MSc Supply Chain Management
Master Thesis
How suppliers should manage the balance between robustness and efficiency:
A buyer’s perspective
University of Groningen
Faculty of Economics and Business
26th June 2017
Harbert Blokland – S1682040 H.J.Blokland@student.rug.nl
Supervisors University of Groningen: D.P. van Donk & T.A. de Vries
Theme: Supply Chain Resilience
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Abstract:
Vulnerabilities throughout the supply chain emphasize that companies have to (re-)engineer their supply chain in favor of resilience in order to enhance business performance. Previous research has shown that this inherently implies a balance between on the one hand becoming more robust where on the other hand efficiency is still required. Although the management of supplier therein plays a pivotal role since disruptions upstream the supply chain are more influential, previous research has not specifically addressed how the management of suppliers influences this balance. By means of an embedded case study research, this issue was explored from a buyer’s perspective to gain in-depth insights and understanding of this phenomenon. The findings provided empirical evidence of the mechanisms which enables supplier management to influence this balance. Visibility, collaboration, and velocity as such are found as key aspects by which the management of suppliers influence the balance between robustness and efficiency in supply chain (re-)engineering.
Key words: Supply chain design, supply chain (re-)engineering, robustness, efficiency, supplier
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Table of Contents
1. Introduction ... 4
2. Theoretical Framework ... 6
2.1 Supply chain (re-)engineering ... 6
2.2 Robustness versus efficiency ... 7
2.3 Management of suppliers ... 9 2.4 Conceptual framework ... 11 3. Methodology ... 12 3.1 Research design... 13 3.2 Case selection ... 13 3.3 Data collection ... 14 3.4 Data analysis ... 17 4. Findings ... 18
4.1 Case A: component suppliers ... 18
4.2 Case B: customized-item suppliers ... 21
4.3 Case C: Obligated suppliers: ... 24
4.4 Case D: End-of-life item supplier: ... 26
4.5 Cross-case analysis ... 28
5. Discussion ... 29
5.1 Supply chain design & robustness ... 30
5.2 Supply chain design & efficiency ... 31
5.3 Supply chain design & management of suppliers ... 32
6. Conclusion ... 34
6.1 Theoretical implications ... 34
6.2. Managerial implications ... 35
6.3. Limitations and Recommendations for Future Research ... 35
References: ... 37
Appendix A: Supply chain management protocol ... 43
Appendix B: interview protocol focal company ... 45
Appendix C: Interview protocol supplier ... 48
Appendix D: Cover letter ... 51
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1. Introduction
Disruptions within supply chains, emerging from external sources (e.g. natural disasters) and/or internal sources (e.g. operational irregularities), are manifestations of supply chain risks (Wagner and Bode, 2006). The ability of supply chains to overcome unexpected disruptions efficiently and effectively can be increased by investments in resilient capabilities (Tukamuhabwa, Stevenson, Busby, and Zorzini, 2015). Suppliers therein play a pivotal role since they are regarded as critical sources of vulnerability (Rajesh and Ravi, 2015). However, managers perceive such resilient investments as inefficient considering that such disruptions are not recurrent (Chopra and Sodhi, 2014). Obtaining a cost/benefit balance is therefore managerially difficult whereas scientific research hardly investigated this issue (Vahid Nooraie and Parast, 2016). Hence, further research needs to shed light on the management of suppliers in the trade-off within a resilient supply chain design between efficiency and effectiveness.
Considering that not all disruptions can be avoided, resilience should be designed into supply chains to efficiently deal with unexpected disruptions (Christopher and Peck, 2004; Ponis and Koronis, 2012; Ponomarov and Holcomb, 2009). Research of Klibi and Martel (2012) further showed that resilience forms a key element to improve the overall robustness of supply chain designs as it enables supply chains to avoid major disruptions as well as it improves daily operations. Although supply chain resilience thus contributes to improved performance, previous research also showed that the supply chain performance largely depends on suppliers’ performance due to their quality and delivery performance (Macchion, Fomasiero, and Vinelli, 2017). Suppliers therefore have a significant impact on resilience since upstream disruptions upstream are more critical (Pereira, Christopher and Da Silva, 2014). Hence, from the buyer’s perspective the scope of supply chain design has to include the management of suppliers as they are critical in achieving supply chain resilience.
5 costs as there are different characteristics along the supply chain (Linnenluecke, 2017). Moreover, where resilience requires redundancy and excess resources which suggests inefficiency, the costs are rarely discussed (Van der Vegt, Essens, Wahlstrom, and George, 2015). Hence, where previous research focused on the positive effects of supply chain resilience, this research tries to fill a part of the gap in the supply chain resilience literature defined by Linnenluecke (2017), Vahid Nooraie and Parast (2016), and Van der Vegt et al. (2015) by investigating how the management of suppliers affects the balance between efficiency and robustness within designing a supply chain.
The aim of this research is therefore to explore: “How should buyers design their supply
chain to balance robustness and efficiency considering the management of suppliers?” This
research will be performed via an embedded case study with different suppliers of one focal firm to gain insights in the underlying mechanisms how the management of suppliers influences the balance between robustness and efficiency. By answering this research question, this paper will shed light on the considerations of buyers with regard to the balance between robustness and efficiency in (re-)engineering the supply chain, a topic which currently lacks empirical knowledge (Van der Vegt et al., 2015; Kamalahmadi and Parast, 2016; Linnenluecke, 2017). Moreover, this research will take the management of suppliers into account when investigating this afore mentioned balance as the firm’s perspective of risk, cost, and reliability determines the appropriate mitigation strategy (Kamalahmadi and Parast, 2017). Finally, the findings will provide managers with useful insights on how buyers should redesign the supply chain and accordingly manage its suppliers to become less vulnerable to disruptions.
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2. Theoretical Framework
2.1 Supply chain (re-)engineering
Supply chain designs in general deal with long-term strategic decisions which involves decisions around locations, capacity, and suppliers. These design decisions should result in a network with cost-efficient operations while meeting customers’ requirements (Lin and Wang, 2011). Focusing on the creation of a cost-efficient supply chain design however increases the vulnerability of supply chains to disruptions (Stecke and Kumar, 2009) as exposure points and time/distance increase whereas flexibility and redundancy decrease. The impact of disruptions as such depends on the type of incident and on the supply chain design (Thun and Hoenig, 2011). This strengthens the argument that supply chain designs are susceptible to disruptions and not merely should be designed as cost-efficient. Hence, (re-)engineering the supply chain in favour of resilience (Carvalho et al., 2012; Klibi, Martel, and Guitouni, 2010) as such lowers the impact of unexpected disruptions since vulnerabilities within the supply network are addressed and decreased (Juttner and Maklan, 2011; Pettit, Fiksel, and Croxton, 2010).
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Supply chain understanding
Understanding the supply chain network is related to understanding the upstream and downstream network structure in which a firm is embedded (Carvalho, Cruz-Machado, and Tavares, 2012). By observing the characteristics of the supply chain, firms identify the current supply chain design, alternative supply chain designs, and potential vulnerable and/or disruptive points (Christopher and Peck, 2004; Carvalho et al., 2012). Understanding the supply chain network therefore relates to the identification of (potential) critical paths in the supply chain.
Supply base strategy
The supply base strategy entails constructing a supply base which allows firms to have alternative sources while maintaining efficient (Christopher and Peck, 2004). This influences sourcing decisions and criteria as the availability of alternative supply sources (Zsidisin and Wagner, 2010), contingency planning, and backup suppliers mitigate the vulnerability to supply chain risks (Tomlin, 2006; Kamalahmadi and Parast, 2017) whereas close collaboration with suppliers helps the firms to increase their performance (Christopher and Peck, 2004). The supply base strategy thus relates to the active management of suppliers.
Supply chain design principles
Redundant resources are the excess resources like multiple sources of supply and excess inventory/safety stock used to cope with variations in supply and/or demand (Kamalahmadi and Parast, 2017; Sheffi and Rice, 2005). Although redundancy effectively increases supply chain resilience, the supply chain process becomes less efficient with these buffers (Christopher and Peck, 2004). The balance between efficiency/redundancy should therefore be (re)considered to increase resilience. Redundancy thus relates to the deployment of excess resources.
2.2 Robustness versus efficiency
8 (re-)engineering the supply chain inevitably incurs a trade-off between either increasing efficiency or decreasing the vulnerability to disruptions (Stecke and Kumar, 2009).
Robustness
Previous research has taken different perspectives in defining robustness. Wieland and Wallenburg (2013) stated that robustness encompassed forecasts of potential changes (anticipation) and resistance to these forecasted changes (preparedness). Moreover, Brandon-Jones, Squire, Autry, and Petersen (2014) defined robustness as “the ability of the supply chain to maintain its function despite internal or external disruptions” (p.58). Hence, from these definitions it becomes clear that robustness in essence consists of two elements. The first crucial element of robustness entails the ability to maintain functionality during disruptions. This element directly relates to flexibility in the form of multiple sources and excess resources as these redundancies act as a buffer and gives firms time to find and utilize substitutes during disruptions (Rice and Caniato, 2003; Zsidisin and Wagner, 2010). This research therefore takes the view of Juttner and Maklan (2011) such that deployed redundancies before and during disruptions facilitates the contingent rerouting of resources and allows supply chains to become flexible. Another crucial element of these definitions entails the ability to detect and gain knowledge of possible future events. This directly relates to the obtained visibility throughout the supply chain as visibility is defined as “the identity, location, and status of entities transiting the supply chain, captured in timely messages about events, along with the planned and actual dates/times of these events” (Francis, 2008, p.182). Visibility as such is enabled by monitoring, early warnings, and/or forecasts (Blackhurst et al., 2011; Pettit et al., 2010; Zsidisin, and Wagner, 2010). Hence, a robust supply chain design in this research is defined as a supply chain design in which flexibility and visibility enables firms to anticipate and remain functional during disruptions in order to meet its customers demand.
Efficiency
9 utilization rates of resources along the supply chain. However, supply chain (re-)engineering incurs cost as additional investments are required regarding capital and capacity (Rice and Caniato, 2003), mapping the supply chain, contracting alternative sources of supply (Kamalahmadi and Parast, 2017) and securing redundant resources. Redundant resources as such are considered as cost-inefficient since inventory requires storage space, causes a loss of interest, and is a potential risk in itself as products could become obsolete (Timme and Williams-Timme, 2003). An efficient supply chain design is therefore defined in this research as a supply chain design which emphasizes efficient practices such that costs and redundant resources are minimized.
Although supply chains generally are designed to optimize costs and/or customer satisfaction rather than resilience is taken into account (Christopher and Peck, 2004), investments in supply chain (re-)engineering are required to obtain a supply chain which can resist changes. However, Tukamuhabwa, Stevenson, Busby, and Zorzini (2015) stress that that efficiency is an important characteristic of resilient systems as any economic system should be cost-effective. Hence, a balance needs to be obtained to satisfy both conditions. Since procurement managers can exert a considerable impact on SCR via the management of suppliers (Pereira et al., 2014), suppliers influence both robustness and cost-efficiency in supply chain designs. The scope of the supply chain design therefore should account for the management of suppliers.
2.3 Management of suppliers
10 characteristics and product characteristics since the purchased products are thus interconnected with the characteristics of its supply environment. This research therefore takes the perspective of Ellis, Henry, and Shockley (2010) as their elements specifically address the risks within the supply environment which could lead to a disrupted supply of resources, a particular relevant aspect within this research. These elements will shortly be discussed.
Technological uncertainty
Technological uncertainty is a supply market characteristic and defined as the pace at which the underlying technology of the sourced product changes (Stump, Athaide and Joshi, 2002). In other words, it determines the extent to which manufacturers still produce the product or that these products are so-called end-of-life and are not produced anymore.
Market thinness
Market thinness, a supply market characteristic, is related to the availability of suppliers for the required product (Kraljic, 1983). Thin markets increases the risk of dependency as the buyers’ possibility to switch between suppliers decreases. This specifically applies to firms embedded in triadic supply chains (Kim and Henderson, 2015) wherein focal firm are obligated to use a by the customer predetermined supplier.
Item customization
Item customization is a product characteristic which entails the degree to which the purchased item is modified according the specifications (Ellis, Henry and Shockley, 2010). Buyers thereby have the ability to secure the quality aspect of the product via the technical specifications.
Item importance
11 Suppliers within the portfolio model of this research are thus characterized by the combination of technological uncertainty, market thinness, item customization, and item importance. Firms are thereby required to adequately manage suppliers as insufficiently managed relations could result in sourcing issues (Yan, Choi, Kim, and Yang, 2015) which, for example, can be expressed in unreliable suppliers, potential quality problems, and variable lead-times (Lee, 2003). Collaborative practices are vital practices for buyers to manage their suppliers. Collaborative practices such as sharing information, mutual communication, and jointly created procedures and processes subsequently enhances flexibility, visibility, and velocity throughout the supply chain (Scholten and Schilder, 2015). However, buyers thereby need to recognize supplier’s competences in order to create the appropriate supplier management arrangements concerning those suppliers (Kim and Choi, 2008). Hence, as the applicable supply chain strategy and the subsequent management of suppliers is thus a critical issue for procurement managers, the relation with suppliers influences the balance between robustness and efficiency.
2.4 Conceptual framework
Previous research thus has shown that supply chain (re-)engineering requires supply chains to simultaneously be robust and cost-efficient. Both elements subsequently enhance business performance as robustness prevents supply chains from harmful events on both the supply-side as well as the demand-side of the firm (Wieland and Wallenburg, 2012) whereas cost-efficiency directly influences the company’s financial performance (Chopra and Sodhi, 2014). Enhancing resilience thus requires a balance as not having the appropriate arrangements to manage the vulnerabilities throughout the supply chain exposes firms to risks whereas overinvestments in supply chain resilience harms firms’ profits (Brandon-Jones, Squire, and Van Rossenberg, 2014; Pettit et al., 2013). Moreover, as the strategic posture of suppliers is one of the building blocks in designing a supply chain in favour of resilience (Klibi, Martel and Guitouni, 2010), suppliers form a key aspect in supply chain designs which may add to supply chain resilience. The scope of the supply chain design should incorporate the role of the supplier to enhance stability along the supply chain.
12 uncertainty as well as the downstream delivery performance. Suppliers as such play a key role in striving for a resilient supply chain, but it’s still unknown how the management of suppliers affect this trade-off. This paper will therefore take the management of suppliers into account when analysing the before mentioned balance. The conceptual framework of this research is shown in figure 1.
Figure 1: conceptual framework
3. Methodology
13 research is an inductive research as the research collects data to find a pattern between the cases. These observations thereby lead to a result which accordingly forms a rule (Karlsson, 2016). The unit of analysis within this research is the buyers’ perspective, because this perspective influences the balance between “robustness” and “efficiency” within “supply chain (re-)engineering”.
3.1 Research design
The focal company, hereafter named company X, is the research setting as the performance of company X is dependents on its suppliers. Company X is an order driven SME, suited in the electronics industry, specialized in electronic manufacturing services, and supplied by approximately 300 suppliers. As customers engineer and develop the product design, company X sources each component and subsequently assembles this to one end-product. Suppliers are critical within assembly-to-order manufacturing processes as component orders need to be synchronized (Atan, Ahmadi, Stegehuis, de Kok and Adan, 2017). Disrupted supply processes as such delay the production process or forces it to a halt which subsequently requires the manufacturer to make a reactive action. As all required components should be available before the start of company X’ production process, suppliers determine the performance of company X. This makes them suitable cases for this research. The management of supplier in balancing robustness and efficiency to enhance firm’s performance is therefore certainly applicable.
3.2 Case selection
14 (Karlsson, 2016). Literal replication expects similar results whereas theoretical replication expects contrary results, but for predictable reasons. The goal is to find out if there are differences among the different cases for apparent reasons or if similarities are replicable in various cases (Yin, 2009). As within the first three risk category at least two suppliers were interviewed, it’s expected that there is a difference between the different types of suppliers regarding the robustness/efficiency trade-off in a resilient supply chain design.
Table 1: case selection criteria
3.3 Data collection
15 as it enhances reliability and validity (Karlsson, 2016). The operationalization of constructs which are measured in the data collection are defined in table 2. The table shows the name of the construct, and the definition of the construct used in this research.
Construct name Definition
Supply chain (re-)engineering
(Christopher and Peck, 2004; Ponis and Koronis, 2012)
- Understanding the supply chain network - Supply base strategy
- Supply chain design principles
Robustness
A supply chain design in which flexibility and visibility enables firms to anticipate and remain functional during disruptions in order to meet its customers demand.
Efficiency A supply chain design which emphasizes efficient practices
such that costs and redundant resources are minimized.
Business performance The delivery and financial performance
Supplier management
(Ellis, Henri and Shockley, 2010)
The portfolio of suppliers wherein suppliers are characterized by market and product characteristics
Table 2: operationalization of measurements
The interview protocols, semi-structured interviews derived from the theoretical background, are found within Appendix A, B, and C. The concepts of this research were addressed within these protocols. Protocol A was conducted with the strategic purchasers of company X to gain insights in their supply chain design. Protocol B and C were conducted with operational managers of company X and of suppliers to gain insights in handling disruptions between the suppliers and company X.
16 interviewee to receive feedback and to increase the reliability and validity of the transcription. An overview of interviews is shown in table 3.
17 To achieving triangulation of data, to enhance construct validity, and reliability regarding the data collection (Karlsson, 2016), company X’ perspective as well as suppliers’ perspective was taken. Moreover, data was collected via documents of company X which included procedures, supplier performances, and supplier ratings. These documents showed, among other things, the quality and delivery performance of suppliers and their turnover at company X which provided the base to ask suppliers detailed questions. The reviewed documents of company X are shown in table 4.
Source Form Type of data Length Year
Departmental plans operations Report Qualitative 11 pages 2017 Supplier management procedure Report Qualitative 4 pages 2017 Emergency purchase procedure Report Qualitative 2 pages 2017 Quality performance database of
suppliers
Excel Quantitative n.a. 2016-2017 Delivery performance database of
suppliers
Excel Quantitative n.a. 2016-2017 Supplier-commodity database Excel Quantitative n.a. 2013-2017 Kraljic Matrix top 25 suppliers Excel Qualitative and
quantitative
n.a. 2016
Top 25 suppliers Excel Qualitative and quantitative
n.a. 2016
Purchase analysis top 25 suppliers & actions/strategies for 2017
Report Qualitative 5 pages 2016 Procurement achievements Report Qualitative 1 page 2016
Procurement plan Report Qualitative 1 page 2017
Registration of actions to suppliers Excel Qualitative n.a. 2016-2017 Informal meetings/discussions
with managers of focal company
Meetings Qualitative n.a. 2017 Websites of companies Websites Qualitative n.a. 2017
Table 4: overview of reviewed documents
3.4 Data analysis
18 quotes from the interviews. Grouping these 2nd order codes showed indications how the role of the
supplier influenced robustness or cost-efficiency after which the 3th order codes appeared inductively. The 3th order codes connected the various dimensions of the role of the supplier which
moved towards relationships and patterns between constructs.
The coding process was first performed for each separate case. Afterwards each suppliers’ risk classification was combined. The data as such was first analysed via a within-case analysis. Subsequently a cross-case analysis between the risk classifications was performed. Within-case analysis generates insights into explanations and causality within cases whereas cross-case analysis looks for similarities and differences between cases (Karlsson, 2016). The within-case analysis were used to find relations between cases how the role of the supplier influences the trade-off between robustness and efficiency whereas the cross-case analysis showed how the role of the supplier differed among the cases. The additional documents, informal meetings and discussions, and notes from the interviews were not coded as they only gave additional insights. The results of these analyses are shown in the findings section.
4. Findings
The findings within the several cases first will discuss the case specific characteristics of the suppliers. Thereafter it will be shown how company X balances robustness and efficiency within their supply chain design according to the specific characteristics of each case. Subsequently the management of suppliers will be discussed within each case and thereby will be shown how these suppliers influence the achievement of both robustness and efficiency.
4.1 Case A: component suppliers
The analysis of the component suppliers’ case has shown that these suppliers are distributors of low technological uncertainty products. In that role, these suppliers are heavily influenced by its market environment, but also try to communicate with customers to anticipate and resolve disruptions.
Supplier characteristics
19 vulnerable to market conditions. These market conditions causes capacity shortage which results in rising lead-times and rising prices of components. “At the moment all manufacturers are
producing at their maximum capacity which causes rising lead-times”. (S1).
Component suppliers can also be characterized by their demand based procurement style which subsequently influences their degree of redundancy. The availability of components is based on the demand for certain products in terms of number of customers and number of sales.
“Customers have standard products, commodities, and non-standard product” (S1). Accordingly,
these suppliers can be characterized by its redundancy since they have redundancy in the form of excess resources and multiple sources. “These commodities are always in stock. We just say: ‘you
can always buy these, we always have these or we have it within one or two weeks’” (S1). However,
if customers specify certain characteristics of components (e.g. specific manufacturers, technical features), these suppliers are not able to switch between its sources.
Component suppliers are furthermore characterized by its use of electronic resources by which early warning and forecasts are exchanged with customers. Early warnings are based on actual orders whereas forecasts looks to the required production resources such that “we can
anticipate towards our manufacturer and our manufacturer can anticipate towards their production capacity or supply of raw materials” (S2).
Balancing robustness and efficiency
Following the specific characteristics of these suppliers company X is able to achieve both a robust and cost-efficient supply chain design. Forecasts, early warnings, and knowledge of the supply chain are the mechanisms which positively influence visibility whereas redundant resources is the mechanism which influence flexibility. Additionally, forecasts, buffers of component suppliers, and contingency approaches are the mechanisms by which company X influences efficiency.
Forecasts and early warnings provide company X the ability to anticipate disruptions since lead-time and delivery indications are being received. Moreover, this enables company X to see which is will be disrupted. “That we have insight in what comes around or what we should take
20 enables company X to obtain visibility. “I know for this manufacturer, I have to be with that and
that distributor” (FC1). Company X furthermore utilizes multiple sources and excess resources to
become flexible. “We have additional safety stock. We also have logistical agreements with our
suppliers that they need to place buffers for specific components” (FC1).
Besides the lead-time indications, forecasts also enhance efficiency as it is an efficient way to reduce buffers. “By distributing a forecast you’ll share information by which you make the
supply chain more transparent”, “that has always the preference instead of keeping stock” (FC5).
Component suppliers furthermore positively influences efficiency via the buffers they are able to buy due to its demand. “This is also price, as we are able to purchase large volumes, we have a
better price” (S1). The gained flexibility via buffers thus enables component suppliers to positively
influence efficiency of company X. Contingencies such as supplier selection and price negotiations and price agreements with suppliers, also enhance efficiency. “I’m going to negotiate with these
distributors every to obtain good prices” (FC1). “Employee R simply selects on price if the component specification is the same for everyone” (FC6). However, these suppliers are influenced
by the external factors like the capacity constraints of manufacturers which negatively influences the price of components. “Often you see an interaction, the price goes down when there is enough
capacity. However, if there’s insufficient capacity, customers are willing to pay more” (S2).
Supplier management
The management of these suppliers in this case is based on velocity and visibility. By arranging partial deliveries and alternative items with suppliers, and via early warning, these mechanisms influence the velocity of a recovery and/or response to a disruption whereas information sharing between suppliers and company X is the mechanisms which influences visibility throughout the supply chain.
Early warnings, partial deliveries and/or alternative items enable company X to obtain a quick solution during disruptions. “With company X we then have communication about: ‘this
component is hard to deliver, indicate per period what your minimum requirement is” (S2).
21 component is customer specific at these suppliers. “I always say, customers have standard
products, commodities, and non-standard products”, “commodities are always available and with non-standard products you should look at lead-times” (S1).
Business performance
Concluding, since the balance between robustness and efficiency tends towards efficiency rather than robustness within this case, it can be stated that company X aims more on obtaining competitive advantage in manages its component suppliers rather than on its delivery performance. Robustness is nonetheless highly required due to the fact that every component is required. “We
can only consume 99 components at the moment that the last components is in. If it takes 3 months, it means we start producing the final product 3 months later” (FC5).
4.2 Case B: customized-item suppliers
From the analysis of the customized-item suppliers’ case is found that these suppliers are producing make-to-order products for company X. These suppliers therefore have, in comparison with component suppliers, an own supply chain for which they are responsible and which they have to manage themselves. However, suppliers within this case both possess different characteristics.
Supplier characteristics
S4 is an intermediary which is characterized by selling customized-items with a high level of technology. Accordingly, this supplier faces multiple cultural differences and is also subject to technological advances. These aspects influences the way how they have to set up their supply chain design. “At the moment you have a print-circuit board factory and you do not get a 90%
yield, you can shut down the light in advance” (S4). S4 can furthermore be characterized by the
22 S5 on the other hand is a suppliers who can be characterized as producer/assembler of customized-items with a lower level of technology. Accordingly this supplier faces more lead-time issues within their supply base. S5 tries to mitigate this by managing their suppliers according to delivery and quality performance, by its supplier classifications, by identifying products based on their lead-time, and by quality insurance measures and audit teams to guarantee the quality of items. S5 can furthermore be characterized by its redundancy as multiple sources and buffers are deployed. However, at both cases the multiple sources are sometimes restricted as either the technique is too complex or if it concerns a sole-source item.
Balancing robustness and efficiency
Following the specific characteristics of these suppliers, company X is focused more on obtaining robustness rather than efficiency in their supply chain design. Quality management, supplier selection, and knowledge of the supply chain are the mechanisms which influence visibility whereas multiple sources and, if applicable, stock are the mechanisms which influence flexibility. Supplier accountability and contingencies on the other hand has a mixed influence on efficiency.
Customized-items are subject to quality measures as the quality of the incoming products is being checked at the entrance by means of samples. Moreover, when customized items are being ordered for the first time, drawings of these item are send and/or sample batches are being ordered to verify the quality of the products. “We carry out a so-called ‘first article inspection’. When then
order a batch and we’ll test them before we order a whole series” (FC1). Based on experience,
supplier management also influences robustness via visibility. “There has been some experience
in the course of time that you should not put that down with that other supplier, because they are not able to produce the right quality. (FC6). Knowledge of the supply chain on the other hand
negatively influences supply chain visibility. “I know some, because I’ve built up these up over
time, so I noticed that, but if they switch, I don’t see that” (FC2).
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you have to incur setup costs again. So much communication has to take place”, “that takes so much time and effort you will never get the results you wanted at that moment” (FC5). Flexibility
is however increased by safety stock as well as blanket-orders. “For customized-items we often
make a blanket-order, in such a blanket-order, the supplier must keep a certain amount in their safety stock” (FC2).
Company X increases its efficiency by contingencies as they make the supplier accountable for their own supply chain. “That means that we also do not have to visit China 1, 2, 3 times a year
to search for a suitable supplier, that’s their responsibility and also their speciality” (FC1).
Company X thus has a supplier less to keep an eye on which increases the efficiency. “Imagine, if
I order metal at one supplier, but it has to be treated. Then he should first send it to me, I would have to take care of it again, and I would bring it back to that other supplier” (FC2). “We don’t want to worry about it either, all complaints and such, they provide the product and that product should be good” (FC1). S5 on the other hand influences the efficiency of company X by selecting
qualitative better suppliers for additional costs. S6 is however dependent on external businesses like the price of raw materials.
Supplier management
The management of these suppliers is based on collaboration. Collaborative communication about technical specification and follow-up feedback are the mechanisms which influences collaboration.
Although both S4 and S5 try to solve problems first internally in advance and during disruptions, company X and S4 and S5 in first instance communicate about the product specification. Drawings are being send and mutual consultation about the product characteristics are being discussed to guarantee the quality and technical specification of the product. Moreover, company X has sometimes insight in the production process of these suppliers which they subsequently they try to influence. “Then we say to our supplier: ’if you want to change the
product, please inform us first’, we then can decide if we need to involve our customer before you can actually reschedule it.’ (FC1). During disruptions there is furthermore communication about
quality deviations and/or changed lead-times.
24 occur again. “An 8D report is actually a report for the supplier in which he states: ‘this is your
complaint and these are the actions we have taken to ensure that it doesn’t occur again” (FC4).
Monitoring the suppliers’ performance enables company X thus to improve the reliability of its suppliers. “In this way we tried to solve it. Ultimately it paid off as the first delivery afterwards
went well” (FC4).
Business performance
Since the balance between robustness and efficiency tends more towards robustness in case of customized items, company X tries to manage their customized-items suppliers on maintaining the delivery performance of company X which is acknowledged by both S4 and S5. “Costs, yes of
course, because company X cannot deliver their customers that’s 1. And if they can deliver it, then it means with a lot of issues” (S4). Company X therefore focuses more on maintaining delivery
performance in their supply chain design with these suppliers.
4.3 Case C: Obligated suppliers:
Suppliers within case C are by the customer obligated suppliers. In that role, these suppliers are dependent on the information coming from both company X and from customers of company X. Although both S6 and S7 focus on the quality aspect of their products, both suppliers have different characteristics.
Supplier characteristics
S6 can be characterized as a producer of customer specific customized-items which focuses on product quality. S6 thereby has a supply chain consisting of three tiers through which these products flow, but it selects and manages its supply base mainly on quality. This supplier furthermore utilizes certain quality insurance measures to ensure the product quality which are performed by employees. “So we try to check that, our employees control and monitor that” (S6). Moreover, multiple sources are employed to produce the products, but the customer specific products causes that buffers are only employed when customers ask for these.
S7 on the other hand can be characterized as a distributor of customized-items which focuses itself on product quality. Their supply base therefore entails multiple sources. “We are
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agreements with a couple of large trading companies”. (S7). Supplier selection is the first
safeguard of S7 against possible qualitative issues as suppliers are selected based on quality. Quality insurance measures are in place to control the quality performance of suppliers. S7 furthermore utilizes excess resources. “What we are going to do is taking things in stock if you see
there is a demand” (S7).
Balancing robustness and efficiency
According to the characteristics of these suppliers, company X has a minor influence in their supply chain design to focus either on both robustness and/or efficiency. Robustness is achieved by quality insurance measures as this mechanism which influence visibility. Company X has however barely influence on efficiency due to the obligation of their customers.
With the quality insurance measures, company X tries to anticipate disruptions as sample batches are ordered also at these suppliers to ensure the quality of the products. “With the suppliers
of customized-items, quality is very important, such as the first-article inspection” (FC1). As S6
and S7 furthermore focus their supplier selection process rather on quality than on costs and since both suppliers also perform quality insurance measures on their own products, these suppliers try to ensure the quality of their products which positively influences robustness. However, any means of flexibility is not applicable in this case. “With these parts we’re basically never able, and we do
not have the knowledge, to select an alternative supplier, if we already have one” (FC1).
Robustness thus only can be maintained by these quality insurance measures.
As said before, the supply chain design barely addresses efficiency within this case which is acknowledged by company X. “Our customer often says ‘that part must be purchased from that
supplier for that price’. There’s actually no purchasing power at all” (FC1).
Supplier management
The management of these suppliers within this case is based on collaboration. Collaborative communication is thereby the main mechanism which influences collaboration.
As orders entail specialized items, these suppliers have to communicate with both their suppliers as well as company X to ensure quality insurance. “Specials, that’s really about
26 if it is possible. However, if the customer of company X requires suppliers of company X to deliver specific products, such solutions may not be possible. “It cannot always be solved, because if you
have a customer who says: ‘I do not want shorter and he really needs to be galvanized’, then it stops” (S7). Collaboration thus is required to ensure the technical product specification and the
quality of the product. However, company X lacks possibilities to effectively manage these suppliers.
Business performance
Concluding, in the case of obligated suppliers company X only has the possibility to influence robustness by means of quality insurance measures, efficiency is not addressed within this case which is the direct consequence of restricted availability of sources. “If you are in class
3, then you’re often in the triangle of customer-supplier-company X” (FC2). Company X thus
focuses on maintaining delivery performance in their supply chain design with these suppliers.
4.4 Case D: End-of-life item supplier:
The supplier within case D delivers high technological uncertain products. Although this supplier recognizes that it is vulnerable to the available amount of components, it has a good view of the products moving around in their supply chain.
Supplier characteristics
S8 can be characterized as trouble-shooter for components which are not produced anymore, the so-called end-of-life items, or tough to obtain. The supply base of this supplier therefore consists of suppliers who are selected on both quality and reliability to fulfil the requirements of customers. “We are actually a collector for both lead-time problems and obsolete
parts, and also a filter for quality monitoring” (S8). To maintain the quality performance,
components only will be bought as long as they are located in a warehouse and products will thereby be monitored along the way. However, S8 merely utilizes multiple sources of supply as the demand for end-of-life products is uncertain and differs from time to time. “We are not tied to a
distributor, manufacturer, or a delivery. No, we can switch to 100 other sources” (S8).
27 Following the specific characteristics of the end-of-life items, company X is solely focused on ensuring quality in obtaining these product. Robustness is achieved via quality management, which is the mechanism that influences visibility, and multiple sources, which is the mechanism which influences flexibility. This sourcing flexibility on the other hand negatively influences efficiency.
Company X enhances a single-source strategy for these end-of-life products. “We have a
procedure for which we specifically apply a single-source strategy” (FC1). This is due to the
quality aspect. “We send that through one supplier which guarantees a certain quality, that’s the
most important thing” (FC2). This type of quality management is enabled by insurance measures
taken by S8. “Quality is just by far at the top. If the quality of A and B are the same, you will look
at the price” (S8). The multiple sources of S8 as such enhance the flexibility to obtain the required
product with the right quality. “Parts are not bought at parties that appear online as highly
professional, yet deliver poor products” (S8).
As this supplier is bounded to the availability of components and as this supplier merely selects suppliers who are qualitative well, cost-efficiency is not the main objective in obtaining items whereas the prices for specific components also differ between these suppliers. “If there is
more demand the prices will always rise. Incidentally we also notice that components sometimes are being sold for a factor 10.” (S8). Efficiency is therefore negatively influenced by this supplier
via flexibility as this supplier is vulnerable to market conditions and will act upon this fact.
Supplier management
The management of these suppliers within this case is based on collaboration. Information exchange and collaborative communication are thereby the mechanisms which influences collaboration.
28
and as we know that a customer is waiting for it, we will let the customer know immediately if there is positive news” (S8).
Business performance
In the case of the end-of-life item supplier, company X deliberately choses to design their supply chain with the focus on maintaining delivery performance rather than cost-efficiency. “It is
clear there, we prefer to pay a little more, overpay, for example 15 euros instead of 10 euros. If it (the cheaper component) turns out to be problematic, I costs a lot more than that 5 euros extra”
(FC1). Company X in this case thus requires qualitative sound products in order to maintain its delivery performance.
4.5 Cross-case analysis
With the findings of the within-case analysis, a cross-case analysis can be derived to distinguish the similarities and differences along the cases. The results from the within-case analyses are summarized in table 5.
Table 5: cross-case analysis
29 Company X as such deliberately makes the choice to focus more on robustness in case B, C, and D which makes them able to anticipate disruptions before these actually affect business performance. Moreover, the management of supplier plays a pivotal role since velocity (case A), visibility via information exchange (case A and D) and collaboration by collaborative communication (case B, C & D) all enhance anticipation to and recovery from disruptions. Finally, the control over the supply chain design influences the degree of robustness. As the performance of suppliers is also influenced by upstream aspects like market conditions (case A and D) and quality issues (case B and C), the lack of control over the upstream supply chain influences the robustness of company X’ supply chain design. This makes company X vulnerable to external conditions. Nonetheless robustness ensures that company X can maintain its delivery performance. The data collection furthermore showed that company X enhances a Total Cost of Ownership approach in selecting its suppliers to enhance efficiency. Customer involvement furthermore enables company X regularly, 90% of the occasions, to deploy buffers on costs of the customer. Regarding their supply chain design, visibility (case A), contingencies (case A and B) and flexibility (case A and B) furthermore positively influence efficiency since forecasts reduce buffers whereas multiple sources provides the possibility to compare prices. However, flexibility can also turn out to be inefficient as sources can become more expensive (case B and D). This can be explained by the fact that these suppliers source their products rather on quality than on price. Supplier management is furthermore important in achieving efficiency as information exchange (case A) and collaborative communication (case B and C) enhances efficiency. It is furthermore shown that company X lacks possibilities to influence efficiency within case C. Control over the supply chain design also influences efficiency as external conditions like scarcity (case A) and raw material prices (case B) negatively influences company X’ efficient supply chain design. Still, increased efficiency causes that company X becomes a competitive company in their market.
5. Discussion
30 should be balanced against investments in capabilities to achieve the appropriate level of resilience (Pettit et al., 2010), a balance must be sought between cost minimization and resilient capabilities (Kilubi, 2016). The management of suppliers is therein important since merely monitoring the performance of suppliers provides a picture of suppliers, but does not predict or avoid future performances of suppliers (Zsidisin and Wagner, 2010). Companies therefore have to engage in management practices with suppliers. As the research aim entailed investigating “how should
buyers design their supply chain to balance robustness and efficiency considering the management of suppliers?”, this study adds novel insights and understanding in this area of research.
Buyers as such should engage in collaborative practices with their suppliers, create an aspect of velocity in accordance with suppliers, and create visibility throughout the supply in cooperation with their suppliers, all in order to create both an efficient as well as a robust supply chain design. Flexibility furthermore enhances the efficiency and the robustness within the supply chain design, but the decision to increase flexibility should in each separate case be carefully weighted to its cost to obtain the benefits. Finally, buying firms should involve their customers within their supply chain design as customer involvement provides buying firms the ability to deploy redundant resources on costs of customers which subsequently enhances efficiency.
The following sections will relate these findings to existing literature.
5.1 Supply chain design & robustness
31 Flexibility on the other hand enables firms to respond to supply and demand variations, also during normal operations (Sheffi and Rice, 2005). Juttner and Maklan (2011) thereby argue that flexibility is enabled by redundancies as the duplication of resources facilitates the continuation of operations when it is disruptions. This research supports these previous findings as throughout the cases, multiple sources, excess resources, and time-buffers more or less are deployed to encounters both supply and demand deviations, and reduce and/or delay the impact of a disruption. Although in one case these redundant measures were not applicable as it was not possible to deploy multiple sources and/or stock, the findings of this research can be linked with the findings of Mandal (2015). This author stressed that flexibility reduces the negative effect on firms’ performance in highly uncertain environments. Such an environment was applicable in this research. Stevenson and Spring (2007) on the other hand state that flexibility can be seen a measure of the ease by which the initial supply chain can be re-configured. However, the findings of this research cannot be linked to this statement since the possibility to switch sources was restricted due to lead-time, costs, quality insurances, and technical specification in multiple cases.
As such it can be concluded that increased visibility throughout the supply chain by means of information and knowledge exchange enhances the robustness of a supply chain design and thus decreases the potential impact of a disruption. Moreover, flexibility also enhances the robustness of a supply chain, but flexibility is restricted in certain conditions. Nevertheless, robustness enhances the delivery performance as firms are able to anticipate and remain functional during disruptions and as such can meet its customers demand. This research therefore proposes the following.
P1. A robust supply chain design is enhanced by visibility and flexibility and firms
therefore need to increase their supply chain understanding, re-examine their supply base strategy, and reconsider the trade-off between redundancies and efficiency.
5.2 Supply chain design & efficiency
32 enhancing cost-efficient measures to protect performance and recover from disruptions however requires supply chain disruption management when firms face disruptions (Ivanov, Sokolov, and Dolgui, 2014). The insights of this research can however extend this knowledge as the findings showed that redundancies in 90% of the occasions are deployed on the costs of customers. Customer involvement as such positively influences efficiency which provides novel insights in balancing robustness and efficiency.
Sheffi and Rice (2005) and Tang (2006) furthermore argued that redundancy present cost while the returns are only realized when a firm is hit by a disruption. The findings of this research confirms this as it has been shown that flexibility, via multiple sources, and contingencies have a mixed influence on efficiency. Although multiple sources empowers buyers to find cheaper alternative solutions, this research showed that buyers also depend on the supplier selection of its suppliers since suppliers can deliberately choose to source more expensive products to ensure quality. These findings therefore both agree and conflict with Juttner and Maklan (2011) who state that flexibility contains the negative effect on cost targets. Moreover, utilizing flexibility against all costs when sourcing customized-items also decreases efficiency as setup costs have to be paid again. This findings can be linked with the findings of Pettit et al. (2013) since the competitive performance of a firm is negatively influenced by investments in unnecessary and overcautious solutions in the face of disruptions. Contingencies, depending on the market environment, furthermore influences efficiency both positive and negative.
It can therefore be concluded that efficiency within the supply chain design is positively enhanced by the increased visibility throughout the supply chain and by customer involvement. Flexibility and contingencies on the other hand have a mixed influence on efficiency. As such it can be stated that information exchange and customer involvement are efficient practices which minimizes costs and redundant resources. This research therefore proposes the following.
P2. Since an efficient supply chain design is enabled by information exchange and customer
involvement, firms need to engage in collaborative practices with their upstream and downstream supply chain partners to increase cost-efficiency.
5.3 Supply chain design & management of suppliers
33 efficiency. As Scholten and Schilder (2015) already found that visibility is improved by information-sharing and as Durach, Wieland, and Machuca (2015) argued that supply chain visibility is an antecedent of supply chain robustness, the findings of this research can be linked to these previous findings. Within this research is was found that the information exchange with suppliers about the supply status of products enhances visibility. This enables companies to become efficient as buffers throughout the supply chain can be decreased. Moreover, visibility has a strong impact on the level of robustness of the supply chain design as it enables buying firms to anticipate disruptions and take precautionary measures to mitigate the risk.
Previous research furthermore showed that collaboration via information and knowledge sharing across the supply chain reduces uncertainty (Christopher and Peck, 2004; Scholten, Sharkley, and Fynes, 2014) which subsequently facilitates the containment of the negative impact of disruptions on performance (Juttner and Maklan, 2011). The findings of this research confirms this as it was found that collaborative communication is necessary due to technical specification in order to ensure the quality. De Leeuw and Fransoo (2009) thereby add that the collaboration is driven by the level of item-customization and item-criticality. This explains the fact that the influence of collaboration on robustness and efficiency is dependent on the role of the suppliers.
Velocity is the ability to quickly reconfigure the supply chain to recover from disruptions (Blackhurst et al., 2011). Craighead et al. (2007) thereby proposed that the quicker information is communicated, the more time supply chain have to limit the impact of a disruption. This relates to the findings of this research since arranging alternatives and enhanced information exchange during disruptions increase velocity within the supply chain. Incorporating velocity in the management of suppliers therefore enhances both the efficient as well as the robust supply chain design.
Hence, supplier management positively influence both the robustness as well as the efficiency within a supply chain design when, irrespectively of the role of the supplier, visibility throughout the supply chain is created, when collaborative communication is undertaken, and when velocity is enabled. This complies with the statement of Linnenluecke (2017) who found that not only the supply chain design determines the level of resilience but also the relations and interactions along the supply chain influences resilience. This research therefore proposes the following:
P3. The management of suppliers positively influences both the robust supply chain design
34 Although this research gained insight in obtaining the appropriate supply chain design from buyers’ perspective taking the management of suppliers into account, an underexposed element of this research is the fact that the research was conducted within an assemble-to-order industry. These types of supply chains usually entail competitive environments in which manufacturers have a low profit margin and goods are assembled to individual and customer specifications (Stavrulaki and Davis, 2010). This implies that the information flow of customers triggers the product flow of manufacturers. Transparency throughout the supply chain, especially the information flow coming from customers, was therefore a topic which was also very frequently mentioned during the conducted interviews. Hence, the information flow of customers within this type of industry is very determinative for the performance of manufacturers.
6. Conclusion
6.1 Theoretical implications
Concluding, the findings of this research gave insights and understanding in how supply chain should be (re-)engineered to balance robustness and efficiency from buyer’s perspective considering the management of supplier. By specifically considering the management of suppliers in this balance from a buyer’s perspective, this research contributed to gap in the literature of supply chain resilience and therefore to the aim of this research. This research as such showed that visibility, collaboration, and velocity are key aspects by which suppliers influence the balance between robustness and efficiency in (re-)engineering the supply chain. Information sharing, collaborative communication, and partial deliveries and/or alternative solutions as such are the mechanisms which enable respectively visibility, collaboration, and velocity. These findings indicate that resilience is not merely determined by investing and/or increasing resilient capabilities, but depends on the interactions along the supply chain.
35 efficiency. A novel finding as such was that customer involvement increased efficiency as redundant resources were deployed on the costs of customers. This finding indicates that the achievement of robustness and efficiency should be viewed from a broader perspective.
6.2. Managerial implications
Besides the theoretical implication, this study also has implication for supply chain managers. As (re-)engineering the supply chain in favor of resilience makes companies aware of potential critical paths, lets companies reexamine their current supply base strategy to improve their supply chain risk practices, and lets companies reconsider their (lack of) redundancy, this study showed that collaboration and visibility throughout the supply chain is essential when managing suppliers. These practices are necessary in order to achieve both a robust as well as an efficiency supply chain design since inefficient and/or critical paths throughout the supply chain can be identified beforehand. Purchasing managers of buying companies should furthermore take note that collaborative communication and the exchange of information are key elements in obtaining robustness since lead-time and quality issues can be anticipated in advance. These elements on the other hand also aid efficiency as, for example, forecasts reduces the necessity to deploy buffers.
This research furthermore showed that velocity by means of alternatives and partial deliveries, if applicable, helps companies to act quickly in response to (looming) disruptions. This emphasizes the fact that managers should reconsider their supply base strategy and enhance flexibility in the form of multiple sources to decrease the dependency on certain suppliers and thus to increase the robustness of the supply chain design. Although it seems not obvious, flexibility simultaneously generates a cost benefit as firms have access to a wider range of products, are able to compare these on price and quality, and are able to set up contingency approaches in terms of price arrangements.
6.3. Limitations and Recommendations for Future Research
37
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