company. The operational KPIs should be developed so that the business divisions could have better tools for controlling the lead time and working capital. The driver for development in this direction should be the logistics organization. The analyzed case companys paper mills are located in Finland, where the delivery distance to the markets is very long. Analyzing the supply chain strategy implementation in a market, where the delivery distance from the mills to customers is less than eight hours would obviously bring new understanding to the supply chain strategy implementation for the case company. The behaviour of the paper industry supply chains, including their strategic aspects, has not been broadly researched globally. Thus, it would be most interesting to make a benchmarking study between the paper industry supply chains and the steel industry supply chains.
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Supply chain strategy

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