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3.supply network Document Transcript

  • 1. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-5771.htm Supply network Supply network configuration benchmarking benchmarking Framework development and application in the Indian automotive industry 783 Roger Moser EBS Business School, Automotive Institute for Management, Wiesbaden, Germany and Indian Institute of Management, Bangalore, India Daniel Kern University of Erlangen-Nuremberg, Erlangen-Nuremberg, Germany Sina Wohlfarth European Business School, Wiesbaden, Germany, and Evi Hartmann University of Erlangen-Nuremberg, Erlangen-Nuremberg, GermanyAbstractPurpose – The purpose of this paper is to develop a benchmarking framework for the analysis of thesupply network configuration of companies and exemplify its applications in the Indian automotivesector.Design/methodology/approach – The authors combine elements of relationship and networktheories from different research streams to develop a three-level supply network configurationbenchmarking framework including a dyadic supply chain and network perspective. The analysis oftwo case companies exemplifies how different supply networks in emerging markets are depending onthe specific strategies and institutional context.Findings – The framework works well with the two case studies presented. A major player in theIndian automotive industry is benchmarked against a newcomer in this emerging country. The resultscan be used to improve each firm’s supplier base management approach and create more efficiency intheir further development.Originality/value – This paper builds on current theories to develop a benchmarking framework forsupply network configuration analysis combining the dyadic, chain, and network level into oneframework. The case example exemplifies the developed framework.Keywords Benchmarking, Case studies, Supply network, Automotive industry, India, Spare parts,Distribution managementPaper type Research paperThis research project has been supported through funding of the EADS-SMI Endowed Chair, IIMBangalore. Benchmarking: An International Journal This article is part of the special issue: “Supply chain networks in emerging markets” guest Vol. 18 No. 6, 2011edited by Harri Lorentz, Yongjiang Shi, Olli-Pekka Hilmola and Jagjit Singh Srai. Due to an pp. 783-801 q Emerald Group Publishing Limitedadministrative error at Emerald, the Editorial to accompany this special issue is published 1463-5771separately in BIJ Volume 19, Issue 1, 2012. DOI 10.1108/14635771111180707
  • 2. BIJ 1. Introduction18,6 The recent past has seen two fundamental developments in many different industries: first, suppliers continue to become more and more integrated and are thus increasingly important for the overall value creation process. Second, emerging economies such as China or India are nowadays playing a key role in production, sourcing and distribution decisions, and their large and growing markets are representing the major centers of784 demand for many products and services (Christopher and Juttner, 2000; Dyer, 1996; Humphrey, 2003). The growing importance of suppliers for OEMs and the increasing interdependence between the key players in many industries clearly show the shift in the value creation process. Complex products with large bills of materials tend to heavily rely on a well-established supply network (Choi and Hong, 2002). High levels of customization and market pressure forever higher quality standards present a challenge for the whole supply chain. In line with this development, product life cycles have rapidly shortened over the past few years. Therefore, a company’s innovation ability continues to be a key success factor in many industries. At the same time, the increasing pressure on costs and efficiency is driving both OEMs and suppliers in an extremely competitive environment. In order to fulfill the demands in terms of innovativeness, cost efficiency, and quality, companies focus on the differentiation of their capabilities and strengthening of their brands. The increasingly important but complex brand management motivates OEMs to hand a large portion of the production and even development processes over to their suppliers. Extensive information exchange and direct assistance are then necessary in order to closely tie suppliers to the buying firm and integrate their processes. Particularly, Japanese manufacturers inspired by Toyota in the automotive sector have shown that close relationships with suppliers are a source of strategic strength within a competitive environment (Langfield-Smith and Greenwood, 1998). OEMs and suppliers are turning therefore to new forms of inter-organizational collaboration in which the management of external supplier resources is an essential task for improving the overall costs and the competitive position. Researchers and practitioners confirm the demand and development of partnership-like collaboration between OEMs and suppliers that reaches far beyond the traditional hierarchical relationships. These new partnerships ought to be characterized by trust, common goal-setting, supplier integration, and inter-organizational cooperation. In the course of this development, companies concentrate on a fewer number of suppliers, foster close relationships with them and pay high attention on the suppliers’ performance in terms of cost, quality, and delivery. Associated with this development of closer relationships, the idea of supply networks is frequently named as a means to remain competitive in global manufacturing industries. A network perspective encompasses the holistic integration of all suppliers to combine resources as well as increase flexibility and adaptability of the value creation process. Within these networks of OEMs suppliers from emerging markets such as India, China, or Eastern Europe are playing an increasingly significant role. While the established markets in the USA, Europe, and Japan experience stagnation, the markets of emerging countries are growing remarkably, offering huge sales opportunities and low-cost production facilities. The Indian automotive industry, for example, is the ninth largest automotive industry in the world with a compounded annual growth rate of 18 percent in production volume within the last five years (Frost & Sullivan Growth Consulting, 2007). In order to exploit these growth opportunities, virtually all major
  • 3. automotive manufacturers are already present in the Indian automotive industry with Supply networksome sort of activities. However, when those global manufacturers have entered the benchmarkingIndian market from the mid-1990s until today, they face the challenge of establishinga supply base that meets their requirements while complying with tight regulations andhigh customer expectations. The domestic supplier base of many OEMs stillconsists primarily of a large number of small companies due to previously establishedsmall-scale industry policies in India. As a result of the protective nature of these 785policies, the suppliers lack technological capabilities and can be characterized bynon-competitive productivity and quality levels (Okada, 2004). In the light of localizationrequirements and high import tariffs, preventing a more extensive use of global imports,many manufacturers have called upon their global suppliers to establish manufacturingfacilities in India while others have started building up a local supplier base. Besides,quality issues, local content, and the innovative ability of suppliers, emerging countriespose special challenges on supply chain operations in terms of logistics, cost, andreliability. Thus, the specific supplier base management practices of large corporationsnecessarily have to be adapted to the characteristics of emerging markets. The increasing importance of suppliers and the shift to a more closely integratednetwork on the one hand, and the special challenges of emerging countries on the otherhand are the focus of this paper. In the light of an increasing network awareness amongresearchers and practitioners, criticism was raised against research on buyer-supplierrelationships that had previously focused on single relationships only (Olsen andEllram, 1997). Consequently, an embedded perspective of relationships in networks wasintroduced (Salancik, 1995; Wilkinson and Young, 2002). However, many studies stillfocus on either the dyadic or network level leading to a lack of integrated researchprojects on inter-organizational relationships (Andersson, 1992). We address thisresearch gap within this paper by integrating aspects of supplier relationships andsupplier base management. The objectives of this study are twofold. First, we develop ageneral benchmarking framework for the supply network configuration of companiesintegrating a dyadic, supply chain, and network level. Second, we exemplify the model inthe context of an emerging country by analyzing two distinctive supply networkconfiguration approaches of Western automotive companies in India. The remainder of this paper is therefore organized as follows. First, we present thetheoretical background and subsequently develop a benchmarking framework forsupply network configuration analysis on the basis of relationship and network theories.We then provide a case example discussing the applicability of our benchmarkingframework in the context of the Indian automotive industry. Finally, we summarize ourfindings and discuss our results.2. Theoretical background2.1 Dyadic relationships and network dynamicsResearch on supply networks is still in an early stage, but is experiencing growing interest(Choi et al., 2001; Lamming et al., 2000; Stuart et al., 1998). The management of supplychains or supply networks aims at integrating and optimizing inter-organizationalprocesses within chains and networks (Lambert et al., 1998). Thereby, a network iscomposed of several supply chains (Harland, 1996) and refers to a network of firmsengaged in manufacturing and assembly of parts to create a finished product (Choi andHong, 2002). A common definition in the area of networks was presented by Jarillo (1988)
  • 4. BIJ who defines strategic networks as long-term, purposeful arrangements among distinct18,6 but related for-profit organizations that allow those firms in them to gain or sustain ` competitive advantage vis-a-vis their competitors outside the network. In order to develop a benchmarking framework for supply network configuration we draw upon insights from various theories addressing different levels: the dyadic relationship, the supply chain, and the network levels. The existing literature786 shows relevancy for all three levels for the benchmarking of supply network configuration. In the past, research focused on the dyadic relationship between two companies (Andersson, 1992) and until now, dyadic relationships are the center of attention in academia and practice. Gadde and Snehota (2000), however, argue that the scope of analysis needs to be broadened in order to fully understand customer-supplier relationship taking due to their interactive nature. The interconnectedness of all relationships together forms the network and thus needs to be analyzed in the light of dynamic networks (Andersson, 1992). Thus, the foundation for the development of our benchmarking framework for supply network configuration is primarily based on the theories of relationships and networks. An overview of the literature on dyadic exchange theory by Moeller and Wilson (1995) shows that early work on dyadic exchange relationships paid more attention to single transactions than the overall relationship between the two parties. During the 1980s, this perspective shifted to the relevance of exchange relationships and the comprehension that a relational exchange evolved over time and should therefore be viewed on the basis of its history and prospective future (Dwyer et al., 1987). The relational view emphasizes the competitive advantage that relationships can create (Dyer and Singh, 1998). This perspective is adopted within this paper by following an integrated approach to supply network analysis and acknowledges the development process of relationships as well as influencing factors on relationships. Several of our theoretical approaches to exchange relationships are based on the marketing literature. Marketing research provides valuable conceptual work for the understanding of the basic processes of relationships and forms a basis for the analysis of supplier relationships and networks (Olsen and Ellram, 1997). Table I provides an overview of the theories used in this paper. 2.2 Transaction cost economics An influential theory on exchange transactions from the field of economics is the transaction cost theory. Contractual arrangements between exchange partners are coordinated by generic forms of governance in order to minimize transaction costs and thus facilitate transactions. The term transaction cost contains the processes of execution as well as initiation, settlement, and control of a transaction. In addition to market and hierarchy – the polar modes of governance – hybrid mechanism such as long-term agreements, regulations or reciprocal trading particularly help to describe relationships and networks (Williamson, 1991). According to this classification, inter-organizational relationships combine elements of market-based coordination and hierarchical structures. Four transaction characteristics determine the form of governance structure to chose and how to settle an arrangement (Menard, 2004):´ specificity of investments, the strategic importance of the transaction, the uncertainty involved, and the frequency of transaction. For the development of our model for supply network configuration benchmarking, we apply transaction cost theory when analyzing
  • 5. Theory Description Dyadic level Supply chain and network level Related literatureTransaction Good relationships try to minimize Supplier relationship design varies ´ Williamson (1991, 1995), Menardcost transaction costs. Relationships depending on influencing factors (2004)economies need governance structures based such as strategic importance, on market or hierarchy to ensure frequency of transactions, efficient transactions uncertainty involved, etc.Political The approach distinguishes The individual supplier relationship The multi-level view of supply Stern and Reve (1980), Duffyeconomy between the internal political is influenced by the external network configuration provides (2008)framework economy, namely the supplier political economy, namely supply valuable insights into the nature of relationship and the external chain and supply network supplier relationships by political economy, addressing the distinguishing interaction elements supply chain and network. from dependency issues and the Economic and sociopolitical forces relationship climate influence the internal political economyIMP Interplay between interactions and Four variables of analysis to Ford et al. (2003)interaction relationships: a relationship results consider: interaction partners,model from interactions and elements and process of interaction, simultaneously influences new environment, relationship interactions atmosphere. The process of interaction is influenced by organizational interdependence on three dimensions: activity links, resource ties and actor bondsTheory of The structure of a network guides The organizational-sociological Scott (2004), Emirbayer (1997),structuration the behavior of an action within the network approach describes a Giddens (1984) network and the actor’s behavior dynamic network structure through shapes the structure the interplay between structure and behaviorIndustrial Inter-organizational relationships Primary functions are the result of Secondary functions emerge due to Anderson et al. (1994), Anderssonnetwork are contingent upon other the dyadic interaction between connections to other relationships (1992), Dubois and Pedersenapproach relationships within the network. partners and are thus called “network (2002), Ford et al. (2003) This interconnectedness leads to functions”. The effect influenced by primary and secondary functions the network horizon observed benchmarking Supply network configuration of supply network Theoretical framework 787 Table I.
  • 6. BIJ dyadic relationships. Therefore, the choice of supplier relationship design depends18,6 upon the supplier’s strategic importance or the frequency of transactions while the investment specificity further influences the interdependence of the two parties. The basic assumptions of transaction cost theory are bounded rationality of actors and opportunism. As a consequence, several critical issues have been raised against this theory. First, the pure focus on costs neglects social interdependencies such as trust.788 Second, the theory of transactions costs lacks to include dynamic properties explaining inter-organizational relationships and networks. However, we believe that transaction cost theory provides a strong theoretical foundation when analyzing economic and contractual arrangements on a dyadic level (Williamson, 1995). 2.3 The political economy framework An early prominent approach within relationship theory that emphasized the relational perspective is the political economy framework established by Stern and Reve (1980). Since then, many researchers have suggested this approach when analyzing buyer-supplier relationships (Duffy, 2008; Golicic and Mentzer, 2005; Izquierdo and Cillan, 2004; Krapfel et al., 1991). The framework combines economic and behavioral aspects, taking into consideration microeconomic theory on the one hand and social psychology and organizational theory on the other hand. In marketing research, the framework distinguishes between the distribution channel, referred to as the internal political economy, and the channel environment, the external political economy. In the context of supply networks, the internal political economy captures the individual supplier relationship whereas the external political economy represents the supply chain and network. By emphasizing the influence of the external on the internal economy, the theory supports a framework of supply network configuration with multiple levels. The internal political economy is influenced by economic and socio-political forces. Duffy (2008) adds the relationship climate as a third force to provide an operationalization for the abstract framework (McIvor and Humphreys, 2004). The economic force captures the level of coordination and integration between the parties, socio-political influences measure the degree and symmetry of interdependence within a relationship, and the relationship climate takes into considerations the degree of cooperation and conflict. The theory provides valuable insights into the nature of supplier relationships by distinguishing interaction elements from dependency issues. Relationship climate variables such as trust and commitment are frequently suggested as ingredients for new forms of buyer-supplier relationships. In the light of the interconnectedness of all items, the political economy framework seems especially appropriate when analyzing supply network configurations. 2.4 The IMP interaction model A further influential approach is the interaction model developed by marketing researchers linked to the International Marketing and Purchasing (IMP) Group[1]. The central analysis units within the model are interactions and relationships. The model describes a recursive interplay between interactions and relationships (Ford et al., 2003). Thus, interactions can only be understood in the context of the existing relationship. For describing a dyadic relationship, the researchers identified four analysis variables (Moeller and Wilson, 1995): the interaction partners, the process of interaction, the environment, and the relationship atmosphere. The interaction partners in the model
  • 7. can be organizations or their representatives. The process of interaction further divides Supply networkinto the exchange and the adaptation process. As a result of short-term exchange benchmarkingactivities and adaptations, interdependence emerges between organizations,which characterizes the long-term relationship behavior and quality. Theenvironment variable captures the context – namely the network – within which theinteraction takes place (Moeller and Wilson, 1995). The relationship atmosphereaccounts for historically evolved aspects of cooperation and conflict (Gadde and 789Hakansson, 2001). In the IMP interaction model, operationalization of the terminterdependence is achieved through three dimensions: activity links, resource ties, andactor bonds (Ford et al., 2003). Activity links emerge when two organizations relate theiractivities in such a way that efficient activity structures are established (Ford et al.,2003). The development of activity links and – in the long run – relationships involvesinvestments and the combination of resources, which are referred to as resource ties. Inaddition to connected activities and combined resources, the level of interdependence oftwo parties is influenced by subjective social aspects, defined as actor bonds. The IMPapproach aims at providing an understanding of the nature of supplier relationships. Inmany industries, first-tier suppliers are widely integrated into product developmentprocesses of OEMs and design-specific tools for individual customers. The outlinedmeasures of interdependence – activity links, resource ties, and actor bonds – providethe necessary tools to analyze such dyadic supplier relationships.2.5 An organizational-sociological network approach: theory of structurationIn network literature, researchers have consistently criticized the deficient theoreticalbase of network research, stating the non-existence of a discrete network theory(Salancik, 1995). However, a variety of theories from economic, social, or organizationalsciences can serve as sources for the analysis of networks. Early work on networks can be found in the area of sociology and psychology whereresearchers studied processes between two and more individuals or groups. During the1970s and 1980s, this work was applied to relations between organizations focusing onthe logic of open systems and a relational conception of organizations (Scott, 2004).Relational theorists view units as inseparable from the transactional contexts withinwhich they are embedded (Emirbayer, 1997). Giddens’ theory of structuration (Giddens,1984) emphasizes the social relationships and interactions between organizations aselements of inter-organizational networks. The development of a network can beexplained through the recursive interplay of the network structure and the actorbehavior. The theory of structuration helps to understand dynamic networks throughprocedural production and reproduction of networks and, thus provides a suitable basisfor the analysis of supply networks configurations.2.6 An interaction-based network approach: industrial network approachA network approach developed in the area of industrial goods marketing is the industrialnetwork approach, which constitutes one of the most distinct network theories.Inter-organizational relationships as main unit of analysis are not understood asindependent dyads but are contingent upon other relationships within the network(Dubois and Pedersen, 2002). The connectedness of all relationships leads to direct andindirect effects, referred to as primary and secondary functions. Primary functions are aresult of the dyadic interaction between two exchange partners. Secondary functions –
  • 8. BIJ also referred to as network functions – emerge due to connections to other relationships18,6 (Anderson et al., 1994; Dubois and Pedersen, 2002). In the light of these relations, the question of network boundaries is frequently discussed. In the industrial network approach, this problem is solved through the concept of network horizons which encompasses the extent of an actor’s individual view of the network (Anderson et al., 1994). Another central concept within the industrial network790 approach is the network position of an actor, which depends on the actor’s total set of relationships offering resources and activities and defining the reputation, rights, and obligations of an organization (Ford et al., 2003). Owing to the interrelatedness of relationships and the network, every change of relationships results in either stabilization or destabilization of the network (Anderson et al., 1994). This approach highlights similarities to Giddens’ theory of structuration stressing the dynamic characteristics of networks (Andersson, 1992). The approach is able to capture the effects of change within network actors and established relationships on an organization’s network position. The aspect of time contributes to the experience of actors influencing the efficiency and effectiveness of links within the network (Dubois and Pedersen, 2002). In contrary to many traditional approaches which focus on specific transactions while excluding the context, the industrial network approach captures contextual effects through the embeddedness of organizational relationships into a relationship network. In addition to the theories presented above, the supply chain operating reference model (SCOR) has gained significant attention in academia and practice. Developed by the Supply Chain Council together with about 70 manufacturing firms, this operational model focuses on the process management of supply chains and provides a common terminology and standard process descriptions (Lockamy and McCormack, 2004; Stewart, 1997). However, when developing a general model for supply network configuration benchmarking, a more strategic perspective is necessary to analyze relationships and structure rather than activities and processes. The theories presented in this section are important elements to understand how the supply network structure influences the interactions between two parties (Salancik, 1995). They also stress the dynamic development and change of networks, which are two important aspects when analyzing the development of supply network configurations over time. If, for example, the number of suppliers in the network is reduced to a few preferred suppliers, the supplier management is expected to adapt to this by establishing closer relationships with these suppliers on the dyadic level. The discussed network theories have also shown that the network members shape the network through their behavior, which implies that activities regarding the operational supplier management can influence the strategic design of the supply network. 3. A benchmarking framework for supply network configuration Based on the properties of relationships and networks derived from theory, we develop a benchmarking framework for supply network configuration. Relationships and actions between two parties can only be captured and understood appropriately by considering the context. Therefore, the fundamental structure of the framework is separated into three levels, namely the dyadic, chain, and network levels. The distinction between these levels can also be found in Harland (1996) as well as in Choi and Hong (2002). On each level of our benchmarking framework, we identify several dimensions of analysis as shown in Figure 1. The level of relationship connectedness between two organizations
  • 9. Network level Supply network firm firm benchmarking Chain level Dyadic level firm firm firm firm 791 1 Level of relationship connectedness • Formal connectedness firm • Physical connectedness firm • Social connectedness 2 Chain authority and centralisation Figure 1. 3 Network dynamics Supply network benchmarking frameworkcaptures the buyer-supplier relationship on the dyadic level, chain authority andcentralization observe management activities and external factors on the chain leveland network dynamics analyze the supply configuration on the network level.The choice of these dimensions can be attributed to the following considerations.Network dynamics were identified as an essential property of networks within ourliterature analysis and are essential for the analysis of the development of supplynetwork configurations over time. Chain authority and centralization refer to theexisting power and dependence structures within the near network horizon, while thelevel of relationship connectedness was determined as an umbrella term for a broadrange of dyadic aspects of buyer-supplier relationships derived from relationshiptheories and buyer-supplier literature. In the following, we discuss each element of theframework in detail (Figure 1).3.1 Benchmarking level 1: level of relationship connectednessThe level of relationship connectedness captures the interdependence of two partiesthrough three sub-dimensions, namely formal, physical, and social connectednesses.Formal connectedness is concerned with contractual and formal arrangements betweentwo organizations. Whereas many relational frameworks do not include thisperspective, it forms the basis for relationships to evolve and still covers a lot of theoperational concerns of many practitioners. The theory of transaction cost economicsprovides the necessary foundation for the analysis of contractual arrangements.Thereby, contracts are a means of handling opportunism and overcoming the absence oftrust. In addition, they also define production requirements, expected behavior, andquality levels (Batt and Purchase, 2004). Measures for describing the formalconnectedness include, for example, the length and explicitness of contracts as well asthe degree of formalized rules and procedures. Physical connectedness captures two elements of interdependence defined by theIMP Group: resource ties and activity links. Similar aspects are discussed in the political
  • 10. BIJ economy framework, which names physical exchange and joint activities as important18,6 elements of relationships. The most important transaction elements in the transaction cost theory are specific investments, which can create dependence and interdependence. Therefore, measures for analyzing physical connectedness include relationship-specific investments such as adaptations of any kind to improve the interfaces between two organizations which are defined as an element of close relationships by Woo and Ennew792 (2004). A definition of adaptations is provided by Brennan and Turnbull (1998) as the behavioral or structural modifications, at the individual, group or corporate level, carried out by one organization, which are initially designed to meet specific needs of one other organization. In addition, the degree and form of assistance given to the business partner throughout the relationship can be investigated. This aspect is specified by Burt et al. (2003) through supplier training, quality audits and process evaluations, provision of tooling, and support for problem solving. In the purchasing and supply chain management literature, several of these issues are often summarized under the term supplier development. Finally, joint activities in areas such as production, logistics, or quality assurance are examined. In the literature again, especially joint product development is frequently mentioned as a characteristic for close relationships (Goffin et al., 2006; Ploetner and Ehret, 2006). In this context, suggestions for early supplier involvement are also raised (Bidault et al., 1998). The social connectedness captures the relationship atmosphere or climate, in the IMP model also referred to as actor bonds. Woo and Ennew (2004) use the term relationship atmosphere to summarize the factors trust and commitment, which are probably one of the most common and frequently cited approaches to characterize close relationships (Moberg and Speh, 2003; Ploetner and Ehret, 2006). Izquierdo and Cillan (2004) assign trust a prominent position because without minimum conditions of mutual trust, the relationship will not be viable. However, trust and commitment can only be established through open and regular communication over time. Therefore, we consider the forms and degree of communication as further measures within the analysis for our benchmarking framework. Following the resource-based view of the company, the picture of competing supply chains rather than individual firms stresses the importance of analyzing partnerships and close relationships (Christopher and Juttner, 2000). As a summary, the benchmarking of supply network configurations on the dyadic level focuses on how formal arrangements are designed and whether specific investments and adaptations are made taking into consideration the underlying relationship atmosphere. 3.2 Benchmarking level 2: chain authority and centralization The analysis dimensions chain authority and centralization are located on the chain level in our benchmarking framework. Recent research stresses the importance of an integrated and holistic approach in supply chain management because a narrow view on a single focal firm cannot take into consideration the many interrelations of a global supply chain (Buhman et al., 2005; Steele and Court, 1996; Wagner and Bode, 2006). Vertical and hierarchical structures emerge among organizations and thus require researchers to extend their view to the supply chain level (Jahre and Fabbe-Costes, 2005). In many major industries such as automotive or aerospace, the final assemblers wield power and influence towards direct and indirect suppliers. This corresponds with the concept of the network horizon and a firm’s network position which can be identified in the industrial network approach. It also encompasses the issues of dependence
  • 11. and power outlined in the political economy framework. Hereby, dependence is Supply networkunderstood as a firm’s need to maintain the relationship in order to achieve desired goals benchmarking(Frazier, 1983). Adapted from Choi and Hong (2002) this benchmarking dimensionanalyzes the degree of power and authority the manufacturer exerts over the members ofthe supply network. Therefore, two measures are defined for the chain level in ourframework: the distribution of supplier-selection competence and coordination of designactivities among the members of the supply chain. 7933.3 Benchmarking level 3: network dynamicsTaking into consideration the environment and the interconnectedness of relationships,we analyze the supply network configuration of companies also on the network level(Anderson et al., 1994). Analyzing on the network level adds more interrelations,dynamics, and complexity as compared to the more basic and linear chain level.When considering the whole network, a benchmarking model needs to capture manymore interrelations among different tier 1 and tier 2 suppliers which in turn havemultiple customers to consider. Thus, different mechanisms are needed to adequatelycapture the network level as compared to the chain level. In recent years, researchon supply network configuration has evolved. Choi and Hong (2002) present casestudies on three supply networks and structure their analysis in three dimensions –formalization, centralization, and complexity. Samaddar et al. (2006) develop atheoretical framework to investigate the relationships between the design of a supplynetwork and inter-organizational information sharing. In their 2008 study, Srai andGregory (2008) explore the impact of configuration on supply network capability. In theory, the political economy framework as well as the IMP interaction modelexplicitly define the exchange environment as an essential influencing factor.Furthermore, the outlined network theories stress the dynamic properties ofnetworks, giving rise to the need for capturing the dynamic nature and the changingcontextual conditions within which buyer-supplier relationships evolve. Therefore, weanalyze the dynamics in supply networks within the following dimensions. Accordingto the theory of structuration, a network’s development results from the interplay ofnetwork members and the network structure. In supply networks, the structure is notorchestrated but rather emerges over time (Choi et al., 2001; Choi and Hong, 2002).Therefore, when analyzing network dynamics we assess the number of levels in thenetwork as well as the quantity of organizations within each level. In addition, we alsoconsider the individual network members characterized by their size, origin, andtechnological capabilities.4. Discussion: case example of two Western OEMs in the Indian automotiveindustry4.1 Case study developmentIn order to demonstrate the applicability, we test our framework for supplynetwork configuration benchmarking in the case of two Western OEMs in the Indianautomotive industry. Case study research is most appropriate to capture the variousaspects within this emerging field of research and presents the best way to test ourbenchmarking framework in detail (Ellram, 1996; Naslund, 2002). Moreover, case studyresearch is a suitable means for capturing the dynamic properties of benchmarkingsupply network configurations with constantly changing practices (Voss et al., 2002).
  • 12. BIJ In the course of our study, we followed the guidelines outlined by Yin (2003). Following18,6 the recommendation of Eisenhardt (1989) and Meredith (1998), we used a simple theoretical sampling to maximize the usefulness of the final results. We chose two global, yet distinctive players within the automotive industry in India in order to capture the specialties of supply networks in emerging countries. The automotive industry seems most suitable for our study because it consists of a complicated and highly integrated794 product with a large bill of materials and a lot of interdependences (Choi and Hong, 2002). Thus, well-managed supply networks are necessary in order to compete in a global market. The data for case ABC were gathered within one of the Indian plants of ABC Ltd, the most important subsidiary of the ABC Group in India. ABC Ltd is one of the largest automotive component manufacturers globally and in India. Case ZYX was obtained at the Indian assembly plant of the ZYX Group, a smaller player within India but with a significant global presence. Although both plants are situated in the network of a global player operating in the Indian automotive industry, the two cases are different in various aspects and thus provide a great opportunity for testing our benchmarking framework. We based our data collection for the two case studies on multiple data sources. Within both organizations, the purchasing manager of the respective plant was identified as the key person for the information on the supply network management practices. This is in line with Voss et al. (2002) who state the possibility of concentrating on one key informant. The same benchmarking analysis was used for both organizations. To adequately capture the supply network configuration, we structured the interview by identifying central episodes. An episode – for example, the supplier-selection process – contains several actions and represents a building stone for longer sequences and relationships. A questionnaire was developed to obtain quantifiable information in addition to the interviews and to allow a comparison of some statements made. The information received from the interviewee was triangulated with internal company documents that are normally accounted confidential and with publicly available data like research reports from investment banks or company press releases (Yin, 2003). 4.2 Case example: analysis We analyzed the case information applying our benchmarking framework. An overview over the two cases ABC and ZYX, respectively, their supply network configurations can be found in Table II. ZYX is solely sourcing from large-scale global organizations with a branch in India whereas ABC is sourcing 85 percent from local Indian suppliers. This is mainly due to ZYX’s high-quality focus and the type of parts being purchased. Primarily being active in the premium car segment, ZYX is sourcing complex parts and modules whereas ABC is buying mainly commodities from local suppliers. ABC’s high local supplier base content also explains why they have already adapted to the Indian way of negotiating. In contrast, it will still require time to develop the Indian suppliers to where they are able to meet the technical standard and quality level required by ZYX. Since ZYX started operating this plant only a few years ago, their local supplier base is still not strongly integrated. In the future, ZYX aims at developing more local suppliers. In contrast, ABC already strives to increase the percentage of large-scale Indian suppliers in order to make use of economies of scale. The tight connection of ABC and ZYX to their headquarters in Europe becomes apparent in different aspects but especially when observing
  • 13. Supply network Case ABC Case ZYX benchmarkingGeneral Joint venture Wholly owned subsidiaryinformation Established in 1951 Established in 2007 German first-tier supplier German final assembler, OEM Serving all price segments Premium segment Observed suppliers within the case study: Observed suppliers within the case study: 795 suppliers for the key production parts of seats and door trim panels are sourced the engine system ranging from single- locally from large-scale global cylinder pumps to complex module organizations that were already active in systems the Indian market before the ZYX plant startedDyadic level Contractual arrangements Has adapted to the Indian way of Concludes an outline agreement with negotiating: first discuss, then eventually suppliers before making an order issue a formal purchase order Duration of contract with fixed prices for Contract duration based on the model life planning security for the suppliers time Quality and technological requirements Quality and technological requirements are explicitly set during supplier selection are explicitly set during supplier selection Price reduction targets are part of the Price reduction targets are part of the contract contract Suppliers have to state and prove that they are able to comply with procedures and processes Physical connectedness Supplier development investments are a Supplier development investments are a central aspect central aspect Sources several simple parts which do not High investments due to the complexity require specific investments on supplier of the product and high-quality standards side High degree of general assistance in Specific training of special equipment, manufacturing because the suppliers are already highly developed The quality assurance team actively Joint activities are of minor importance suggests new technologies and processes Joint activities are of minor importance Social connectedness Frequent communication and information Frequent communication and information exchange exchange, very transparent Trust only few suppliers on know-how, Weekly quality meetings commitment, and integrity; the other suppliers are those delivering commodities Give preference to close suppliers when Differences in relationship closeness starting a new product derive from varied degrees of product development cooperation Supplier relationships are seen as Supplier relationships are seen as business relationships, which can be business relationships, which can be substituted once other alternatives are substituted once other alternatives are Table II. available available; quality is the important Case example of two selection criterion Western automotive (continued) companies in India
  • 14. BIJ Case ABC Case ZYX18,6 Chain level Rather decentralized relationship with its Rather centralized relationship with its customers and suppliers customers and suppliers Regarding the coordination of design Exerts considerable influence on the activities, ABC Ltd gives detailed design selection of sub-suppliers796 specifications to its suppliers and controls them by diligently monitoring their performance Home-country headquarter clearly Home-country headquarter clearly influences supplier selection, workers’ influences supplier selection, workers’ attitudes and production processes attitudes and production processes Less strong integrated in the Very strong integrated in the headquarters’ global network because headquarters’ global network they already developed competencies in India Network level Has continuously reduced its number of Supply network is still very young suppliers within engine systems because the plant just opened in 2007 Aims at increasing the percentage of Has so far chosen only global suppliers, preferred suppliers within the supplier no Indian suppliers network Focuses on larger suppliers (economies of scale) who are able to take up more business and are capable of investingTable II. 85 percent are Indian suppliers social connectedness. Despite frequent communication and well-established processes supplier relationships are seen as business relationships, which can be substituted once better alternatives are available. 5. Conclusion Building on theories for dyadic relationships and networks, we have developed a benchmarking framework for supply network configuration. Our case example exemplifies the applicability of our model in the context of two automotive companies in India. Up to now, research has primarily focused on either supplier relationships on the dyadic or network level. Effective supply chain management, however, requires an integrated and holistic approach in order to capture all relevant interactions and network dynamics (Buhman et al., 2005; Steele and Court, 1996; Wagner and Bode, 2006). Especially, when benchmarking supply network configurations in emerging countries, researchers and practitioners need to consider the holistic picture. Our framework takes the interconnectedness of the dyadic, the supply chain and the network levels into account and helps to analyze supply network configurations in order to identify potential areas of improvement. The case example provides evidence that the proposed model is addressing the right aspects when benchmarking supply network configurations. The right approach to supplier base selection and supplier management is even more important in emerging countries. During the selection process, basic criteria are set and only suppliers that comply with the pre-set requirements are selected. It is part of supplier management then to develop the relationship and foster communication with
  • 15. the goal to establish trust and motivation. In order to do so, a consistent supplier base Supply networkstrategy and individual supplier management activities needs to be aligned and adapted benchmarkingto the local requirements. The identification of the appropriate strategy and reachingan alignment within global operations are exceptional challenges for Westerncompanies operating in emerging markets. When benchmarking supply network configurations, it is important to ask the rightquestions and look at all relevant aspects from supplier relationship to network 797dynamics. The described benchmarking framework can support companies to identifyand adopt the right supply network configuration approach. Emerging markets likeChina, India or Western Europe pose the same challenges in many ways. Therefore,benchmarks within a large corporation but across countries can also provide valuableinsights. Facing similar supplier base characteristics in many the emerging markets,companies entering a new market might be able to transfer the experience of aprevious country to the situation in the current market. When benchmarking acrossdifferent countries, an integrated picture is important in order to ensure comparability.Comparisons are only possible when the company’s local strategy and the localenvironment conditions are similar. Western companies have often similar hierarchy structures, production systems,and organizational climates. Benchmarks across different firms within the sameemerging country can therefore provide a great opportunity for learning from and witheach other. New entrants can learn from more established companies if their strategiesand operations are comparable. In either way, large companies have the motivation tolearn about and maybe align common patterns in their supply network configurationapproaches in order to jointly develop or at least educate a local supplier base moreefficiently. Companies with similar products and similar production systems also havesimilar requirements when selecting their suppliers. Thus, these companies also have acomparable supplier base. Economies of scale on the supplier’s side are thereforepossible if every OEM follows the same or at least similar standards and allows localsuppliers to leverage on these more efficient processes compared to a system whererelatively small suppliers in emerging markets need to adapt their processes for eachmajor OEM. Our proposed benchmarking framework can support the identification ofthe most efficient processes and align them for all involved companies. This benefitexemplifies how the alignment of processes between competitors can be valuable whenapplied on the network level. Collaboration in terms of supplier development andestablishment of standards like EDI accelerates therefore the development of thesupplier base in an emerging market.6. Limitations and further research directionsAs with all studies there are some limitations that can be addressed in further research.The development of our general model for supply network configuration benchmarkingis based on a solid theoretical foundation through an extensive literature review but cansurely not cover all potential aspects of such a benchmarking analysis. Further researchmight use the presented framework to extend or shorten specific aspects at any level.It might also be the case that especially service companies require different or at leastadditional elements of analysis at each supplier network level. This provides interestingavenues for further research. We also presented two cases of Western automotivecompanies with their supplier network in India to test the applicability of our proposed
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