The Supply Network Concept

A supply network is defined as a set of inter-connected supply chains, embodying the flow of goods and services from original sources to end customers (Harland, 1996; Lamming et al., 2000). The relatively recent incorporation of the term “network” into supply chain management research represents an attempt to make concept wider and more strategic by harnessing the resource potential of the network in a more effective manner (Lamming et al., 2000). The focus of the definition of the supply network is on a limited manageable set of operational tasks performed to meet the order-winning criteria of individual end customer segments (Hill, 1995; Christopher, 1998).

Table 2.1 Classifications of networks within the literature (Lamming et al., 2000, p.685)

Authors Types of network Classifying variables

Grandori and Soda (1995) Social, bureaucratic, proprietary Mix of coordination mechanisms; degree of formalization and centralization

Rosenfeld (1996) Hard

Soft

Object of exchange Hinterhuber and Levin (1994) Internal, Vertical, Horizontal,

Diagonal

Network orientation / direction Campbell and Wilson (1996) Social, Value-creating Structural autonomy and strategic

alignment

Snow and Miles (1992) Internal, Stable, Dynamic Network dynamic

Robertson and Langlois (1995) Japanese Kaisha, Venture capital Ownership integration and coordination integration Cravens et al. (1996) Flexible, Virtual, Hollow, Value-

added

Type of relationships and environmental fluctuations

There is no comprehensive classification framework for inter-organizational networks. However, the classification in Table 2.1 shows many possible dimensions of networks. Grandori et al. (1995), for example, distinguish network forms according to their characteristic mix of coordination mechanisms. Rosenfeld (1996) focuses on the object of exchange as the basis for classification and distinguishes between “hard networks” in which three or more firms join forces to co-produce, co-market, co-purchase, or co-operate in products or market development,

30 and “soft networks” in which groups of firms form in order to solve common problems, share information, or acquire new skills. Also the direction or orientation of networks may provide the basis for classification. Hinterhuber et al. (1994) distinguish between horizontal, vertical, and diagonal networks while also recognizing that networks may be internal and external. Some networks may be particularly value creating or strategic (Campbell et al., 1996) and some may be more or less dynamic (Snow et al., 1992) and differ in terms of degree of integration (Robertson et al., 1995). Cravens et al. (1996) identify four types of network – “flexible”, “hollow”, “virtual”, and “value-added” – according to the dimensions of volatility of environmental change and the type of inter-organizational relationship involved (collaborative or transactional). (Lamming et al., 2000)

Lehtinen (2001) has written a review of research concentrated on supply networks or similar inter-organizational arrangements. According to Lehtinen (2001), supply network is a relatively new term largely evolved from the fields of supply chain management, logistics and Lean supply/enterprise. She presents a figure that explains the differences between the terms supply chain, supplier network and supply network (Figure 2.3). The term supplier network is exchanged to the term suppliers’ network in order to include all the suppliers in upstream network. The focus is in looking beyond immediate relationships from end customers to original raw materials suppliers, apart from broadening the perspective from single supply chains to networks, which result in a more holistic and strategic view of the process of supply. The supply network appears to be more complex than the supply chain concept. When supply network characterizes lateral links, reverse loops; two-way exchange, supply chain is more simplistic and linear (Zeng et al., 2001).

31 Fig. 2.3 The networks of the focal firm (Lehtinen, 2001, p.26, modified)

Supply networks differ significantly not only between industries, but also along a range of other dimensions (Zeng et al., 1999), even though the exploration of these variables is still at an early stage. According to Zeng et al. (2001), two main dimensions to categorize supply networks are the degree of the focal firms’ influence on the network and supply network dynamics. This latter dimension measures the conditions under which the network operates, both in internal and external conditions.

Swaminathan et al. (1996) define a supply chain network, which can be a complex web of systems, sub-systems, operations, activities, and their relationships to one another, belonging to its various members, namely, suppliers, carriers, manufacturing plants, distribution centers, retailers, and consumers. It appears to be very close to Lehtinen’s (2001) supply network definition.

The design, modeling and implementation of a network system, therefore, can be difficult, unless various parts of it are cohesively tied to the whole. Chandra et al. (2000) propose a framework to manage a supply chain system being to facilitate integration of its various

Dyad Focal firm’s supply networks boundary Suppliers’ network Focal firm Chain Supply Networks

32 components through a common set of principles, strategies, policies, and performance metrics throughout its developmental life cycle.

In spite of the definitions and the classifications (i.e. Table 2.1) of different networks there is little guidance for firms addressing specific supply-related problems such as choosing the type of supply network appropriate for particular circumstances or how to employ network technologies to enable the effective flow of supplies from raw material to the end customer. It can be concluded to be a problem in the field of supply chain management.

It is concluded that network type of sourcing is a more complicated and diverse way of operations on the supply field in comparison to a supply chain, which can be thought to be a more simple and linear communication and material flow. Still, as a conclusion of the continuum of possible sourcing options of Cox (1996) and the Lean philosophy, the operations characterized as network sourcing can be considered as giving the best benefit for the organizations operating in the same supply network. Network as an optimal supply form for companies to aim at can be considered. However, whether the traditional supply chain activity is aimed at, which is the case with a part of suppliers, or the aim is optimal network construction, the basis is the relationship between buyer and suppliers. The characteristics of relationships determine whether the operations are called supply chain, tiered network sourcing or a complex supply network.

While developing supply activities in order to achieve supply network type of performance, the problems are: what kind of relationships a company has with its suppliers, what kinds of relationships are beneficial for both parties in relation to their competitive advantage, and how to achieve the most beneficial relationships. Section 2.4 will handle these questions.