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, Germany
Abstract
Purpose – The purpose of this paper is to develop a benchmarking framework for the analysis of the
supply network configuration of companies and exemplify its applications in the Indian automotive
sector.
Design/methodology/approach – The authors combine elements of relationship and network
theories from different research streams to develop a three-level supply network configuration
benchmarking framework including a dyadic supply chain and network perspective. The analysis of
two case companies exemplifies how different supply networks in emerging markets are depending on
the specific strategies and institutional context.
Findings – The framework works well with the two case studies presented. A major player in the
Indian automotive industry is benchmarked against a newcomer in this emerging country. The results
can be used to improve each firm’s supplier base management approach and create more efficiency in
their further development.
Originality/value – This paper builds on current theories to develop a benchmarking framework for
supply network configuration analysis combining the dyadic, chain, and network level into one
framework. The case example exemplifies the developed framework.
Keywords Benchmarking, Case studies, Supply network, Automotive industry, India, Spare parts,
Distribution management
Paper type Research paper
This research project has been supported through funding of the EADS-SMI Endowed Chair, IIM
Bangalore. Benchmarking: An International
Journal
This article is part of the special issue: “Supply chain networks in emerging markets” guest Vol. 18 No. 6, 2011
edited by Harri Lorentz, Yongjiang Shi, Olli-Pekka Hilmola and Jagjit Singh Srai. Due to an pp. 783-801
q Emerald Group Publishing Limited
administrative error at Emerald, the Editorial to accompany this special issue is published 1463-5771
separately in BIJ Volume 19, Issue 1, 2012. DOI 10.1108/14635771111180707
2. BIJ 1. Introduction
18,6 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 of
784 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 network
some sort of activities. However, when those global manufacturers have entered the benchmarking
Indian market from the mid-1990s until today, they face the challenge of establishing
a supply base that meets their requirements while complying with tight regulations and
high customer expectations. The domestic supplier base of many OEMs still
consists primarily of a large number of small companies due to previously established
small-scale industry policies in India. As a result of the protective nature of these 785
policies, the suppliers lack technological capabilities and can be characterized by
non-competitive productivity and quality levels (Okada, 2004). In the light of localization
requirements and high import tariffs, preventing a more extensive use of global imports,
many manufacturers have called upon their global suppliers to establish manufacturing
facilities in India while others have started building up a local supplier base. Besides,
quality issues, local content, and the innovative ability of suppliers, emerging countries
pose special challenges on supply chain operations in terms of logistics, cost, and
reliability. Thus, the specific supplier base management practices of large corporations
necessarily have to be adapted to the characteristics of emerging markets.
The increasing importance of suppliers and the shift to a more closely integrated
network on the one hand, and the special challenges of emerging countries on the other
hand are the focus of this paper. In the light of an increasing network awareness among
researchers and practitioners, criticism was raised against research on buyer-supplier
relationships that had previously focused on single relationships only (Olsen and
Ellram, 1997). Consequently, an embedded perspective of relationships in networks was
introduced (Salancik, 1995; Wilkinson and Young, 2002). However, many studies still
focus on either the dyadic or network level leading to a lack of integrated research
projects on inter-organizational relationships (Andersson, 1992). We address this
research gap within this paper by integrating aspects of supplier relationships and
supplier base management. The objectives of this study are twofold. First, we develop a
general benchmarking framework for the supply network configuration of companies
integrating a dyadic, supply chain, and network level. Second, we exemplify the model in
the context of an emerging country by analyzing two distinctive supply network
configuration approaches of Western automotive companies in India.
The remainder of this paper is therefore organized as follows. First, we present the
theoretical background and subsequently develop a benchmarking framework for
supply network configuration analysis on the basis of relationship and network theories.
We then provide a case example discussing the applicability of our benchmarking
framework in the context of the Indian automotive industry. Finally, we summarize our
findings and discuss our results.
2. Theoretical background
2.1 Dyadic relationships and network dynamics
Research 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 supply
chains or supply networks aims at integrating and optimizing inter-organizational
processes within chains and networks (Lambert et al., 1998). Thereby, a network is
composed of several supply chains (Harland, 1996) and refers to a network of firms
engaged in manufacturing and assembly of parts to create a finished product (Choi and
Hong, 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 distinct
18,6 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 literature
786 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 literature
Transaction Good relationships try to minimize Supplier relationship design varies ´
Williamson (1991, 1995), Menard
cost 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), Duffy
economy 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
economy
IMP 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 bonds
Theory 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
behavior
Industrial Inter-organizational relationships Primary functions are the result of Secondary functions emerge due to Anderson et al. (1994), Andersson
network are contingent upon other the dyadic interaction between connections to other relationships (1992), Dubois and Pedersen
approach 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 depends
18,6 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 network
into the exchange and the adaptation process. As a result of short-term exchange benchmarking
activities and adaptations, interdependence emerges between organizations,
which characterizes the long-term relationship behavior and quality. The
environment variable captures the context – namely the network – within which the
interaction takes place (Moeller and Wilson, 1995). The relationship atmosphere
accounts for historically evolved aspects of cooperation and conflict (Gadde and 789
Hakansson, 2001). In the IMP interaction model, operationalization of the term
interdependence is achieved through three dimensions: activity links, resource ties, and
actor bonds (Ford et al., 2003). Activity links emerge when two organizations relate their
activities 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 involves
investments and the combination of resources, which are referred to as resource ties. In
addition to connected activities and combined resources, the level of interdependence of
two parties is influenced by subjective social aspects, defined as actor bonds. The IMP
approach aims at providing an understanding of the nature of supplier relationships. In
many industries, first-tier suppliers are widely integrated into product development
processes of OEMs and design-specific tools for individual customers. The outlined
measures of interdependence – activity links, resource ties, and actor bonds – provide
the necessary tools to analyze such dyadic supplier relationships.
2.5 An organizational-sociological network approach: theory of structuration
In network literature, researchers have consistently criticized the deficient theoretical
base of network research, stating the non-existence of a discrete network theory
(Salancik, 1995). However, a variety of theories from economic, social, or organizational
sciences can serve as sources for the analysis of networks.
Early work on networks can be found in the area of sociology and psychology where
researchers studied processes between two and more individuals or groups. During the
1970s and 1980s, this work was applied to relations between organizations focusing on
the logic of open systems and a relational conception of organizations (Scott, 2004).
Relational theorists view units as inseparable from the transactional contexts within
which they are embedded (Emirbayer, 1997). Giddens’ theory of structuration (Giddens,
1984) emphasizes the social relationships and interactions between organizations as
elements of inter-organizational networks. The development of a network can be
explained through the recursive interplay of the network structure and the actor
behavior. The theory of structuration helps to understand dynamic networks through
procedural production and reproduction of networks and, thus provides a suitable basis
for the analysis of supply networks configurations.
2.6 An interaction-based network approach: industrial network approach
A network approach developed in the area of industrial goods marketing is the industrial
network approach, which constitutes one of the most distinct network theories.
Inter-organizational relationships as main unit of analysis are not understood as
independent dyads but are contingent upon other relationships within the network
(Dubois and Pedersen, 2002). The connectedness of all relationships leads to direct and
indirect effects, referred to as primary and secondary functions. Primary functions are a
result of the dyadic interaction between two exchange partners. Secondary functions –
8. BIJ also referred to as network functions – emerge due to connections to other relationships
18,6 (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 network
790 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 framework
captures the buyer-supplier relationship on the dyadic level, chain authority and
centralization observe management activities and external factors on the chain level
and 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 our
literature analysis and are essential for the analysis of the development of supply
network configurations over time. Chain authority and centralization refer to the
existing power and dependence structures within the near network horizon, while the
level of relationship connectedness was determined as an umbrella term for a broad
range of dyadic aspects of buyer-supplier relationships derived from relationship
theories and buyer-supplier literature. In the following, we discuss each element of the
framework in detail (Figure 1).
3.1 Benchmarking level 1: level of relationship connectedness
The level of relationship connectedness captures the interdependence of two parties
through three sub-dimensions, namely formal, physical, and social connectednesses.
Formal connectedness is concerned with contractual and formal arrangements between
two organizations. Whereas many relational frameworks do not include this
perspective, it forms the basis for relationships to evolve and still covers a lot of the
operational concerns of many practitioners. The theory of transaction cost economics
provides the necessary foundation for the analysis of contractual arrangements.
Thereby, contracts are a means of handling opportunism and overcoming the absence of
trust. In addition, they also define production requirements, expected behavior, and
quality levels (Batt and Purchase, 2004). Measures for describing the formal
connectedness include, for example, the length and explicitness of contracts as well as
the degree of formalized rules and procedures.
Physical connectedness captures two elements of interdependence defined by the
IMP 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 important
18,6 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 Ennew
792 (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 network
understood 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 dimension
analyzes the degree of power and authority the manufacturer exerts over the members of
the supply network. Therefore, two measures are defined for the chain level in our
framework: the distribution of supplier-selection competence and coordination of design
activities among the members of the supply chain. 793
3.3 Benchmarking level 3: network dynamics
Taking 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 many
more interrelations among different tier 1 and tier 2 suppliers which in turn have
multiple customers to consider. Thus, different mechanisms are needed to adequately
capture the network level as compared to the chain level. In recent years, research
on supply network configuration has evolved. Choi and Hong (2002) present case
studies on three supply networks and structure their analysis in three dimensions –
formalization, centralization, and complexity. Samaddar et al. (2006) develop a
theoretical framework to investigate the relationships between the design of a supply
network and inter-organizational information sharing. In their 2008 study, Srai and
Gregory (2008) explore the impact of configuration on supply network capability.
In theory, the political economy framework as well as the IMP interaction model
explicitly define the exchange environment as an essential influencing factor.
Furthermore, the outlined network theories stress the dynamic properties of
networks, giving rise to the need for capturing the dynamic nature and the changing
contextual conditions within which buyer-supplier relationships evolve. Therefore, we
analyze the dynamics in supply networks within the following dimensions. According
to the theory of structuration, a network’s development results from the interplay of
network members and the network structure. In supply networks, the structure is not
orchestrated 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 the
network as well as the quantity of organizations within each level. In addition, we also
consider the individual network members characterized by their size, origin, and
technological capabilities.
4. Discussion: case example of two Western OEMs in the Indian automotive
industry
4.1 Case study development
In order to demonstrate the applicability, we test our framework for supply
network configuration benchmarking in the case of two Western OEMs in the Indian
automotive industry. Case study research is most appropriate to capture the various
aspects within this emerging field of research and presents the best way to test our
benchmarking framework in detail (Ellram, 1996; Naslund, 2002). Moreover, case study
research is a suitable means for capturing the dynamic properties of benchmarking
supply 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). Following
18,6 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 integrated
794 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
benchmarking
General Joint venture Wholly owned subsidiary
information 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
started
Dyadic 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 ZYX
18,6
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-suppliers
796 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 investing
Table 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 network
strategy and individual supplier management activities needs to be aligned and adapted benchmarking
to the local requirements. The identification of the appropriate strategy and reaching
an alignment within global operations are exceptional challenges for Western
companies operating in emerging markets.
When benchmarking supply network configurations, it is important to ask the right
questions and look at all relevant aspects from supplier relationship to network 797
dynamics. The described benchmarking framework can support companies to identify
and adopt the right supply network configuration approach. Emerging markets like
China, India or Western Europe pose the same challenges in many ways. Therefore,
benchmarks within a large corporation but across countries can also provide valuable
insights. Facing similar supplier base characteristics in many the emerging markets,
companies entering a new market might be able to transfer the experience of a
previous country to the situation in the current market. When benchmarking across
different countries, an integrated picture is important in order to ensure comparability.
Comparisons are only possible when the company’s local strategy and the local
environment conditions are similar.
Western companies have often similar hierarchy structures, production systems,
and organizational climates. Benchmarks across different firms within the same
emerging country can therefore provide a great opportunity for learning from and with
each other. New entrants can learn from more established companies if their strategies
and operations are comparable. In either way, large companies have the motivation to
learn about and maybe align common patterns in their supply network configuration
approaches in order to jointly develop or at least educate a local supplier base more
efficiently. Companies with similar products and similar production systems also have
similar requirements when selecting their suppliers. Thus, these companies also have a
comparable supplier base. Economies of scale on the supplier’s side are therefore
possible if every OEM follows the same or at least similar standards and allows local
suppliers to leverage on these more efficient processes compared to a system where
relatively small suppliers in emerging markets need to adapt their processes for each
major OEM. Our proposed benchmarking framework can support the identification of
the most efficient processes and align them for all involved companies. This benefit
exemplifies how the alignment of processes between competitors can be valuable when
applied on the network level. Collaboration in terms of supplier development and
establishment of standards like EDI accelerates therefore the development of the
supplier base in an emerging market.
6. Limitations and further research directions
As with all studies there are some limitations that can be addressed in further research.
The development of our general model for supply network configuration benchmarking
is based on a solid theoretical foundation through an extensive literature review but can
surely not cover all potential aspects of such a benchmarking analysis. Further research
might 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 least
additional elements of analysis at each supplier network level. This provides interesting
avenues for further research. We also presented two cases of Western automotive
companies with their supplier network in India to test the applicability of our proposed
16. BIJ framework and identify significant differences between the two companies with
18,6 different objectives and experiences in India. In the context of this paper, a comparison
between two companies is sufficient to show that the proposed elements and identify
relevant differences between the two approaches. However, further research might
involve more companies to identify specificities between different potential strategies
towards the management of supplier networks.
798
Note
1. The IMP Group was formed in 1976 by researchers from five European countries with the
aim of studying industrial marketing and purchasing in Europe. The group’s most
important concept is the “interaction approach”, which focuses on interactions between
buyers and sellers within business relationships.
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About the authors
Roger Moser is Assistant Professor for Strategic and International Management and focuses his
research on global sourcing, business development in developing countries and subsistence
markets in rural areas. Roger Moser is the corresponding author and can be contacted at: roger.
moser@ebs.edu
Daniel Kern received his Doctoral degree at the Chair of Supply Chain Management at the
Friedrich-Alexander-University Erlangen-Nu ¨rnberg. His research focuses on supply chain risk
management, supply network benchmarking and purchasing competence.
Sina Wohlfarth is a student at EBS Business School focusing on supply chain and
international management.
¨
Evi Hartmann is Professor for Logistics at Friedrich-Alexander-University Erlangen-Nurnberg.
Her primary areas of research interest include services supply management, global sourcing,
and environmental supply chain management.
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