Supply Chain Configuration

Read this article, which examines the challenges western nation manufacturers currently face. Specifically, it covers firms in industrial products, toys, fast fashion, and designer furniture.

Implications for configuration of supply chains

The case studies have given rise to issues of configuration of operations systems and future challenges. In view of the small sample, we have drawn on a number of additional case studies that we have been actively involved in and we have taken note of trends in the literature in an effort to extend our empirical base. This has led to a number of implications for configuration of operations and supply systems to be presented in the form of propositions. In this way, we hope to hand the baton on to other researchers to engage in a continued discussion of configuration issues and means.

P1 – The indirect strategic roles of supply chains will become increasingly important

Without neglecting the significance of the role of full-scale production, it seems that the contributions that manufacturing and supply chain make to competitive advantage in cooperation with other functions will become more important in the future; for example, ramp-up, benchmarking, and prototyping.

In companies with increased customization of products and processes, the role of prototype production will require more attention and, on the other hand, offers potential for a differentiated corporate strategy. As pointed out by Slack et al., attention should be given to the increased integration of product and service offerings. This ongoing servitization of manufacturing is becoming a dominant driver of supply chain configurations as it brings in new agendas related to serving customer-specific needs through operations processes such as extended logistics services, customized product properties, and life cycle management as is particularly evident within case 4, where an increased focus on service-manufacturing integration has become the new competitive platform for the company.

The scope of this proposition is supported by Maletz and Nohria who point to the need to manage white spaces within organizations, i.e. the large, but mostly unoccupied territory, in every company where rules are vague, authority is fuzzy, budgets are nonexistent, and strategy is unclear – and where, as a consequence, entrepreneurial activity that helps reinvent and renew an organization takes place. But the proposition extends the scope of these white spaces to the extended enterprise and the entire supply network, i.e. the participation and interplay in various networks with respect to both daily operations and introduction of new products, technologies and systems. Because of these increased dynamics and uncertainty of demand, the ramp-up production capability is expected to play an increasingly important role. This calls for modular and platform thinking in the design of production systems and well-described business processes.

The case-study companies demonstrate that the key role for operations capabilities in the emerging supply networks is that of managing virtual manufacturing processes focusing not only on supply chain management, but also on the maintenance of sufficient competencies at the suppliers. The case studies also show the increased awareness of the importance of the interplay between product development, handling of customer orders, and production and supply chain management coordination and planning.

As an implication, P1 points to the need to focus attention on developing competencies in managing the interplay between functions, which may not necessarily be under the direct control of the focal company, e.g. sales, product development, sourcing, and manufacturing. As the indirect strategic roles come into focus and operations take place globally, new competencies are called for. Traditionally, emphasis has been placed on knowledge and know-how about production processes; and this represents an important challenge for key processes. But increasingly, the capability to manage complex interplay between many actors involved in a value chain becomes equally important for organizational performance. In many companies the competitive strength lies in these complex competencies, requiring holistic thinking, relying on tacit knowledge located in the hands, heads and minds of a group of employees, and in their interplay with the historically generated systemic set-up. Knowledge sharing across organizational boundaries will become a key issue in the supply network. The case company 2 in particular with its regional set-up has recognized the need for knowledge sharing between its manufacturing sites around the world, not only on specific production processes, but in particular the management practice of stimulating continuous improvements and systematizing cooperation between production development, production engineering, operations and suppliers in the introduction of new products. The company has started to work with virtual communities of practice to share ideas about future production practice (strategic challenges, organizational forms, business processes, management systems and production technologies and processes) and as a vehicle for a joint exchange of ideas and know-how between managers and engineers across the various sites and main hubs. This case has over time progressed through a number of maturity steps as illustrated in figure 5. where it is now approaching the outer ring where the performance of the individual sites becomes increasingly dependent on the performance of other sites and not only sequentially as it would typically be seen within the traditional supply chain, but increasingly through joint achivements on issues such as sustainability, R&D and sourcing.

Fig. 5. Evolving network relationships

P2 – From value chain to value netwok

The case-study companies may be characterized as an Integrating Firm serving as an OEM company at the end of a supply chain. Most of them have adopted an outsourcing strategy to focus on product development, assembly, and distribution. However, when we look at manufacturing, a shift of thinking may be observed, for example from a single lead factory in Denmark to several lead factories forming a network of interactions with one factory having been designated a center of excellence in a specific production process.

The archetypal Networking Firm is characterized by a number of nodes (partners) offering complementary capabilities useful for the products and services offered. The new sourcing strategy of case-study company 4 illustrates this trend, as it has adopted a partnership approach with some key partners, and aims to use these partnerships to move beyond the basic tradeoffs its own operations were tied down by. In case company 3 a similar set-up has been established with a pool of preferred partners (capable of supplying flexibility, reliability and speed) and a larger pool of arms-length partners (working with a cost and capacity focus).

A key question is how companies will be capable of retaining sufficient competencies in-house for leading the development of future activities as their operations capabilities become increasingly distant in time and space. Longitudinal studies will be required to study the dynamic effects as competencies unfold within manufacturing networks, but there are key indications that companies can outsource too much leaving them in a position where the ability to influence, coordinate and specify key deliverables becomes increasingly distant.

An implication of the move from a value chain thinking to that of a value network is that the power structure becomes more distributed and diffuse. In most cases, the integrating firm holds the final word, being closest to the customers and being willing to adopt the risk. In the networking firm all complementary contributions are necessary, and the power is distributed among several partners. As a consequence, P2 calls for a shift from trade-off thinking to a capability for working with dualities, e.g.

  • Living with hierarchical roles and evolving networks
  • Empowering plants and setting direction for the overall network
  • Centralizing strategy development and decentralizing operations
  • Standardizing for cost, reliability and global reach and on the other hand customizing for responsiveness

An interesting aspect to explore is the potential synergy expressed by Milgrom and Roberts, a point that holds that doing more of one thing increases the returns of doing more of another. This points to the notion of strategic complementarities, according to which investing in one practice makes it more profitable to invest in another, setting off a potential virtual circle of high performance.

P3 – Shifts in strategic supply chain roles may be seen as a sequence of moves similar to a multi-player game

Case 1 illustrates how an initial set of decisions to establish joint production with a partner in Eastern Europe led to unforeseen consequences, which called for a new set of decisions and essentially set the company off on a new trajectory. The case description talks about three waves of decisions and reactions from the environment (test, full scale, withdrawal). Case 1 also demonstrates that the initial decision to establish the collaboration might have been justified; but due to the reactions from customers and competitors new challenges and opportunities emerged, changing the foundation of the initial decision. These hidden costs of offshore operations often play a fundamental role in the relocation process, but also influence the longer term strategic role of operations processes within the company.

This and similar case examples have led us to use an analogy to a multiplayer game. A player makes a move, and the other players react and make their moves, which leads the first player to make a new move. The ability to foresee more than just one move is a key to success in chess and other games.

Case 1 illustrate that management was not aware of this dynamic process and was caught by the difficulty of reversing decisions made. The company, however, managed to turn the situation into an advantage by using it as a learning process, where it has learnt about the underlying fundamentals of its own operations, which has left the company in a much stronger operational situation with a robust and well-functioning supply network.

As an implication of these emerging requirements, an organizational learning approach is warranted, which emphasizes experiential expansion and connectivity between parts. In a distributed manufacturing network a concerted effort is needed to transfer the work-object and to explicitly codify and transmit sticky knowledge through systemic and social communication channels. The difference between tacit and explicit interdependences is critical for understanding the implications of increased distribution.

Another implication is a need to develop interactive scenarios, perhaps in the form of social experimental simulations, which would explore possible consequences of a series of moves. We find that this way of thinking about strategic planning is quite different from the traditional development of a master plan for the next period. Such experimental simulations may include identification of irreversible elements requiring special management attention.

P4 - Knowledge development and sharing within the supply network will become key

The nature of knowledge development will be different for the four strategic supply chain roles. For example, the Full scale role may better allow for including intelligent systems, whereas the other three types to a larger degree rely on personal contacts and tacit knowledge due to the non-standardized way of working.

A recent study has estimated that a significant proportion of corporate innovation comes from external sources (suppliers, customers, etc.). This indicates that firms should emphasize capability buying adding a new level to the sourcing activity beyond materials or modules, which has preoccupied our thinking so far. In line with this MNC literature tells us that knowledge generated in any part of the value chain is valuable not only for the knowledge generator itself, but for the overall value chain. The inherent implication of this is that more knowledge in the chain (of any type) ought to generate a stronger drive for knowledge transfer within the chain. This drive is, however, dependent on the presence of strong intensives, the level of absorptive capacity of the partners, and the availability of a supportive network infrastructure. In other words some level of internal knowledge and systematic support is needed to acquire and assimilate external knowledge, which is valuable to the supply network although it may be less valuable to its individual partners.

P6 - Accessibility will become more important than ownership

The issue of whether to outsource or to offshore production has caught much attention both in theory and in practice. However, an underlying dimension is the extent to which a company has access to competences and capabilities and is capable of appropriating these for its own value creation. The scholarly as well as managerial debate need to discuss how this dimension can be given a more prominent place as a variable when configuring the supply network of the future.