Supply Chain Design

1
Supply Chain Design
Thomas Y. ChoiBebbling Professor in
BusinessProfessor of Supply Chain ManagementW.
P. Carey School of BusinessArizona State
UniversityPrepared forLaurier Center for
Supply Chain ManagementWilfrid Laurier
UniversityOctober 2007
2
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

3

• 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 uswe 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)

4
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.

5
Supply Network as Complex Adaptive System
Co-Evolution
How the internal mechanisms and the environment
interact and evolve together
Internal Mechanisms
Environment
How a system operates
Dynamics outside a system
6
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

7
What might a supply network look like in the real
world?
8
First Attempt at an Empirical Study

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

9
Supply Chain Mapping

• Select focus of the studythe center console
  assembly
• BOMs and identification of suppliers
• From final assembler
• From top-tier supplier
• Reconciliation of differences
• Interviews with select second- and third-tier
  suppliers

10
Accords SN
11
Acura CL/TLs SN
12
Grand Cherokees SN
13
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

14
What would you call the suppliers that are being
"controlled" by the focal company?
15
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.

16
Focal Company and Its Supply Base
17
And Beyond.

• Story of a man looking for his key.
• Story of Toyota and its Phoenix supplier

18
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

19
Supply Base Management and Performance
Implications
Transaction cost

Supply base management
Supply risk
-
Number of Suppliers Differentiations
Inter-Relationships
Supplier responsiveness
?
Supplier innovation
20
What might be the basic relational building
blocks within a supply base?
21
Basic Building Blocks

• Buyer-Supplier Dyads
• Supplier-Supplier Dyads
• Buyer-Supplier-Supplier Triads

22
Buyer-Supplier Dyads

• Competitive
• Adversarial
• New Adversarial
• Cooperative
• Information and resource sharing
• Common goals
• Deep
• Understanding
• Tough love

23
Supplier-Supplier Dyads

• Competitive
• Cooperative
• Co-Opetitive

24
Competitive Supplier-Supplier DyadsFrom the
Buyers 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 DyadsFrom the
Buyers Perspective

• Pros
• Information and knowledge sharing
• Capacity flexibility
• Cons
• Potential for supplier collusion
• Forward integration by suppliers

26
Co-Opetitive Supplier-Supplier Dyads From the
Buyers Perspective

• Pros
• Opportunity to gain advantage of both competitive
  and cooperative relationships
• Low supplier switching cost
• Cons
• Relationship uncertainty
• Risk of suppliers opportunistic behaviors

27
What do we get if we put buyer-supplier and
supplier-supplier dyads together?
28
Triads

• The Real Fundamental Building Block
• Three States of Buyer-Supplier-Supplier Triads
• Balanced States
• Unbalanced States
• Structural Hole States

29
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

30
Balanced States and Unbalanced States
31
Future Research

• Control and emergencesupplier-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-Bs
  customer or B-B-S
• Tetrads
• B-S relationship as embedded in larger network
• Triads in service outsourcingBridge 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

32
Questions?
33
Thank you!
34
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