June 28, 2018

Supply Chain Structure - Leader Firm and Partner Firms

Supply Chain Structure -   Strategy‐Structure‐Performance (SSP) Paradigm

Supply chain is a network of independent firms. It requires the coordination and commitment of multiple firms to implement supply chain strategic objectives. Each firm in the supply chain has  business unit‐level strategies that include  low cost, product distinctiveness, and/or innovation. They  require internal functional coordination within a firm. But supply chain strategy requires companies to reach objectives through inter‐firm coordination. Supply chain strategy utilizes inter‐firm coordination as the capability that facilitates achievement of objectives focused on revenue growth, operating cost reduction, working capital and fixed capital efficiency to maximize shareholder value (Christopher and Ryals, 1999).  Interorganizational relationship literature introduced the concept of strategic business network alliances to characterize the relationship formed between multiple firms linked together in support of a common goal (Achrol, 1997; Varadarajan and Jayachandran, 1999).

The interorganizational relationship phenomenon has appeared in logistics research using the term relational strategy (Rodrigues et al., 2004). A relational strategy requires that firms create structures and processes that improve cross‐organizational behavior between supply chain partners that share a common vision and objectives. This collaborative perspective is key to aligning the operational processes of multiple firms into an integrated supply chain system. In such relationships, shared supply chain goals across participating supply chain firms heighten the chances of success. For example, a consumer goods manufacturing firm with a strategy focused on providing the highest quality products in the industry should seek logistics providers and retail partners that differentiate themselves from competitors by providing the highest levels of supply chain services such as on‐time and consistent delivery and on‐shelf availability.

Another key dimension of supply chain strategy includes identification of firms that share a mutual belief in the value of the supply chain as a competitive differentiation mechanism. Establishing ties to other firms that do not value the supply chain as highly will reduce the effectiveness of the supply chain (Ellram, 1995). The Japanese keiretsu structure provides an early demonstration of multiple firms using supply chain strategies to achieve a common purpose (Schonberger, 1982; Sugimori et al., 1977). While keiretsu differs from typical cross‐organizational structure because there is frequently some degree of vertical ownership implied between the organizations, it does offer a meaningful analogy for establishing ties with firms that hold a mutual belief in the role of the supply chain. In the keiretsu structure popular in  automotive and electronic sub‐components, suppliers enjoy close ties with manufacturers, often exchanging personnel, technology, information, and capital in order to secure high volume, long‐term supply contracts with the manufacturer. Uniquely, the supplier is frequently a spun off division of the manufacturer.

The applications of supply chain strategy is more visible  in supply chains managed by a powerful supply chain leader. Often a leader firm in a position of power will define the rules the supply chain will play by. Alternatively, a strong leader firm may use its power to influence, rather than dominate, the supply chain behaviors of other firms; in either case the leader's power will influence the other members of the supply chain. Researches found that  positive uses of power tend to lead to stronger supply chain relationships, which in turn lead to improved performance (Ellram and Cooper, 1990; Maloni and Benton, 2000; Mentzer, 2001).

Structural elements of the supply chain

Firms that pursue supply chain strategy must seek to develop structures that support such a strategy.
The supply chain itself  has to conceptualized as the focal enterprise. Integration, both within the firm and across supply chain members is a central theme required for effective coordination of activities across multiple firms. Integration and the similar concepts of synchronization and harmonization entail the common use of materials and systems to create timely, high quality product and information flows that drive enhanced performance. Thus supply chain structure implies the integration of the organization governing the network of supply chain members and the links between members through which the enterprise is administered (Lambert et al., 1998). A lack of integration may lead to the failure of multiple partners attempting to work together (Brewer and Speh, 2000; Bowersox et al., 1999; Chow et al., 1995; Mollenkopf et al., 2000; Williams et al., 1997).  Critical elements of structure including technology, communications, standards, decision‐making authority, and reward systems can be applied to the supply chain environment to become foundational elements of the SSP supply chain framework

Adopted from
Source: C. Clifford Defee, Theodore P. Stank, (2005) "Applying the strategy‐structure‐performance paradigm to the supply chain environment", The International Journal of Logistics Management, Vol. 16 Issue: 1, pp.28-50, https://doi.org/10.1108/09574090510617349

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