Supply network archetypes

Christopher (2005) surmises that the key to success within this new competitive framework is the way in which the network of alliances and suppliers is ‘welded together’ to achieve mutually beneficial goals. This sub-section exposes supply network archetypes and identifies the variables which enable supply networks to be differentiated.

3.3.3.1 Supply network orchestration

The rationale for managing, co-ordinating and focusing the value creation network (Supply Chain Orchestration) is that there needs to be a “common agreed agenda driving the achievement of the supply chain goals and a supply chain strategy that is subscribed to by the entities in the chain” (Christopher, 2005: 292). Usually the Orchestrator is the most powerful member of the network however the logistics firm has a key role in synchronizing partner activity throughout the supply chain, such as the use of information technologies (Chapman et al., 2002). Orchestration is usually driven by the prime (Chapman et al., 2002) who carries out the management and coordination of multiple business activities across functions and firms (Lambert et al., 1998; Mentzer et al., 2001) guided from a hub where key functions are managed (Webster (Jr), 1992).

In the case where suppliers are wholly owned, vertically integrated or where the organization owns a significant part of the supplier, governance is achieved via a hierarchy of controls. Hierarchical control indicates the ability of the firm to control and mandate the action of each member to benefit of the entire supply network. Hierarchical controls often assume a transaction cost perspective, for example see Carroll and Teece (1999).

The use of hierarchical structures attempts to improve coordination and reduce costs by minimising relationships between the parts of the substructure. The consequence of creating a hierarchy means a reduction of information accuracy and timeliness because of the need to pass on information. A hierarchy also creates issues of resilience as the parts become minimally connected (Lewis and Talalayevsky, 2004)

and the strength of the supply chain depends on the integrity of the links (Davis, 1993).

Whilst vertical integration was a fashion of the 1980s, much of it ‘unwound’ in the 1990s when there was a general change in the desire of firms to integrate vertically towards one of cooperation rather than maintaining skills and resources within the firm (Bales et al., 2004). We see this on a global scale, for example, where restrictions on foreign direct investment in local aerospace firms is being lifted (Komarov, 2006).

3.3.3.2 Collaboration and coordination

Bales uses empirical evidence to show that an increase in partnering, information exchange and evolving supply network structures, the relationship with other firms has moved from adversarial towards one of an integrated network. The supply network of the 2000s is more akin to a heterarchy or to give its ancient Greek meaning “under the governance of an alien” (von Goldammer et al., 2007: 1). Contemporary thinking believes that in an heterarchical environment, relationships are key to influencing decision-making. Where relationships exist between firms, that is, where an individual or group in one firm can influence the decision making of an individual or group in another firm to some extent, the supply chain acts as a supply network. The reduction in vertical integration has pushed information sharing down the supply network, resulting in a loss of direct visibility to OEMs (original

equipment manufacturers) and a loss of some of their power (Bales et al., 2004).

The issue of influencing independently owned firms within a heterarchy requires coordination mechanisms. A supply network can be defined as a group of semi- independent fims which collaborate in “ever-changing constellations” in order to achieve some business goal related to the collaboration (Tapscott, 1996; Akkermans, 2001).

Mulford and Rogers (1982) define coordination as the establishment of decision rules between two or more firms to deal collectively with the shared tasks in their

The need to coordinate assumes that cooperation is needed between firms. Soft or intangible capabilities are particularly important competences for strategic operations (Lewis, 2003). Cooperation heightens the need for communication, and for

information technologies and associated software to support that communication (Castells, 1996). The need to cooperate and leverage complementary competencies within the network becomes essential (Yusuf et al., 2004). Collaboration happens globally; Boeing collaborates with European aerospace firms to jointly design

airframe components. But these endeavours are huge, expensive undertakings beyond the means of one firm alone. So the efficiencies of collaboration are significant

enough to overcome the “logistical hassles, security issues and general mistrust that tend to isolate U.S. companies” (Pastore, 2004: 1).

Coordination becomes a formalised way of cooperating (Beerkens, 2004) where cooperation is defined as a voluntary cooperative agreement. Beerkens suggests that the ultimate step of cooperation is amalgamation and where amalgamation becomes merger or acquisition, a hierarchy comes into being together with a loss of autonomy. It follows that formal cooperation potentially leads to ownership.

3.3.3.3 Supply network relationships

Information technology is driving more tightly coupled relationships than those usually found in supply chains, as it enables closer coordination and reduces costs without the need for ownership or control (Lewis and Talalayevsky, 2004).

Conversely, established business processes for the purposes of purchasing and supply are inclined to block or corrupt potential inter-organizational capabilities (Lamming et al., 2001).

Inter-firm network relationships although often established by firms as formal contractual relationships with bureaucratic structures, will develop on a dynamic, organic basis of continuity, reciprocity, cooperation, informality and social

embeddedness (Sydow and Windeler, 1998). As the inter-firm relationship develops, a structure is exposed but governance of the structure becomes more problematic to implement as the structure is ‘owned’ by multiple firms with only partial control.

Compared with organizational hierarchical relations, the network is more loosely coupled, relies more on self-organizing processes and has greater competitive

pressures (Ring and Van de Ven, 1994). But, strong ties may improve the probability of oligopolistic coordination more than weak ties (Galaskiewicz and Zaheer, 1999). This emphasis on longer term relationships reduces market focus

which would otherwise exist in a supply networks (Cohen and Agrawal, 1999) but this is mitigated somewhat by unequal distribution of costs and benefits between the supply network partners making inter-company cooperation difficult (Kärkkäinen et al., 2003).

Management and coordination of inter-firm activity within a supply network should be open to the movement of functional activity to its optimal location which may improve the viability of various supply network structures (Mentzer et al., 2001). These movements must be cognisant of third party providers and how the

relationships between firms are managed. Such functional movements are almost impossible in a market as a firm is selected for the function it provides; within a keiretsu (owned supply chain) these movements should be easiest. Governance prevents finding an optimal supply chain structure.

3.3.3.4 Supply network structure

We have thus identified three dimensions of supply network structure. First is ownership: the hierarchy which is fully integrated and the heterarchy with no shared ownership of supply network members acting like a market. Second is control: leveraged by coordination or cooperation. Third is relationship: short-term, market focused or long-term, supply network focused.

This sub-section opened with the notion of the supply network Orchestrator, often being the most powerful member of the network. The role of the Orchestrator is found evident in two alternative ways to organize a supply network: the 4PL and the Keiretsu.

The introduction of the 4PL™ (fourth-party logistics service provider) business model to manage the modern supply network was originally copyrighted by Accenture. The

4PL, or sometimes referred to as the lead logistics provider, provides systems

architecture and integration skills, houses a control room for decision-makers, acts as supply chain infomediary using its own information systems and manages access to the best of breed asset providers. The 4PL is thus a hybrid firm typically formed from parts of other firms as a joint venture or long-term contract. The Orchestrator

essentially passes control to the 4PL who then exerts control over the supply chain. International joint ventures can take some time to deliver cost, delivery, quality and innovation expectations (Lihong and Goffin, 2001).

Keiretsu, originally from Japan, is a form of network governance implemented in a vertical or horizontal form. The vertical keiretsu is a hierarchy, however, the

horizontal keiretsu operates with a main bank and cross shareholdings. A distribution Keiretsu is also possible (Miyashita and Russell, 1995). Partner firms belong to only one Keiretsu and in that way control is maintained over member firms. Ellram and Cooper (1993) identify similarities and differences between the Keiretsu and the Supply Chain Management approach, reproduced in Figures 3-4 and 3-5.

Similarities between Keiretsu and traditional supply chain management include a long-term time horizon, joint planning, information sharing, and the sharing of risks and rewards, and compatible corporate philosophies. Differences are that the Keiretsu exerts more control, requires participation by the nature of the shared ownership has high strategic coordination and is more secretive, being more akin to traditional business relationships. Strategic networks are an example of strategic coordination, see Jarillo (1993) for example.

The legacy of western management attitudes and anti-trust laws, which give primacy competition and independence, have prevented the implementation of close

relationships unlike the Keiretsu approach (Ellram and Cooper, 1993) which has created some very competitive channels.

Figure 3-4 Similarities between Keiretsu and Supply Chain Management (Ellram and Cooper, 1993)

Figure 3-5 Differences between Keiretsu and Supply Chain Management (Ellram and Cooper, 1993)

3.3.3.5 Summary

This sub-section has identified structural and behavioural features of different types of supply network: the hierarchy (vertically integrated network); the market (no ex-ante relationship); the 4PL (or joint venture); the Keiretsu; the heterarchy (some ex-ante relationship). The next sub-section analyses the effect upon each type of supply network for each type of construct that a firm might adopt. We thus find a way of differentiating between supply networks.