Supply network relationships

Levels of analysis of inter-firm relationships have included the dyad, the chain and the network. Croom et al (2000) show how each level of analysis requires a different focus dependent on the element being exchanged which may be: assets, information, knowledge or relationships.

The dyadic and supply chain conceptualizations simplify the nature of the supply network in three major respects. First, firms are treated as having static relationships but in practice individuals within each firm have relationships with individuals in other firms, dispersed across the firm and working at different points in the product life cycle, e.g. at design, manufacture, operation, etc. This dispersion of roles occurs because of the functional specialisms of staff. As a consequence there is a probability of loss of information, which also occurs due to the turnover of staff. Each person also has a potentially unique perspective, or a ‘virtual’ view of the supply chain (Mouritsen et al., 2003) so even if information if fully and accurately shared, it may be interpreted differently. Each person’s interpretation is the consequence of their previous experiences and beliefs, so is based in personal histories and is thus path- dependent. And these beliefs are refined as individuals learn through the process of interaction with other systems. So each firm’s networks are idiosyncratic and have followed a path dependent process (Gulati and Gargiulo, 1999) conferring

competitive advantage as they are not easily imitated or substituted. Furthermore, we can say that each person’s view is partial, with no one person having a complete and full view of the supply network. The supply network can therefore be viewed as an evolving system of multiple, heterogeneous, dynamic, path-dependent actors in purposeful relationships.

Second, the individuals in a firm are likely to operate in multiple supply chains concurrently, some of which may be in a state of development or demise. In a simple case, where a firm produces only one product, it is likely to require multiple suppliers for the different components such as electrical parts, mechanical parts, raw materials, etc. The firm that produces many similar products may be able to source common parts from a single supplier but this may cause prioritization conflicts for the firm at times of short supply. The firm that produces many different products will need to operate concurrent relationships with many sets of suppliers. This process of supply chain management, i.e. the management of a variety of supply chains within one firm, creates opportunities for and constraints upon firm performance. Each supply chain may have requirements placed upon them that contradict the requirements of another. The firm’s competitive success will depend on its ability to participate in different supply chains, which itself affects the competitiveness of the other supply chains (Sinha et al., 2004).

Third, a firm may have many customers. Some of these customers will be

transactional, whilst others will be strategic and reflect investment in long-term and significant relationships. In a simple scenario, the firm has one customer. However, this customer may require multiple products with different delivery times and

priorities. In the 21st century, mass customization is a focus requiring significant variety in terms of product look and feel exacerbated by a host of tricky operational problems, such as delivery to various locations, fluctuating demand over time and so on.

Thus there are three types of potential firm arrangement: • simple – 1 supplier to 1 customer

• one-sided – n suppliers to 1 customer; 1 supplier to n customers • many-to-many – n suppliers to m customers

Regardless of the number and type of supply chains in operation, a firm’s infrastructure services, such as Human Resources Management, ICT services,

facilities management, commercial services, strategic marketing and procurement, etc are finite resources, providing services to staff engaged in multiple supply chains. The effect on the firm is that concurrent supply chains vie for the firm’s infrastructure resources. And these resources may be different in each firm within the supply network. Ultimately, the network structures and behaviours needed to effect inter- firm cooperation and coordination are paramount to achieving successful

performance. The balance of cooperation (and permitted emergence through positive feedback) and coordination (control managed by negative feedback) is a strategic issue for the design and operational performance of the supply network (Choi et al., 2001).

3.3.2.2 Strategies for compatibility

It is not surprising that inter-firm relationships have been the subject of significant research. Relationships have often been studied as dyads of different types of agents. Perhaps the most well known is that of the iterated prisoner’s dilemma in which fundamentally selfish agents will spontaneously cooperate (Axelrod and Hamilton,

1981; Axelrod and Hamilton, 1984). Various long-term strategies were devised with contributions from the academic community and the success of each was evaluated, showing that a Tit-for Tat strategy was the most successful.

In their typology of inter-organizational relationships Astley and Fombrum (1983) describe two forms of interdependence: commensalistic, in which firms belong to the same specie; and symbiotic, in which firms are from different but complementary species. They show how the forms of control and the structures of coordination differ depending on the form of interdependence.

In coevolution terms, three types of relationship are identified: predator-prey, symbiotic and parasitic (NECSI, 2007). The prey is part of the predator's

environment, each evolves characteristics (speed, stealth, camouflage etc) in order to avoid or consume the other respectively. Organisms in a symbiotic relationship evolve together; each is part of the other's environment, adapting to their environment and benefiting from each other. In a parasitic relationship the parasite lives off the host, harming it and possibly causing its death, although, short-term, this is not in the interests of the parasite. There is close proximity between host and parasite. Other symbiotic relationships can help remove parasites.

In a supply network there are many dyadic relationships, some of which are commensalistic and others symbiotic. This is one of the complicating factors of supply networks which lead to complex governance and structural forms. The

appropriate mix of types of firms and types of relationship, have been evaluated at the system or network level. Analyses of the most effective strategic alliances (or long term inter-firm relationships) indicate that there needs to be some level of similarity but also some level of difference (Parkhe, 1991). Bucklin and Sengupta (1993) define organizational compatibility as having complementary goals and objectives in

addition to similarity in operating philosophies and corporate cultures. Strategic alliances (Gulati, 1998) can be established anywhere along a continuum of governance structures, with joint ventures at one end, closely replicating the hierarchical controls of firms, and networks at the other end with no hierarchical controls. The treatment of alliances as independent, ahistorical events is identified as a shortfall in recognizing the embeddedness of relationships created by social ties and

therefore a different requirement for governance. Alliances are also concerned with process because exchanges are not single, but multiple over time and with value maximization, not only cost minimization (Gulati, 1998).

3.3.2.3 Types of relationship

Strategic alliances are nevertheless focused at dyads of firms where the supply network often incorporates many numbers of dyadic relationships, each of which can be very different. The use of linear constructs in the notion of supply chain depicts a simple topology of aligned goals, when the arrangement is more similar to a supply web; predators and prey are related in various ways within a complex non-linear structure (Brown et al., 2005). According to Webster Jr (1988) these networks are the complex, multifaceted organizational structures that result from multiple strategic alliances.

A richer description of the nature of supply networks is provided by inter- organizational networks (IONs). Nassimbeni (2004: 46) defines the inter-firm network as one in which: “two or more agents, at least in part autonomous, which gives rise to an exchange relationship, according to certain modalities and forms”. The structure of the ION depends on the individuals engaged in the relationship and the overall architecture of these systemic relationships. The content describes what is exchanged and the modalities and forms define the governance of the relationship and how it may adapt, coordinate and safeguard exchanges. The number of members is relevant as successful supply chain cooperation is possible with fewer partners (Lambert et al., 1998; Spekman et al., 1998; Goffin and New, 1997). Webster Jr (1992: 9) suggests that the basic characteristic of a network organization is a

confederation, defined as “a loose and flexible coalition guided from a hub where the key functions include development and management of alliances themselves,

coordination of financial resources and technology, definition and management of core competencies and strategies, development of relationships with customers and management of information resources that bind the network”.

The description of a supply network as a confederation helps to highlight the problem of many autonomous firms with the dual interests of their own success and network

success. The uniformity of the firms in the supply network with respect to supply network goals or customer orientation has been used to bind the firms. Methods such as ECR (Efficient Consumer Response, for example (Lee and Whang, 2000)) which create homogenous perspectives towards customers demonstrate how synchronised perspectives deliver goal alignment and consistent messages, leading to improved supply chain performance. We can therefore say that the extent to which individual perspectives within a particular supply chain are homogeneous is an indicator of supply chain performance. Christopher (1985) 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.

Supply networks are idiosyncratic, having followed a path-dependent process (Gulati and Gargiulo, 1999) to reach their current evolutionary state. The supply networks to which a firm belongs provide competitive advantage as they are not easily imitated or substituted. Christopher (2005) argues that we are now entering an era of network competition. Individual businesses no longer compete; it is supply networks that compete, and economic exchange is embedded in the particular network structure (Powell, 1990).

Supply networks, as the combination of firms which can better structure, co-ordinate and manage the relationships with other firms in the network will be the most

successful at delivering superior value to the market place. The problem of

coordination strategies which lead to adaptive, flexible and collective behaviour in the supply network is one of the major challenges in supply chain management (Surana et al., 2005).

A network structure has implications for the traditionally hierarchical ‘pyramid’ structures of firms. The network acts as a virtual organization or confederation in which specialist skills and capabilities are provided by the network members. This is particularly relevant where the use of novel construction materials plus automated manufacturing processes lead to sophisticated airframe configurations requiring scarce specialist and agile resources, for example the joint venture HYTRI (Assembly Automation, 2005).