DEVELOPMENT OF A FRAMEWORK FOR ALIGNMENT OF SUPPLY CHAIN WITH PRODUCT CHARACTERISTICS

The structured equation modeling hypothesis testing results elaborated in Chapter 7 revealed that both product demand and design characteristics have a significant impact on firms’ supply chain coordination complexity. Previous research has also emphasised that supply chain alignment with product characteristics will result in better supply chain continuity and resilience (e.g. Boone et al., 2013). In this section, a framework for alignment of supply chain with product demand and product design is developed. The framework is based the simultaneous impact of product demand and design characteristics on supply chain complexity.

8.5.1 Supply Chain Alignment Framework

Figure 8.1 illustrates the impact of product demand and product design complexity on supply chain coordination and collaboration complexity using a two-dimensional representation of supply chain coordination alignment. The x-axis represents the complexity of product demand, which is captured through demand volatility and product life cycle ranging from low

181

to high. Higher product demand volatility and shorter life cycle indicates a higher demand complexity and vice versa. The y-axis, on the other hand, shows the complexity of product design. Product innovativeness and product modularity are used to represent product design complexity. Higher product innovativeness and higher product modularity indicates a higher level of design complexity. Supply chain coordination is conceptualised through level of information sharing, independence of logistics decisions, degree of communication and extent of information technology usage. Supply chain collaboration is conceptualised through alignment of network strategy and interest, orientation of business relationships, mutual need in the network and mutual trust and openness. The diagram can be devised using four quadrants.

Figure 8.1: Supply Chain Coordination Alignment Framework

Quadrant 1 shows low coordination complexity due to lower levels of product demand and

product design complexity. This indicates that in case of products with lower demand and design complexity, the intensity of information sharing can be limited to the needs of satisfying orders. In these scenarios, independent, autonomous decisions within individual firms are preferred, and contacts can be limited to individual transactions. For example, supply chain of a simple product such as aluminium can have low demand and design

P ro d u ct D es ig n C o m p le xi ty

Product Demand Complexity Low Coordination &

High Collaboration Complexity Medium Coordination & Collaboration Complexity Medium Coordination & Collaboration Complexity High Coordination &

Low Collaboration Complexity Low _High High 1 2 3 4

182

complexity requiring a low level of complex coordination and IT. These are sufficient for supporting the internal business processes, and there is no need for complex SCM software for planning and executions. In such scenarios, a high level of collaboration complexity can exist. Therefore, supply chain network strategy and interest of partners can differ. In these scenarios, due to stable demand and low level of integration supply chain partners can have a competition oriented relationship. In most cases, there is a low mutual need in the network and suppliers are highly substitutable. There is no immediate need for a high level of trust and openness in these relationships.

Quadrant 2 shows medium coordination and collaboration complexity through high product

demand complexity and low product design complexity. In such scenarios, due to the complexity of demand, sharing information such as forecasting, and even inventory levels should be adopted. Supply chain planning also need to follow central coordination guidelines rather autonomous decisions. Also, due to demand variability a more structured degree of communication with regular meetings should be in place. As a result of using a structured approach in coordination, a medium collaboration can be adopted. A common network interest is required to overcome demand volatility issues, and an opportunistic relationship with a multiple sourcing strategy is recommended.

Quadrant 3 also shows medium supply chain coordination and collaboration complexity due to the lower level of product demand complexity and high levels of product design complexity. This scenario is for products that are highly modular and innovative but they have a stable demand with a reasonably long life cycle. In such cases, an average level of information sharing such as order tracking and tracing can be adopted. A more advanced use of information technology to support the supply chain network coordination mechanisms such as EDI is suitable. Information technology can lead to a more aligned network stage, and average levels of trust should be in place.

Quadrant 4 represents high coordination and low collaboration complexity due to high levels

of product demand and product design complexity. The implication is that for firms making products with higher demand and design complexity such as high end electronic products, they are required to share very high levels of information with their suppliers and there should be a high degree of communication between multiple tiers and channels. This intensity of information sharing and degree of communication can serve as the main strategies to minimise any disruption in supply chains occurring due to demand complexities. Businesses

183

with products having a more volatile demand and sorter life cycle require greater coordination with suppliers to reduce the risk and uncertainty, which in turn increase the complexity. Leading the supply chain through a central strategic decision-making centre in the case of product with high demand complexity is the likely strategy that will satisfy customer demand with the lowest cost implications. This will also assist in the ‘Total Cost of Ownership’ approach and eliminate the bullwhip effects.

A highly common network strategy and interest with high levels of trust should be in place. A high level of collaboration across the supply chain is another critical component. In the majority of these cases, there is a high mutual need in the network. Supply chains for products with a more complex demand and design require greater collaboration and highly aligned strategy across the supply chain. Collaborative supply chain relationships aimed at dealing with demand and design uncertainties need to use improved information systems for efficient response to market changes. Thus under high demand complexity conditions, special efforts are required to ensure a high level of supply chain collaboration. Integrated planning of demand, design and supply chain to achieve an efficient alignment is one of the main supply chain strategies in an increasingly globalised world.

Figure 8.1 illustrates the results of this research in the form of an alignment framework that combines the product demand and product design characteristics. These can predict the required coordination and collaboration complexity. This framework suggests that supply chain coordination and collaboration complexity should be adjusted according to the level of product demand and product design complexity. This approach will potentially lead to an optimal level of complexity, reduced costs and more successful product developments.

8.6 SUMMARY

This chapter discussed the research findings. Results revealed that product design (Innovativeness and Modularity) and its antecedent factors significantly impact on supply chain complexity. Product demand characteristics (volatility and life cycle) also had a significant influence on supply chain complexity. These findings further confirm the theoretical research model and extend prior theory on alignment of supply chain with product characteristics. In addition, the body of knowledge on the relationship between product design and supply chain was enhanced by revealing that product design characteristics do not have a significant direct impact on supply chain collaboration complexity. Instead, they

184

reveal their influence on supply chain collaboration of firms indirectly through the mediating role of information technology and information sharing (coordination complexity).

Furthermore, the existing literature on product demand volatility and life cycle and their influence on supply chain complexity were extended. Product variety’s impact on supply chain complexity was questioned, and the reasons for the lack of this relationship were discussed. In summary, this research extends the body of knowledge by integrating numerous parallel frameworks developed in other studies on relationships between supply chain and product characteristics. Moreover, using a structured equation modeling (SEM) method enables the analysis to overcome certain limitations in previous studies’ research methodologies. This study further extends the concept of supply chain alignment by adding product design to the considered factors.

The next chapter reviews and conclude the main findings of this research, summarises the contributions of the results from both theoretical and managerial perspectives and finally discuss the limitations of this study, and suggests further research avenues.

185