BUS606: Operations and Supply Chain Management

Literature on the management of multinational enterprises (MNEs) - and in particular the Network Theory, which views the multinational organization as a web of inter- and intra-firm relationships – provides the conceptual foundations of this chapter. According to Bartlett & Ghoshal, an MNE consists of a group of geographically dispersed and goal-disparate organizations that include its head-quarters and the different national subsidiaries. Such an entity can be conceptualized as an inter-organizational network that is embedded in an external network consisting of all other organizations such as customers, suppliers, regulators, and so on. These types of organizations exist in increasingly rugged competitive landscapes, which they need to deal with through ongoing and often non-linear adjustments of internal operations and its supply chain links. This moves the focus away from the simple dyadic relationships between, e.g., the HQ and its subsidiary, the functional domains within the value chain, or the specific decision to invest in a foreign location, to the task of managing a network of established subsidiaries and analysis of the competitive advantages that arise from the potential scope of economics of such networks.

In industrial systems, companies are engaged in R&D, purchasing, production, distribution, and the use of goods and services. We describe such systems as networks of relationships among firms with different levels of task-based interdependencies. There is a division of work in a network, which means that the individual entities develop interdependencies with each other. This also means that coordination is not achieved through a central plan or an organizational hierarchy, nor does it take place through the open-market price mechanism. Rather, coordination is often found to take place through interaction and mutual adjustment among firms in the network, in which cost is just one influencing condition alongside market-serving and knowledge-seeking potentials. The operational environment of the production company is often treated as an exogenous entity and is reified as a source of undefined uncertainties as opposed to being seen as an organizational field consisting of specific interacting organizations. This remains a key problem of our understanding of the operations network, as the discussion remains too abstract to form a basis for concrete decisions.

Shi & Gregory discuss manufacturing networks as integrated rather than aggregated from its parts. This introduces a systems dimension, which remains poorly understood. The systems perspective calls attention to issues beyond isolated location and capacity choices, and emphasizes the coordinated aspects of operations networks. In the operations literature, this coordination has typically been addressed in discussions of plant roles. Ferdows defines the operations system as a network of factories, where each site plays a different role, although this framework is biased towards the role of the single plant rather than considering the faculties of the integrated or coordinated network. While the level of analysis within the discussion of plant roles remains that of the plant, the network perspective points to a need to look at the interaction between plants to understand the dynamic configuration of plants. Today's operational reality points not only to the network of autonomous plants or to the dominating corporate center, but rather raises the need to deal with agglomerates of internal and external partners with changing dispositions and roles.

Conceptually manufacturing networks theory originated in the operations management field, whereas the logistics management perspective dominates supply chain theory. The historical trajectory of the configuration, i.e. whether the starting point is the internal or the external network, influences how the network is operating as well as what capabilities can be mobilized within it. Research on manufacturing networks has its roots in the manufacturing management of a single factory, resulting in an inclination of scholars to study the network as a wholly owned and internal network where all facilities are under full control. Conversely, research on supply chains from a logistics perspective tends to analyze the network as an external network with facilities owned by different organizations. Logistics research has traditionally focused on the links between the nodes, whereas manufacturing network research tends to focus on the nodes themselves and their internal efficacy.

Rudberg & Olhager introduce the term Value Network as a means to integrating the manufacturing and the logistics-based perspectives, cf. figure 1. They describe the value network as a network of facilities, possibly owned by different organizations, where time, place, or shape utility is added to a good in various stages such that the value for the ultimate customer is increased. Various purposes may be associated with this network and thereby influence its capabilities, such as the following:

• The market-seeking network; this type of subsidiary is formed around the objective of initiating their operations in emerging economies to capture the local market with an existing range of products, possibly with local adaptations.
  
• Parallel operation network; within this type, the subsidiary is expected to reproduce, possibly at a smaller scale, the operations at the MNE's original base.
• Efficiency-seeking network; seeks to establish rationalized product subsidiaries specializing in the production of a smaller part of an MNE group's existing product range, aiming to supply this in a cost-effective manner to a wider market.
  
• Knowledge-seeking network, which at the subsidiary level builds on the incorporation of a customized and higher-value-added functional scope. These subsidiaries are likely to be more securely embedded within the distinctive local economic capabilities.
  

Fig. 1. Value network

According to Wiendahl et al., there are four basic network types:

• The first type is the Strategic Network; this network is strategically operated through a focal company, mainly a finished product supplier, contractually close to the focal company.
  
• The second is the Virtual Enterprise, which consists of independent companies working together on the basis of a joint business understanding and aiming to take advantage of an available business opportunity through common operation. The co-operation is confined to a point in time or a relatively short period (like a project).
  
• The third form is the Regional Network; this is based on a special conglomeration of highly specialized small and medium-sized enterprises within a geographical area.
  
• The fourth is the Operational Network: The goal of working together is that the company, supported by a comprehensive company information system, is able to capitalize on the performance of partners in the short term, especially in free production and logistic capacity.
  

In light of these network types, it is necessary to make the case that the ownership ties that exist within the vertically integrated MNE do not necessarily impede the scope of behaviors that are possible among interacting organizations that are not so connected. Control may be limited within multinationals not only because some of the subsidiaries happen to be very distant and resource-rich, but, more so, because they control critical linkages with key external actors. Fiat is present in the MNE, but it may not be the most dominant mechanism of control, and it coexists with local autonomy, which makes inter-organizational theories applicable as a means for discussing operations networks.

The strategic role of distributed facilities is determined by the interplay between several factors, such as the following:

• Geographical proximity to customers (server capabilities, landed cost, responsiveness)
  
• Operations capabilities and plant dispositions (abilities to deliver on key performance criteria)
  
• Process stage (vertical network structure and position in the value flow)
  
• Production volume (different management and technology requirements)
  
• Product line (compatibility of process technologies and management systems, degree of interdependencies with other facilities)
  

With an outset in these characteristics of the operations network, there are a number of strategic positions that may be taken by plants, but what is the scope of these strategic positions and what are their key features? This question will be dealt with in the following section and will be summarized into a set of supply chain roles in section 5.