Capacity decisions and supply price games under flexibility of backward integration

A key issue in supply chain design for manufacturing firms is how to make a trade-off between strategies of vertical integration and outsourcing. A two-echelon supply chain model with one supplier and one manufacturer is set up to study this issue. The manufacturer makes decisions on two types of capacities, one is core capacity that cannot be outsourced, the other is non-core capacity on which the manufacturer implements a strategy that includes three options—complete, partial or no outsourcing. Such a strategy is referred to as “flexibility of backward integration”. Optimal capacity decisions of the manufacturer are given and the supplier's pricing strategies are discussed. Managerial implications of partial outsourcing are investigated. The impact of the flexibility of backward integration is presented and finally, supply chain coordination is analyzed.     

Linking product modularity and innovativeness to supply chain management in the Italian furniture industry

Much of the literature on modularity assumes that firms with modular products adopt modular organization. In the realm of supply chain management, no consensus has been reached on the effects of product modularity on supply chains (SC). This paper investigates whether SC choices depend on product modularity and innovativeness, and how SC choices can be aligned to these product features to maximize performance. A medium scale survey has been performed in the Italian furniture industry. By means of factor and cluster analyses, the SC of firms that introduced products with different levels of modularity and innovativeness have been compared. The results show that both product features must be considered when designing the SC.     

Corporate diversification: the impact of foreign competition,industry globalization,and product diversification

The globalization of markets and industries has fundamentally changed the competitive conditions facing firms. Yet, how globalization has influenced the international diversification strategies of firms is an issue largely overlooked in both the strategic management and international business literatures. This paper develops a theoretical framework to understand how industry globalization, foreign competition, and firm product diversification may influence a firm's choice of its degree and scope of international diversification. Utilizing a panel dataset of U.S. manufacturing firms for the period 1987–99, we provide the first empirical evidence that industry globalization and foreign-based competition are statistically significant factors explaining the degree and scope of international diversification by U.S. firms. Copyright © 2007 John Wiley & Sons, Ltd.     

In Chains? An Empirical Study of Antecedents of Supplier Product Development Activity in the Automotive Industry*

In the literature on interorganizational collaboration in product development, considerable attention is given to supplier role classifications. Such classifications often link to a supplier's position in the overall supply chain, but the claim that this position has a substantial impact on its product development activities has seldom been empirically validated. The results from the present survey among Swedish automotive suppliers demonstrate that supplier product development activity is significantly affected by the position of the supplier in the supply chain and the supplier's strategic focus on innovation. While the latter has a stronger impact on product development activities, there is also an interaction effect implying that the effects of a supplier's innovation strategy are contingent on its supply chain position. Contrary to expectations, customer development commitment does not have any significant direct effect on supplier product development activities. Instead, this relation is fully mediated by supplier innovation strategy. These findings imply that, in contrast to conventional wisdom, product development activities are not strictly organized in “chains.” Although supply chains can be useful metaphors for understanding the distribution of regular production activities between firms, they arguably apply less to the distribution of product development activities.     

An empirical study of manufacturing flexibility of exporting firms in China: How do strategic and organizational contexts matter?

Using evidence from exporting firms in China, this research aims to determine the conditions that foster manufacturing flexibility and the way in which firms support it. The contingency perspective and the competence and capability theory are utilized to develop a framework to enhance the knowledge of internal competence, external flexibility, and manufacturing performance, and the understanding of the moderating roles of strategic and organizational choice on the competence-flexibility and flexibility-performance relationships. Empirical evidence from a sample of 222 export product/market ventures confirmed the main effect that manufacturing, assembly outsourcing, and marketing competencies support a firm's manufacturing flexibility and in turn enhance manufacturing performance. Several notable moderating effects were also identified. Although a strategic emphasis on low-cost manufacturing and long-term contracting weakens a firm's transformation of core competencies into flexible capabilities, specific organizational choices regarding private ownership and direct exporting strengthen the conversion of manufacturing flexibility to superior manufacturing performance.     

Service-based capacity strategy for manufacturing service duopoly of differentiated prices and lognormal random demand

Globalization of production has ushered in vibrant manufacturing service industries whose business is to serve the production needs of product engineering firms. In these engineering–manufacturing chains, risk of capacity supply is an important concern for product firms as manufacturers are normally conservative in capacity expansion, especially when demand uncertainty and investment risk are high. To provide quality manufacturing services, this risk must be taken into consideration in formulating a capacity strategy. This paper presents a competition analysis method based on supply risk for a manufacturing duopoly of differentiated prices and lognormal random demand. A novel service-based demand rationing rule is first proposed. Reaction curves and equilibrium of capacity strategy are next derived. Finally, competition behavior of the duopoly is analyzed.     

The Collaboration of Innovation Intermediaries and Manufacturing Firms in the Markets for Technology

Many manufacturing firms have opened up their product innovation processes and actively transfer knowledge with external partners in the markets for technology. However, the markets for technological knowledge have remained inefficient in comparison with the markets for most products. To reduce some of the market inefficiencies, manufacturing firms may collaborate with innovation intermediaries, which are defined as organizations that act as agents or brokers in the innovation process between two or more parties. These innovation intermediaries comprise different service providers ranging from consulting companies to Internet marketplaces for technology. In light of an increasing importance of intermediary services in the context of open innovation, this paper specifically focuses on the collaboration of manufacturing firms and innovation intermediaries, which may be critical for the success of intermediary services. Based on new interview data from 30 innovation intermediaries and 30 European manufacturing firms, this paper examines the question of how innovation intermediaries and manufacturing firms collaborate concerning the following issues, which emerged as the key themes from the interviews: potential of intermediation, roles of intermediaries, types of intermediation, drivers of intermediation, complementarity of intermediation, compensation of intermediation, and the importance of repeated collaborations. The findings indicate how manufacturing firms may reduce their transaction costs in technology markets by collaborating with intermediaries. However, intermediary services can only be regarded as a complement rather than a substitute of manufacturing firms' internal activities of managing technology transfer. Thus, manufacturing firms need sufficient internal capabilities for managing technology transfer, such as absorptive capacity and desorptive capacity.     

Assessing the relational benefits of logistics services perceived by manufacturers in supply chain

The growing importance of logistics activities that span the boundaries of supply chain firms has put an emphasis on supply chain relationship management. Based on the existing marketing concept on relational benefits and the supply chain management literature on consumer satisfaction, this research evaluates logistics service performance from the eyes of manufacturers. Using data collected from US manufacturing firms, the study has identified the factors that influence manufacturer's satisfaction, as well as the key to understanding the benefits-satisfaction-loyalty triads in supply chain relationships. The contribution of the paper includes developing a conceptual model, adding new theoretical insights into benefits-satisfaction-loyalty triad that has been applied by manufacturers and LSPs, and providing some meaningful perspective on how to strategically assess the use of logistics providers so as to transform a logistics firm from a tactical service provider to a hand-in-glove strategic partner.     

Strategic Orientation and Product Innovation: Exploring a Decompositional Approach

While a considerable body of research examines the strategic orientation–innovation relationship, findings in that literature have been mixed. This article calls attention to an underinvestigated problem: the composite, multidimensional conceptualization and measurement of most strategic orientations, which likely contribute to the mixed findings in the literature. To address this issue, the researchers explore a decompositional approach to the strategic orientation–product innovation relationship. The authors utilize the stimulus‐organism‐response framework to select, decompose, and recast a set of strategic orientation components previously identified to be essential to product innovation. To produce more nuanced insights, the authors also decompose product innovation outcomes into breakthrough versus incremental. Furthermore, the sample is decomposed by product type to assess the generalizability of the conceptual model across manufactured goods and services firms. The authors test the conceptual model with a sample of 222 executives of services and manufacturing firms in Germany and Switzerland using partial least squares. By decomposing the strategic orientation effects into direct, indirect, total, and specific components, the detailed empirical analysis yields several new insights. Overall, the results suggest that the relationship between strategic orientation and product innovation is more complex than previously identified in the literature. For example, the results demonstrate that technology orientation works to augment innovation differently in services versus manufacturing firms. More specifically, a focus on technology boosts only breakthrough innovation in manufacturing firms, and only indirectly by enhancing an organization's open‐mindedness. In contrast, services firms extract additional benefits from investing in technology directly (and for both incremental and breakthrough innovation), as well as indirectly by increasing open‐mindedness. The authors also identify complementary as well as suppressing effects on product innovation outcomes from different strategic orientation components. Based on the findings in this study, future research avenues are identified, and managers are advised to consider each component of alternative strategic orientations individually and evaluate the capabilities aligned with components to assess their interdependencies.     

Globalization frustrated: The case of white goods

This paper challenges the common view that mature industries are always ripe for global strategies. Based on data from the European Domestic Appliance industry, this paper shows how changing economic conditions can diminish the value of global strategies. Critical in these shifts were simultaneous rises in demand for variety (that eroded the benefits of scale and continental market share) and decreases in manufacturing scale (that permitted new supply options), which reduced the extent of the strategic market to national dimensions. They added complexity that decreased the profitability of the global players and increased that of national strategies. The fluctuating fortunes of leading firms are shown to have been caused primarily by choices of strategy, not by national factor costs.     

Innovation practice and its performance implications in small and medium enterprises (SMEs) in the manufacturing sector: a resource‐based view

Small and medium enterprises (SMEs) in the manufacturing sector make a significant contribution to economic growth, yet most of the research into innovation management in the manufacturing sector has focused on large organizations. This article, however, identifies innovation drivers and their performance implications in manufacturing SMEs. Its study gathered survey data from a sample of 600 Australian SMEs and found that SMEs are similar to large firms with respect to the way that innovation strategy and formal structure are the key drivers of their performance, but do not appear to utilize innovation culture in a strategic and structured manner. This study therefore concludes that SMEs' performance is likely to improve as they increase the degree to which they mirror large manufacturing firms with respect to formal strategy and structure, and to which they recognize that innovation culture and strategy are closely aligned throughout the innovation process. Copyright © 2010 John Wiley & Sons, Ltd.     

Resource linkages and capability development

In this paper, we examine the different resource linkages sought by manufacturing firms through strategic alliance. We look closely at the impact of manufacturing activities on choice of resource linkage. Using a sample of Taiwanese firms, we found that product development ability and marketing distribution channels are the top priority resource linkages that Taiwanese manufacturing firms seek to establish. The authors also found it interesting that marketing know-how was not a resource commonly sought by Original Design and Manufacturing (ODM) firms, nor by Own-Brand Manufacturing (OBM) firms. Some implications are further discussed. Instead of outsourcing production to external suppliers, Taiwanese OBM firms remained committed to manufacturing as a core competence when they established their own brands overseas.     

Understanding the Antecedents,Contingencies, and Performance Implications of Process Innovation: A Dynamic Capabilities Perspective

This paper examines one of the most important sources of competitiveness in dynamic industries—the capability of firms to introduce process innovations. While the management of product innovation has received considerable theoretical and empirical attention in the literature, our knowledge about how firms become process innovators—and why many firms fail to do so—remains underdeveloped. In order to provide novel insights into the configuration of firms' process innovation activities and their performance implications, this paper draws on the dynamic capabilities approach. More specifically, this study aims to shed light on the antecedents, contingencies, and performance consequences of interfirm differences in process innovation success, that is, firms' propensity and effectiveness of implementing new production, supply chain, or administrative processes. Particular emphasis is placed upon the analysis of potential complementarities or substitution effects between innovation activities such as internal and external research and development, prototyping, external knowledge acquisition, and employee training. Cross‐sectional data from a large‐scale survey of German manufacturing and service firms serves as the basis for testing the hypotheses advanced in this paper. Findings suggest that by engaging in a broad range of different innovation activities, firms can indeed increase the likelihood of achieving process innovation success, which is in turn positively related to firm financial performance. Yet decreasing marginal returns to innovation activities have to be considered as process innovation propensity was found to increase with the number of activities pursued simultaneously only up to a point, after which negative marginal returns set in (inverted U‐shaped relationship). Furthermore, while environmental turbulence was found to have surprisingly little influence when it comes to translating process innovation success into firms' subsequent financial performance, industry membership as well as the nature of the innovation process (i.e., internal generation, external adoption, or cocreation of an innovation) emerged as key contingency factors. These findings have important theoretical as well as practical implications for managing new process introductions.     

Inter-organizational relationships and strategy quality in green supply chains — Moderated by opportunistic behavior and dysfunctional conflict

This paper presents a new research model to examine the factors influencing the quality of strategies developed and implementation in inter-organizational relationships in a green supply chain. In this study, we examine how attitude toward relationship orientation affects inter-organizational strategy quality, and how this association is affected by the opportunistic behavior and dysfunctional conflict. Relationship orientation, measured by relational benefits, relational proclivity, and connectedness, refers to the desire to develop and maintain relationships with green supply chain partners. Data are collected from 451 manufacturing firms that are among the top 1000 Taiwanese manufacturing firms of 2010 listed by Business Weekly. Relationship orientation, or the desire to develop and maintain relationships with collaborative partners, was found to be positively associated with the strategy quality. Our results show that opportunistic behavior and dysfunctional conflict decrease the willingness and damage efforts to establish relationships to enhance the strategy quality for the green supply chain.     

Matching vertical integration strategies to competitive conditions

This paper contrasts the vertical integration strategies of 192 firms in the presence of diverse environmental and strategic forces to suggest how successful uses of vertical integration differ from less successful ones. Briefly, firms which did not use vertical integration as effectively transferred more goods and services internally, and they did so more often under adverse industry conditions. A frequent error was to undertake more integrated activities in-house and engage in longer chains of processing from ultra-raw materials to finished goods. Ironically, many of the vertically integrated firms that suffered adversity possessed the bargaining power needed to contract advantageously for goods or services, but accepted an overly risky ownership position unnecessarily by producing them, instead.     

A model for supply management of agile manufacturing supply chains

This paper addresses the configuration problem of Manufacturing Supply Chains (MSC) with reference to the supply planning issue. Assuming that the manufacturing system is composed of different stages, we present a technique for the strategic management of the chain addressing supply planning and allowing the improvement of the MSC agility in terms of ability in reconfiguration to meet performance. More in detail, we enhance a previous design method by some of the authors that employs digraph modeling and integer linear programming to optimally design the MSC. The original approach avoids supply chain disruption and stock out and, at the same time, can manage spare parts distribution. In order to take into account the level of demands and maximum production capacities with single/multiple sourcing, in this new formulation we introduce supplier capacity constraints. A case study is presented describing the optimal MSC configuration of an Italian manufacturing firm. The obtained results show that the design method provides managers with key answers to issues related to the supply chain strategic configuration and agility, e.g., choosing the right location for distributors and retailers for enhanced MSC flexibility and performance.     

Inventory management in a multi-echelon spare parts supply chain

In many industrial sectors, firms are dealing with a demand which is more and more uncertain often due to the supply chain structure. One of the most critical effects of demand uncertainty is the simultaneous increase of inventories and decrease of customer service. This work describes an integrated system for managing inventories in a multi-echelon spare parts supply chain, in which customers of different size lay at the same level of the supply chain. The differences in size generate demand peaks and thus a very variable and lumpy demand pattern. The analysis presented in the paper stems from a case study in the field of durable goods spare parts. The paper contributes in three ways: on the one hand, it shows that consistency between managerial solutions and supply chain structure enables to enhance operative performances. On the other hand, it provides a new solution to a problem that characterises several different industrial contexts. Eventually, it highlights that the exploitation of a larger and more reliable set of information dramatically improves performance.     

Configuring value for competitive advantage: on chains,shops, and networks

Building on Thompson's (1967) typology of long-linked, intensive, and mediating technologies, this paper explores the idea that the value chain, the value shop, and the value network are three distinct generic value configuration models required to understand and analyze firm-level value creation logic across a broad range of industries and firms. While the long-linked technology delivers value by transforming inputs into products, the intensive technology delivers value by resolving unique customer problems, and the mediating technology delivers value by enabling direct and indirect exchanges between customers. With the identification of alternative value creation technologies, value chain analysis is both sharpened and generalized into what we propose as a value configuration analysis approach to the diagnosis of competitive advantage. With the long-linked technology and the corresponding value chain configuration model as benchmark, the paper reviews the distinctive logic and develops models of the value shop and the value network in terms of primary activity categories, drivers of cost and value, and strategic positioning options. © 1998 John Wiley & Sons, Ltd.     

Time-driven activity-based costing for health care provider supply chains

ABSTRACT

Health care providers currently operate in an environment of complex supply chains and increasing costs where approximately one third of hospital operating expenses are related to supplies. It is pertinent that health care providers have a clear understanding of their supply chain process costs. Knowing how these costs are driven and where opportunities for cost reduction exist can support health care provider supply chain (HPSC) efficiency. In this article, we present a time-driven activity-based costing (TDABC) supply chain cost methodology for health care providers. A TDABC management system can provide health care providers with valuable product and process supply chain cost information by investigating logistics activities, resource consumption, and time drivers. Our HPSC TDABC methodology is demonstrated in a case study conducted for the supply chain department of a 200-bed, not-for-profit hospital.     

On the strategic value of risk management

This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where firms that are rendered “risk averse” by financial frictions decide on and commit to their hedging strategies before their product market strategies. We find that commitment to hedging modifies the pricing and production strategies of firms. This strategic effect is channeled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders' “risk aversion”. It has opposite effects depending on the nature of product market competition: commitment to hedging toughens quantity competition while it softens price competition. Finally, not committing to the hedging position can never be an equilibrium outcome: committing is always a best response to non-committing. In the Hotelling model, committing is a dominant strategy for all firms.