Supply Chain Design

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Dec 1, 2013 (3 years and 17 days ago)

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Supply Chain Design

Thomas Y. Choi

Bebbling Professor in Business

Professor of Supply Chain Management

W. P. Carey School of Business

Arizona State University


Prepared for

Laurier Center for Supply Chain Management

Wilfrid Laurier University


October 2007

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Overview


Supply Chain As Complex Adaptive System


Snap Shot of Supply Networks


Supply Base As Visible Portion of SN


Basic Relational Units


Buyer
-
Supplier Dyads


Supplier
-
Supplier Dyads


Buyer
-
Supplier
-
Supplier Triads

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“A few years ago, our engineers mapped a supply chain
of a small assembly [by] tracing it all the way back to the
mine. From that exercise, we demonstrated the benefits
of supply chain management, and we set out to manage
the supply chain as a system. Frankly, we have not
been able to do it. The problem was, as soon as we
came up with a strategy for managing the chain, the
chain changed on us

we got new suppliers and new
relationship configurations. It took a lot of effort to map
one supply chain, and we could not possibly map it every
time something changed.”

(A manager from a leading automaker)

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Initial Observations


Supply chains or networks were there before we tried to
manage them.


No one company can possibly orchestrate the whole
supply networks.


Supply networks are a self
-
organizing and emergent
system.


CAS is a system that emerges over time into a coherent
form, and adapts and organizes itself without any
singular entity deliberately managing its totality.

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Supply Network as Complex Adaptive System

How a system operates

Dynamics outside a system

How the internal mechanisms and the

environment interact and evolve together

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Key Lessons: Control and Emergence


Control


Deterministic approach


Reduction of dimensionality


Deviation correcting mode


Proactive


Emergence


Wholistic approach


Increasing dimensionality


Deviation amplifying mode


Reactive/Adaptive

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First Attempt at an Empirical Study


The goal was to map the complete supply network
and to study the structure therein

what’s
controlled and what emerges?


Honda Accord, Acura CL/TL, and Chrysler Grand
Cherokee


Data collection done over three years


Funded by the National Science Foundation

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Supply Chain Mapping


Select focus of the study

the center console
assembly


BOM’s and identification of suppliers


From final assembler


From top
-
tier supplier


Reconciliation of differences


Interviews with select second
-

and third
-
tier
suppliers

Accord’s SN

Acura CL/TL’s SN

Grand Cherokee’s SN

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Comparison of Honda and Chrysler


Honda


Manages more suppliers in second
-

and third
-
tiers


Supply network more complex


Expends more corporate resources


Takes less risk in supply chain stability


Chrysler


Manages less suppliers in tertiary level


Supply network less complex


Spends less corporate resources on supplier management


Takes more risk in supply chain stability

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Supply Base


A group of suppliers within the reach of the
“visible hand” of the focal company


The portion of the supply network within the
purview of the focal company


Suppliers actively managed by the focal
company


Not all suppliers in the supply base are top
-
tier
suppliers.

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Focal Company and Its Supply Base


The Focal Company

Supply Base

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And Beyond….


Story of a man looking for his key….


Story of Toyota and its Phoenix supplier…

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Supply Base Management


Number of Suppliers


Number of current suppliers with enduring business
relations


Differentiation of Suppliers


Degree of different characteristics among suppliers
(e.g., culture, operating practices, etc.)


Links among Suppliers


Supplier
-
supplier relationships

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Supply Base Management and
Performance Implications


+

Transaction

cost

Supply

risk




Supplier
responsiveness


-

Supplier

innovation





Supply base management



Number of Suppliers


Differentiations


Inter
-
Relationships

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Basic Building Blocks


Buyer
-
Supplier Dyads


Supplier
-
Supplier Dyads


Buyer
-
Supplier
-
Supplier Triads

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Buyer
-
Supplier Dyads


Competitive


Adversarial


New Adversarial


Cooperative


Information and resource sharing


Common goals


Deep


Understanding


Tough love

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Supplier
-
Supplier Dyads


Competitive


Cooperative


Co
-
Opetitive



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Competitive Supplier
-
Supplier Dyads:

From the Buyer’s Perspective


Pros


Maintaining leverage power


Control of information exchange between suppliers


Cons


Lack of supplier synergy


High administrative and transaction cost

25

Cooperative Supplier
-
Supplier Dyads:

From the Buyer’s Perspective


Pros


Information and knowledge sharing


Capacity flexibility


Cons


Potential for supplier collusion


Forward integration by suppliers

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Co
-
Opetitive Supplier
-
Supplier Dyads:
From the Buyer’s Perspective


Pros


Opportunity to gain advantage of both competitive and
cooperative relationships


Low supplier switching cost


Cons


Relationship uncertainty


Risk of suppliers’ opportunistic behaviors

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Triads


The “Real” Fundamental Building Block


Three States of Buyer
-
Supplier
-
Supplier
Triads


Balanced States


Unbalanced States


Structural Hole States


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Balanced States and Unbalanced States


Balanced States


All positive relationships


One positive and two negative relationships


Unbalanced States


All negative relationships


Two positive and one negative relationships

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Balanced States and Unbalanced States

Buyer

+

+

+

S2

S1

Balanced State 1

S1

S2

-

-

+

Buyer

Balanced State 2

S2

S1

+

-

-

Buyer

Balanced State 3

+

+

-

S2

S1

Buyer

Unbalanced State 1

S2

S1

+

+

-

Buyer

Unbalanced State 2

S2

S1

-

-

-

Buyer

Unbalanced State 3

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Future Research


Control and emergence

supplier
-
supplier relationship as the
interface between control and emergence; positive feedback or
deviation amplifying loop


Other triads beyond B
-
S
-
S triads such as B
-
S
-
B’s customer or B
-
B
-
S


Tetrads


B
-
S relationship as embedded in larger network


Triads in service outsourcing

Bridge transfer and bridge decay


Social network analysis of Supply Networks


Simulation of supply base as CAS using cellular automata


Econometric studies of CAS using archival data


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The presentation slides have been built based
on following published/unpublished articles


“Supply Networks and Complex Adaptive Systems: Control Versus Emergence,”
Journal of
Operations Management

19 (2001) 351
-
366, Thomas Choi, Kevin Dooley, and Manus
Rungtusanatham


“Unveiling the Structure of Supply Networks: Case Studies in Honda, Acura, and
DaimlerChrysler,”
Journal of Operations Management

20 (2002) 469
-
493, Thomas Choi
and Yunsook Hong


“Supplier
-
Supplier Relationships and Their Implications on Buyer
-
Supplier Relationships,”
IEEE Transactions on Engineering Management
, 49, 2, May (2002), Thomas Choi,
Zhaohui Wu, Lisa Ellram, and Balaji Koka


“Building Deep Supplier Relationships,”
Harvard Business Review

December (2004),
Jeffrey Liker and Thomas Choi (Reprint R0412G)


“Supplier
-
Supplier Relationships in the Buyer
-
Supplier Triad: Building Theories from Eight
Case Studies,”
Journal of Operations Management

24 (2005) 27
-
52, Zhaohui Wu and
Thomas Choi


“On the Dark Side of Strategic Sourcing: Experiences from the Aerospace Industry,”
Academy of Management Executive
, (2005) 19, 1, Christian Rossetti and Thomas Choi


“The Supply Base and Its Complexity: Implications for Transaction Costs, Risks,
Responsiveness, and Innovation,”
Journal of Operations Management

24 (2006) 637
-
652,
Thomas Choi and Daniel Krause


“Triads in Supply Networks: Interpretation through Balance Theory and Structural
-
Hole
Concept,” Under review, Thomas Choi and Zhaohui Wu