Effect of Suppliers Configuration

Recently, there is an argument of the appropriateness of lean, Defender, Prospector and Analyzer paradigms in different business and market environments. However, these strategies of supply chain management stay at the operational strategy level rather than the business and corporation strategy level, which cannot solve the poor performance of a supply chain management. This paper uses a procession supply network strategy model to reconstruct the concepts of Defender, Prospector and Analyzer strategies and generate a critical technology application framework for the hub company in supply networks, which can help a company in the decision making of its purchase choice of Advanced Manufacturing Technologies such as FMS and CIM within a suitable supply chain. It is proposed that the technological features and technology implementation should be considered and match different types of supply networks. Additionally, different Miles and Snow strategic typologies of hubs should design and lead their relevant supply networks such as cost saver, adapter or multiple driven supply networks, as well as different supply chain operational strategies - lean, agile and leagile. During this process, adaptive strategies, organization structures and processes should be considered and integrated into these supply networks in order to achieve their competitive advantages.

A great deal has been discussed in this paper about supply chain and supply chain managements. Various researches offer complex configuration that involves the 1^st tier, 2^nd tier and 3^rd tier. The strategic types of the organizations and the interaction between supply chains management have received little attention. Some analogies have been carried out on the configurations of supply chain management that enhances sustainability. Little qualitative and quantitative analysis of suppliers’ strategic effect within the supply chain has been undertaken. The aims to work give an extreme insight into suppliers’ strategic configuration within the supply chain. It focuses on enhancing how hub organizations managers’ can choose partners that will improve the performance of their organizations. Once the understanding of the effect of various configurations on the output to satisfy customer and organization has been gained, managers working within supply chain environments will be able to work smarter at selecting the suppliers that will best meet their requirements and satisfy their immediate customers.

Supply Chain Management

In the early 2008, AMR Research (2008b) reported that firms in the Supply Chain Top 25 reported an average total stock market return for 2007 of 17.89%, while the Dow Jones Industrial Average (DJIA) had average returns of 6.43% and the S&P 500 index had average returns of 3.53% during the same period (Hauser, 2010, pp. 446-462). At the time the Supply Chain Top 25 included firms in the computer, electronics, automotive, retail, beverage, health care, apparel, and pharmaceutical industries, indicating a widespread recognition of the value of effective supply chain practices. Later in 2008, when the stock markets were down substantially, the Supply Chain Top 25 was down significantly less than the DJIA and S&P 500 indices (Hambrick, 2009, pp. 193-206).

However, it is not all good news for firms, which are participating in supply chains. The downside of ineffective supply chain practices can have a substantial negative effect on firm performance as well. In a study of supply chain glitches, Holbrook (2007) found that when publically traded firms experienced supply chain disruptions, the average abnormal financial returns to firms over the subsequent two year period was close to -40%, and the equity risk of the firms increased at the same time. But supply chain problems are not limited to supply disruptions. Boeing introduced the design for the new 787 Dreamliner several years ago, but has had numerous production problems with supply availability, collaborative design and development challenges, and problems developing new materials for production (Holbrook, 2007, pp. 21-71).

In a different industry, Ericsson experienced a supplier problem when a small fire eliminated supply of a critical cell phone chip, and the firm never recovered (Hauser, 2010, pp. 446-462). There are many examples of how firms have suffered from ineffective management of supply chains, but regardless of the specific causes, firms recognize that mere participation in competitive supply chains does not mean that the firm will gain potential benefits. These issues present a conundrum: why do some firms gain significant advantage for supply chains, while others do not and may even underperform relative to their competition? Why is this important? Because planning and implementing effective supply chain practices requires managers to make decisions today that affect how well firms will perform in the future, and the costs of poor decisions today have dramatic effects on the future firm performance (Harland, 2003, pp. 51-62).

Supply Chain Analysis

Why do some firms achieve success with their supply chain practices while others underperform to their potential? One possible answer to this puzzle lies in understanding the difference between the breadth of an overall supply chain versus the effective span of control or influence that a firm has on its particular supply chain, and how the span of influence can be used to competitive advantage. For example, Toyota and Wal-Mart have worked to extend their span of control in supply chains beyond their immediate suppliers while working to implement strategic information systems that provide increased visibility of information in their supply chains to help improve flow of product, reduce inventories, and reduce overall supply chain costs (Hambrick, 2009, pp. 193-206).

This increased visibility also provides early warning of problems that may be developing in the supply chain, providing additional reaction time that may mean the difference between a supply disruption and effective performance. The value of increased visibility has strategic benefits to firms. Some firms, particularly large firms that have the power of high purchase volumes to induce suppliers to participate in supply chain initiatives may do very well in return. Thus there are limits on span of control in multi-firm relationships and many firms do not achieve the ability to increase their span of control and leverage in supply chains (Habib, 2007, pp. 589-606).

If a firm has a low-cost strategy, then the firm should optimize and coordinate the supply chain by having frequent and timely deliveries from suppliers to reduce the required level of inventory and achieve low cost. There are two types of generic strategies to achieve a competitive advantage: low-cost and differentiation strategies. A low-cost strategy enables a firm to design and produce a product more efficiently than its competitors. A differentiation strategy allows a firm to offer a variety of products to the customer with reliability and responsive services (Gutman, 2002, pp. 60-72). Functional products, which are considered to have stable and predictable demand, require an efficient process (efficient chains) to supply that product. On the other hand, innovative products, which are considered to have unpredictable demand, require a responsive supply chain. This match between product type and supply chain strategy will result in a better profit margin for the organization. An efficient supply chain strategy aims at cutting cost and eliminating non-value activities (Gordon, 2007, pp. 396-415).

A responsive supply chain strategy tends to focus on being flexible and responsive to changes in customer’s demand. An agile supply chain strategy combines both risk-hedging and responsive supply chain strategies. In other words, it aims at being flexible and responsive to customers while pooling and sharing resources among suppliers (Glazer, 2006, pp. 1-19).

Lean Supply Chain Management

A lean supply chain refers to a supply chain that utilizes a strategy aimed at creating the most cost efficiency in the supply chain by reducing the inventory and focusing on improving the quality in the supply chain, thus eliminating waste. Lean supply chains work well where demand is relatively stable and predictable, and variety is low. An important lean supply chain attribute is the minimization of total lead-times in the supply chain since by definition excess time is waste and leanness calls for elimination of all wastes (Glassman, 2008, pp. 1-18).

Supply Chain Design

SCD is a topic with a number of dimensions. When viewed from a strategic perspective, SCD is focused on achieving certain strategic outcomes (Gale, 2009, pp. 105-146). Once the desired strategic outcomes are articulated by the firm, the task is to structure the design of the supply chain to achieve these strategic choices (Flint, 2005, pp. 113-147). Structuring the supply chain design requires the development of specific capabilities designed to support the desired strategic outcomes (Emerson, 2002, pp. 31-41). This theoretical logic has been observed in practice, where Day (2006) found empirical evidence that many firms are becoming increasingly aware that the development of appropriate supply chain capabilities needs to be focused on achieving desired strategic outcomes (Day, 2006, pp. 37-52).

Capabilities

As previously noted, when firms develop specific capabilities in supply chains these capabilities influence how the supply chain performs. Thus, once a capability is implemented it changes the behavior of the system. When the underlying behavior of an organizational system is systematically influenced, it is said to have properties that are identified with that behavior (Christopher & Ryals, 1999, pp. 1-10). For example, firms develop capabilities to improve responsiveness in uncertain environments, and once successfully implemented these firms are said to have agility. Agility is one of many properties that have been identified in supply chains, as noted below. To build on this introduction to properties the discussion turns to defining the term properties and then examples of properties are provided within a supply chain context (Child, 2005, pp. 1-22).

Properties of metals, for example, include tensile strength and corrosion resistance. In this study, it is observed from a review of the literature that there are a number of properties that have been identified in supply chains, such as visibility, agility, and responsiveness. To clarify the distinction between capabilities and properties, capabilities are generally latent constructs that cannot be observed directly. Properties are generally observable outcomes or behaviors that result from the presence of capabilities employed by the firm, such as agility being observed in a firm's response to uncertainty in supply or demand. As observed from the literature, supply chain properties may be visible or hidden, and the presence of these properties may influence performance beyond those intended by firms (Bowersox, 2002, pp. 21-47).

Supply Chain Relationship Structure

A recent article in morebusiness.com points out those supply chain relationships that should be treated as invaluably as customer relationships. The argument could be made that you are the customer and therefore, you should be on the receiving end of customer relationship management, the reality is that you need to be on the giving end of supply chain relationship management. This perspective emphasizes the need for firms not only to receive benefits in a supply chain relationship, but also to give benefits to other firms to support achievement of the focal firm's intended results (Atkinson, 2003, pp. 25-37).

The article points out challenges in supply chain relationships, such as being supplied by a distributor when you are only one of several important customers to the distributor, and firms needing to develop supply chain practices in order to gain preferential attention from suppliers. This and other articles focus on how to develop closer relationships with suppliers to increase influence and leverage when challenges in the supply chain relationship emerge. But this is not easy; Barney (1991) identifies a number of conditions and challenges that firms face when extending their influence in supply chains. Studying aspects of SCRS is a complex issue that has been the subject of many research studies. One aspect of SCRS that is of interest in this study is how firms evaluate trade-offs between choosing an SCRS and how firms estimate how much to invest in an SCRS (Barney, 1991, pp. 99-120).

But how do firms decide on which SCRS to use? It appears to depend, in part, on organizational goals, competitive strategy, the structure and clock speed of the industry, and the evolution of firm and inter-firm capabilities. This observation that the appropriate choice of SCRS may affect firm performance provides another potential answer to why some firms perform better than others when deploying supply chains strategies (Bolton, 2003, pp. 108-129).

Integrated SCRS

Integrated supply chain relationships have been popularized by lean production systems, with one of the most popular examples being Toyota and its highly interconnected supply chain. Integrated SCRS's use a high degree of collaboration and cooperation in product and process development, as well as in information sharing of production schedules, advance shipment notices, shipments, process performance, problem areas, and areas of opportunity where joint participation will result in higher performance for the supplier chain and ultimately for the focal firm. Visibility and information sharing has received considerable attention in the literature in playing a key role in supply chain integration (Atkinson, 2003, pp. 25-37).

Modular SCRS

Modular supply chain relationships focus on identifying and leveraging key interfaces between buyer and supplier firms. Modularity in inter organizational relationships exploits the use of clearly specified interfaces between firms, and treats the internal activities of the firms as a black box when these internal activities are not of concern to the other firms, as long as the inter firm interactions follow protocol and the expected performance from the relationship is achieved (Christopher & Ryals, 1999, pp. 1-10). In the extreme, what a given firm does internally is of no concern to other firms as long as performance in inter firm relationship is as expected. Modular supply chain relationships are more common in: a) industries with high rates of innovation and technological change, and b) in industries where component parts or services are interchangeable due to national or international product standards (Coyne, 2004, pp. 54-62).

Modular product interfaces are the most commonly employed in component and assembly design during product development, an area of where there is a significant research stream. However, there is also literature on the value of modular inter organizational interfaces between firms in a supply chain. Many firms in the computer industry, for example, use modular supply chain relationships in addition to their widely known use of modular product designs. In addition, many manufacturing and software firms are exploiting global research and development expertise through modular relationships with external companies. But there are other service related examples of modular interfaces in key supply chain relationships, such as in banking, logistics service, and information technology relationships (Hambrick, 2009, pp. 193-206).

SCRS Costs and Benefits

In choosing an SCRS, for every benefit there is a corresponding cost. With a modular SCRS, the expected increase in flexibility and responsiveness come at the cost of more relationships to manage, more suppliers to qualify, more inter-firm interface standards to define/gain acceptance, and a spread of purchase volume commitments to more than one company, resulting in lower purchase of volume leverage. For a firm employing a modular SCRS, the benefits of lower switching costs and responsiveness are traded-off by lower visibility to identify potential problems and the loss of lower total system costs that are available through more extensive coordination and communication practices (Holbrook, 2007, pp. 21-71).

For an integrated SCRS, the advantages of higher visibility, improved coordination, lower inventories, and lower system cost come at the expense of investments in more integrated information systems, more human capital to maintain closer relationships, and lower flexibility and higher switching costs during dynamic competitive environments. When relationships are switched in an integrated SCRS, the new relationships and integrated processes have to be integrated over time, increasing investments in new suppliers and increasing human capital to aid in the transition. In addition, if a firm over-invests in a relationship, it negates some of the performance benefits, particularly financial performance (Harland, 2003, pp. 51-62).

Desired Strategic Outcome: Resilience

The choice of SCRS made by firms should be applied in the context of firm strategy. As noted in Chapter One, this study focuses on assessing key dimensions of SCRS relationships in the context of a firm pursing a desired strategic outcome of resilience.

Resilience in a supply chain, therefore, is the ability of a firm to endure a supply disruption and return to a state of stable performance after the disruption ceases. When there is the less time and cost for a firm to attain stable performance after a disruption, the better. The ability of a firm and its supply chain to be resilient in the face of disruptions is considered critical by executives, and the ability of a firm to exhibit resilience can significantly affect firm performance during conditions of supply disruption (Kulatilaka, 2004, pp. 123-149).

In conclusion, this work delves into how to improve supply chain management (configuration and approach). This confirms that the success of an organization depends on the performance and reliability of its immediate (1st tier) suppliers within its supply chain. This study focuses on the strategic typology of organizations suppliers, their various configurations (in terms of ratio) and the effects on the output (performance) the hub organization within the supply chain management. The work gives an extreme insight into suppliers’ strategic configuration within the supply chain. Finally, it focuses on enhancing how hub organizations managers’ can choose partners that will improve the performance of their organizations.