3.supply network

Supply network configurationbenchmarking

Framework development and applicationin the Indian automotive industry

Roger MoserEBS Business School, Automotive Institute for Management,

Wiesbaden, Germany andIndian Institute of Management, Bangalore, India

Daniel KernUniversity of Erlangen-Nuremberg, Erlangen-Nuremberg, Germany

Sina WohlfarthEuropean Business School, Wiesbaden, Germany, and

Evi HartmannUniversity of Erlangen-Nuremberg, Erlangen-Nuremberg, Germany

Abstract

Purpose – The purpose of this paper is to develop a benchmarking framework for the analysis of thesupply network configuration of companies and exemplify its applications in the Indian automotivesector.

Design/methodology/approach – The authors combine elements of relationship and networktheories from different research streams to develop a three-level supply network configurationbenchmarking framework including a dyadic supply chain and network perspective. The analysis oftwo case companies exemplifies how different supply networks in emerging markets are depending onthe specific strategies and institutional context.

Findings – The framework works well with the two case studies presented. A major player in theIndian automotive industry is benchmarked against a newcomer in this emerging country. The resultscan be used to improve each firm’s supplier base management approach and create more efficiency intheir further development.

Originality/value – This paper builds on current theories to develop a benchmarking framework forsupply network configuration analysis combining the dyadic, chain, and network level into oneframework. The case example exemplifies the developed framework.

Keywords Benchmarking, Case studies, Supply network, Automotive industry, India, Spare parts,Distribution management

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1463-5771.htm

This research project has been supported through funding of the EADS-SMI Endowed Chair, IIMBangalore.

This article is part of the special issue: “Supply chain networks in emerging markets” guestedited by Harri Lorentz, Yongjiang Shi, Olli-Pekka Hilmola and Jagjit Singh Srai. Due to anadministrative error at Emerald, the Editorial to accompany this special issue is publishedseparately in BIJ Volume 19, Issue 1, 2012.

Supply networkbenchmarking

783

Benchmarking: An InternationalJournal

Vol. 18 No. 6, 2011pp. 783-801

q Emerald Group Publishing Limited1463-5771

DOI 10.1108/14635771111180707

1. IntroductionThe recent past has seen two fundamental developments in many different industries:first, suppliers continue to become more and more integrated and are thus increasinglyimportant for the overall value creation process. Second, emerging economies such asChina or India are nowadays playing a key role in production, sourcing and distributiondecisions, and their large and growing markets are representing the major centers ofdemand for many products and services (Christopher and Juttner, 2000; Dyer, 1996;Humphrey, 2003). The growing importance of suppliers for OEMs and the increasinginterdependence between the key players in many industries clearly show the shift in thevalue creation process. Complex products with large bills of materials tend to heavilyrely on a well-established supply network (Choi and Hong, 2002). High levels ofcustomization and market pressure forever higher quality standards present a challengefor the whole supply chain. In line with this development, product life cycles haverapidly shortened over the past few years. Therefore, a company’s innovation abilitycontinues to be a key success factor in many industries. At the same time, the increasingpressure on costs and efficiency is driving both OEMs and suppliers in an extremelycompetitive environment. In order to fulfill the demands in terms of innovativeness,cost efficiency, and quality, companies focus on the differentiation of their capabilitiesand strengthening of their brands. The increasingly important but complex brandmanagement motivates OEMs to hand a large portion of the production and evendevelopment processes over to their suppliers. Extensive information exchange anddirect assistance are then necessary in order to closely tie suppliers to the buyingfirm and integrate their processes. Particularly, Japanese manufacturers inspired byToyota in the automotive sector have shown that close relationships with suppliersare a source of strategic strength within a competitive environment (Langfield-Smithand Greenwood, 1998). OEMs and suppliers are turning therefore to new forms ofinter-organizational collaboration in which the management of external supplierresources is an essential task for improving the overall costs and the competitiveposition. Researchers and practitioners confirm the demand and development ofpartnership-like collaboration between OEMs and suppliers that reaches far beyond thetraditional hierarchical relationships. These new partnerships ought to be characterizedby trust, common goal-setting, supplier integration, and inter-organizationalcooperation. In the course of this development, companies concentrate on a fewernumber of suppliers, foster close relationships with them and pay high attention on thesuppliers’ performance in terms of cost, quality, and delivery. Associated with thisdevelopment of closer relationships, the idea of supply networks is frequently named asa means to remain competitive in global manufacturing industries. A networkperspective encompasses the holistic integration of all suppliers to combine resources aswell as increase flexibility and adaptability of the value creation process.

Within these networks of OEMs suppliers from emerging markets such as India,China, or Eastern Europe are playing an increasingly significant role. While theestablished markets in the USA, Europe, and Japan experience stagnation, the marketsof emerging countries are growing remarkably, offering huge sales opportunities andlow-cost production facilities. The Indian automotive industry, for example, is the ninthlargest automotive industry in the world with a compounded annual growth rate of18 percent in production volume within the last five years (Frost & Sullivan GrowthConsulting, 2007). In order to exploit these growth opportunities, virtually all major

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automotive manufacturers are already present in the Indian automotive industry withsome sort of activities. However, when those global manufacturers have entered theIndian market from the mid-1990s until today, they face the challenge of establishinga supply base that meets their requirements while complying with tight regulations andhigh customer expectations. The domestic supplier base of many OEMs stillconsists primarily of a large number of small companies due to previously establishedsmall-scale industry policies in India. As a result of the protective nature of thesepolicies, the suppliers lack technological capabilities and can be characterized bynon-competitive productivity and quality levels (Okada, 2004). In the light of localizationrequirements and high import tariffs, preventing a more extensive use of global imports,many manufacturers have called upon their global suppliers to establish manufacturingfacilities in India while others have started building up a local supplier base. Besides,quality issues, local content, and the innovative ability of suppliers, emerging countriespose special challenges on supply chain operations in terms of logistics, cost, andreliability. Thus, the specific supplier base management practices of large corporationsnecessarily have to be adapted to the characteristics of emerging markets.

The increasing importance of suppliers and the shift to a more closely integratednetwork on the one hand, and the special challenges of emerging countries on the otherhand are the focus of this paper. In the light of an increasing network awareness amongresearchers and practitioners, criticism was raised against research on buyer-supplierrelationships that had previously focused on single relationships only (Olsen andEllram, 1997). Consequently, an embedded perspective of relationships in networks wasintroduced (Salancik, 1995; Wilkinson and Young, 2002). However, many studies stillfocus on either the dyadic or network level leading to a lack of integrated researchprojects on inter-organizational relationships (Andersson, 1992). We address thisresearch gap within this paper by integrating aspects of supplier relationships andsupplier base management. The objectives of this study are twofold. First, we develop ageneral benchmarking framework for the supply network configuration of companiesintegrating a dyadic, supply chain, and network level. Second, we exemplify the model inthe context of an emerging country by analyzing two distinctive supply networkconfiguration approaches of Western automotive companies in India.

The remainder of this paper is therefore organized as follows. First, we present thetheoretical background and subsequently develop a benchmarking framework forsupply network configuration analysis on the basis of relationship and network theories.We then provide a case example discussing the applicability of our benchmarkingframework in the context of the Indian automotive industry. Finally, we summarize ourfindings and discuss our results.

2. Theoretical background2.1 Dyadic relationships and network dynamicsResearch on supply networks is still in an early stage, but is experiencing growing interest(Choi et al., 2001; Lamming et al., 2000; Stuart et al., 1998). The management of supplychains or supply networks aims at integrating and optimizing inter-organizationalprocesses within chains and networks (Lambert et al., 1998). Thereby, a network iscomposed of several supply chains (Harland, 1996) and refers to a network of firmsengaged in manufacturing and assembly of parts to create a finished product (Choi andHong, 2002). A common definition in the area of networks was presented by Jarillo (1988)


785

who defines strategic networks as long-term, purposeful arrangements among distinctbut related for-profit organizations that allow those firms in them to gain or sustaincompetitive advantage vis-a-vis their competitors outside the network.

In order to develop a benchmarking framework for supply network configurationwe draw upon insights from various theories addressing different levels: thedyadic relationship, the supply chain, and the network levels. The existing literatureshows relevancy for all three levels for the benchmarking of supply networkconfiguration. In the past, research focused on the dyadic relationship between twocompanies (Andersson, 1992) and until now, dyadic relationships are the center ofattention in academia and practice. Gadde and Snehota (2000), however, argue that thescope of analysis needs to be broadened in order to fully understand customer-supplierrelationship taking due to their interactive nature. The interconnectedness of allrelationships together forms the network and thus needs to be analyzed in the light ofdynamic networks (Andersson, 1992). Thus, the foundation for the development of ourbenchmarking framework for supply network configuration is primarily based on thetheories of relationships and networks.

An overview of the literature on dyadic exchange theory by Moeller and Wilson(1995) shows that early work on dyadic exchange relationships paid more attention tosingle transactions than the overall relationship between the two parties. Duringthe 1980s, this perspective shifted to the relevance of exchange relationships and thecomprehension that a relational exchange evolved over time and should thereforebe viewed on the basis of its history and prospective future (Dwyer et al., 1987).The relational view emphasizes the competitive advantage that relationships cancreate (Dyer and Singh, 1998). This perspective is adopted within this paper byfollowing an integrated approach to supply network analysis and acknowledges thedevelopment process of relationships as well as influencing factors on relationships.Several of our theoretical approaches to exchange relationships are based on themarketing literature. Marketing research provides valuable conceptual work for theunderstanding of the basic processes of relationships and forms a basis for the analysisof supplier relationships and networks (Olsen and Ellram, 1997). Table I provides anoverview of the theories used in this paper.

2.2 Transaction cost economicsAn influential theory on exchange transactions from the field of economics is thetransaction cost theory. Contractual arrangements between exchange partnersare coordinated by generic forms of governance in order to minimize transactioncosts and thus facilitate transactions. The term transaction cost contains the processesof execution as well as initiation, settlement, and control of a transaction. In addition tomarket and hierarchy – the polar modes of governance – hybrid mechanism such aslong-term agreements, regulations or reciprocal trading particularly help to describerelationships and networks (Williamson, 1991). According to this classification,inter-organizational relationships combine elements of market-based coordinationand hierarchical structures. Four transaction characteristics determine the form ofgovernance structure to chose and how to settle an arrangement (Menard, 2004):specificity of investments, the strategic importance of the transaction, the uncertaintyinvolved, and the frequency of transaction. For the development of our model for supplynetwork configuration benchmarking, we apply transaction cost theory when analyzing

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Table I.Theoretical framework

of supply networkconfiguration


787

dyadic relationships. Therefore, the choice of supplier relationship design dependsupon the supplier’s strategic importance or the frequency of transactions while theinvestment specificity further influences the interdependence of the two parties.The basic assumptions of transaction cost theory are bounded rationality of actors andopportunism. As a consequence, several critical issues have been raised against thistheory. First, the pure focus on costs neglects social interdependencies such as trust.Second, the theory of transactions costs lacks to include dynamic properties explaininginter-organizational relationships and networks. However, we believe that transactioncost theory provides a strong theoretical foundation when analyzing economic andcontractual arrangements on a dyadic level (Williamson, 1995).

2.3 The political economy frameworkAn early prominent approach within relationship theory that emphasized the relationalperspective is the political economy framework established by Stern and Reve (1980).Since then, many researchers have suggested this approach when analyzingbuyer-supplier relationships (Duffy, 2008; Golicic and Mentzer, 2005; Izquierdo andCillan, 2004; Krapfel et al., 1991). The framework combines economic and behavioralaspects, taking into consideration microeconomic theory on the one hand and socialpsychology and organizational theory on the other hand. In marketing research, theframework distinguishes between the distribution channel, referred to as the internalpolitical economy, and the channel environment, the external political economy. In thecontext of supply networks, the internal political economy captures the individualsupplier relationship whereas the external political economy represents the supply chainand network. By emphasizing the influence of the external on the internal economy, thetheory supports a framework of supply network configuration with multiple levels. Theinternal political economy is influenced by economic and socio-political forces. Duffy(2008) adds the relationship climate as a third force to provide an operationalization forthe abstract framework (McIvor and Humphreys, 2004). The economic force captures thelevel of coordination and integration between the parties, socio-political influencesmeasure the degree and symmetry of interdependence within a relationship, and therelationship climate takes into considerations the degree of cooperation and conflict. Thetheory provides valuable insights into the nature of supplier relationships bydistinguishing interaction elements from dependency issues. Relationship climatevariables such as trust and commitment are frequently suggested as ingredients for newforms of buyer-supplier relationships. In the light of the interconnectedness of all items,the political economy framework seems especially appropriate when analyzing supplynetwork configurations.

2.4 The IMP interaction modelA further influential approach is the interaction model developed by marketingresearchers linked to the International Marketing and Purchasing (IMP) Group[1]. Thecentral analysis units within the model are interactions and relationships. The modeldescribes a recursive interplay between interactions and relationships (Ford et al., 2003).Thus, interactions can only be understood in the context of the existing relationship. Fordescribing a dyadic relationship, the researchers identified four analysis variables(Moeller and Wilson, 1995): the interaction partners, the process of interaction,the environment, and the relationship atmosphere. The interaction partners in the model

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can be organizations or their representatives. The process of interaction further dividesinto the exchange and the adaptation process. As a result of short-term exchangeactivities and adaptations, interdependence emerges between organizations,which characterizes the long-term relationship behavior and quality. Theenvironment variable captures the context – namely the network – within which theinteraction takes place (Moeller and Wilson, 1995). The relationship atmosphereaccounts for historically evolved aspects of cooperation and conflict (Gadde andHakansson, 2001). In the IMP interaction model, operationalization of the terminterdependence is achieved through three dimensions: activity links, resource ties, andactor bonds (Ford et al., 2003). Activity links emerge when two organizations relate theiractivities in such a way that efficient activity structures are established (Ford et al.,2003). The development of activity links and – in the long run – relationships involvesinvestments and the combination of resources, which are referred to as resource ties. Inaddition to connected activities and combined resources, the level of interdependence oftwo parties is influenced by subjective social aspects, defined as actor bonds. The IMPapproach aims at providing an understanding of the nature of supplier relationships. Inmany industries, first-tier suppliers are widely integrated into product developmentprocesses of OEMs and design-specific tools for individual customers. The outlinedmeasures of interdependence – activity links, resource ties, and actor bonds – providethe necessary tools to analyze such dyadic supplier relationships.

2.5 An organizational-sociological network approach: theory of structurationIn network literature, researchers have consistently criticized the deficient theoreticalbase of network research, stating the non-existence of a discrete network theory(Salancik, 1995). However, a variety of theories from economic, social, or organizationalsciences can serve as sources for the analysis of networks.

Early work on networks can be found in the area of sociology and psychology whereresearchers studied processes between two and more individuals or groups. During the1970s and 1980s, this work was applied to relations between organizations focusing onthe logic of open systems and a relational conception of organizations (Scott, 2004).Relational theorists view units as inseparable from the transactional contexts withinwhich they are embedded (Emirbayer, 1997). Giddens’ theory of structuration (Giddens,1984) emphasizes the social relationships and interactions between organizations aselements of inter-organizational networks. The development of a network can beexplained through the recursive interplay of the network structure and the actorbehavior. The theory of structuration helps to understand dynamic networks throughprocedural production and reproduction of networks and, thus provides a suitable basisfor the analysis of supply networks configurations.

2.6 An interaction-based network approach: industrial network approachA network approach developed in the area of industrial goods marketing is the industrialnetwork approach, which constitutes one of the most distinct network theories.Inter-organizational relationships as main unit of analysis are not understood asindependent dyads but are contingent upon other relationships within the network(Dubois and Pedersen, 2002). The connectedness of all relationships leads to direct andindirect effects, referred to as primary and secondary functions. Primary functions are aresult of the dyadic interaction between two exchange partners. Secondary functions –


789

also referred to as network functions – emerge due to connections to other relationships(Anderson et al., 1994; Dubois and Pedersen, 2002). In the light of these relations,the question of network boundaries is frequently discussed. In the industrialnetwork approach, this problem is solved through the concept of network horizonswhich encompasses the extent of an actor’s individual view of the network(Anderson et al., 1994). Another central concept within the industrial networkapproach is the network position of an actor, which depends on the actor’s total set ofrelationships offering resources and activities and defining the reputation, rights, andobligations of an organization (Ford et al., 2003). Owing to the interrelatedness ofrelationships and the network, every change of relationships results in eitherstabilization or destabilization of the network (Anderson et al., 1994). This approachhighlights similarities to Giddens’ theory of structuration stressing the dynamiccharacteristics of networks (Andersson, 1992). The approach is able to capture the effectsof change within network actors and established relationships on an organization’snetwork position. The aspect of time contributes to the experience of actors influencingthe efficiency and effectiveness of links within the network (Dubois and Pedersen, 2002).In contrary to many traditional approaches which focus on specific transactions whileexcluding the context, the industrial network approach captures contextual effectsthrough the embeddedness of organizational relationships into a relationship network.

In addition to the theories presented above, the supply chain operating referencemodel (SCOR) has gained significant attention in academia and practice. Developed bythe Supply Chain Council together with about 70 manufacturing firms, this operationalmodel focuses on the process management of supply chains and provides a commonterminology and standard process descriptions (Lockamy and McCormack, 2004;Stewart, 1997). However, when developing a general model for supply networkconfiguration benchmarking, a more strategic perspective is necessary to analyzerelationships and structure rather than activities and processes.

The theories presented in this section are important elements to understand how thesupply network structure influences the interactions between two parties (Salancik,1995). They also stress the dynamic development and change of networks, which are twoimportant aspects when analyzing the development of supply network configurationsover time. If, for example, the number of suppliers in the network is reduced to a fewpreferred suppliers, the supplier management is expected to adapt to this byestablishing closer relationships with these suppliers on the dyadic level. The discussednetwork theories have also shown that the network members shape the network throughtheir behavior, which implies that activities regarding the operational suppliermanagement can influence the strategic design of the supply network.

3. A benchmarking framework for supply network configurationBased on the properties of relationships and networks derived from theory, we develop abenchmarking framework for supply network configuration. Relationships and actionsbetween two parties can only be captured and understood appropriately by consideringthe context. Therefore, the fundamental structure of the framework is separated intothree levels, namely the dyadic, chain, and network levels. The distinction between theselevels can also be found in Harland (1996) as well as in Choi and Hong (2002). On eachlevel of our benchmarking framework, we identify several dimensions of analysisas shown in Figure 1. The level of relationship connectedness between two organizations

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captures the buyer-supplier relationship on the dyadic level, chain authority andcentralization observe management activities and external factors on the chain leveland network dynamics analyze the supply configuration on the network level.The choice of these dimensions can be attributed to the following considerations.Network dynamics were identified as an essential property of networks within ourliterature analysis and are essential for the analysis of the development of supplynetwork configurations over time. Chain authority and centralization refer to theexisting power and dependence structures within the near network horizon, while thelevel of relationship connectedness was determined as an umbrella term for a broadrange of dyadic aspects of buyer-supplier relationships derived from relationshiptheories and buyer-supplier literature. In the following, we discuss each element of theframework in detail (Figure 1).

3.1 Benchmarking level 1: level of relationship connectednessThe level of relationship connectedness captures the interdependence of two partiesthrough three sub-dimensions, namely formal, physical, and social connectednesses.Formal connectedness is concerned with contractual and formal arrangements betweentwo organizations. Whereas many relational frameworks do not include thisperspective, it forms the basis for relationships to evolve and still covers a lot of theoperational concerns of many practitioners. The theory of transaction cost economicsprovides the necessary foundation for the analysis of contractual arrangements.Thereby, contracts are a means of handling opportunism and overcoming the absence oftrust. In addition, they also define production requirements, expected behavior, andquality levels (Batt and Purchase, 2004). Measures for describing the formalconnectedness include, for example, the length and explicitness of contracts as well asthe degree of formalized rules and procedures.

Physical connectedness captures two elements of interdependence defined by theIMP Group: resource ties and activity links. Similar aspects are discussed in the political

Figure 1.Supply network

benchmarking framework

firm

firm

firm firm

Level of relationship connectedness

Chain authority and centralisation

Network dynamics

• Formal connectedness• Physical connectedness• Social connectedness

firm

Network level

Chain level

Dyadic level

1

2

3

firm

firm

firm


791

economy framework, which names physical exchange and joint activities as importantelements of relationships. The most important transaction elements in the transactioncost theory are specific investments, which can create dependence and interdependence.Therefore, measures for analyzing physical connectedness include relationship-specificinvestments such as adaptations of any kind to improve the interfaces between twoorganizations which are defined as an element of close relationships by Woo and Ennew(2004). A definition of adaptations is provided by Brennan and Turnbull (1998) as thebehavioral or structural modifications, at the individual, group or corporate level,carried out by one organization, which are initially designed to meet specific needs of oneother organization. In addition, the degree and form of assistance given to the businesspartner throughout the relationship can be investigated. This aspect is specified byBurt et al. (2003) through supplier training, quality audits and process evaluations,provision of tooling, and support for problem solving. In the purchasing and supplychain management literature, several of these issues are often summarized under theterm supplier development. Finally, joint activities in areas such as production, logistics,or quality assurance are examined. In the literature again, especially joint productdevelopment is frequently mentioned as a characteristic for close relationships(Goffin et al., 2006; Ploetner and Ehret, 2006). In this context, suggestions for earlysupplier involvement are also raised (Bidault et al., 1998).

The social connectedness captures the relationship atmosphere or climate, in the IMPmodel also referred to as actor bonds. Woo and Ennew (2004) use the term relationshipatmosphere to summarize the factors trust and commitment, which are probably one ofthe most common and frequently cited approaches to characterize close relationships(Moberg and Speh, 2003; Ploetner and Ehret, 2006). Izquierdo and Cillan (2004) assigntrust a prominent position because without minimum conditions of mutual trust, therelationship will not be viable. However, trust and commitment can only be establishedthrough open and regular communication over time. Therefore, we consider theforms and degree of communication as further measures within the analysis for ourbenchmarking framework. Following the resource-based view of the company, thepicture of competing supply chains rather than individual firms stresses the importanceof analyzing partnerships and close relationships (Christopher and Juttner, 2000). As asummary, the benchmarking of supply network configurations on the dyadic levelfocuses on how formal arrangements are designed and whether specific investments andadaptations are made taking into consideration the underlying relationship atmosphere.

3.2 Benchmarking level 2: chain authority and centralizationThe analysis dimensions chain authority and centralization are located on the chainlevel in our benchmarking framework. Recent research stresses the importance of anintegrated and holistic approach in supply chain management because a narrow view ona single focal firm cannot take into consideration the many interrelations of a globalsupply chain (Buhman et al., 2005; Steele and Court, 1996; Wagner and Bode, 2006).Vertical and hierarchical structures emerge among organizations and thus requireresearchers to extend their view to the supply chain level ( Jahre and Fabbe-Costes, 2005).In many major industries such as automotive or aerospace, the final assemblers wieldpower and influence towards direct and indirect suppliers. This corresponds with theconcept of the network horizon and a firm’s network position which can be identified inthe industrial network approach. It also encompasses the issues of dependence

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and power outlined in the political economy framework. Hereby, dependence isunderstood as a firm’s need to maintain the relationship in order to achieve desired goals(Frazier, 1983). Adapted from Choi and Hong (2002) this benchmarking dimensionanalyzes the degree of power and authority the manufacturer exerts over the members ofthe supply network. Therefore, two measures are defined for the chain level in ourframework: the distribution of supplier-selection competence and coordination of designactivities among the members of the supply chain.

3.3 Benchmarking level 3: network dynamicsTaking into consideration the environment and the interconnectedness of relationships,we analyze the supply network configuration of companies also on the network level(Anderson et al., 1994). Analyzing on the network level adds more interrelations,dynamics, and complexity as compared to the more basic and linear chain level.When considering the whole network, a benchmarking model needs to capture manymore interrelations among different tier 1 and tier 2 suppliers which in turn havemultiple customers to consider. Thus, different mechanisms are needed to adequatelycapture the network level as compared to the chain level. In recent years, researchon supply network configuration has evolved. Choi and Hong (2002) present casestudies on three supply networks and structure their analysis in three dimensions –formalization, centralization, and complexity. Samaddar et al. (2006) develop atheoretical framework to investigate the relationships between the design of a supplynetwork and inter-organizational information sharing. In their 2008 study, Srai andGregory (2008) explore the impact of configuration on supply network capability.

In theory, the political economy framework as well as the IMP interaction modelexplicitly define the exchange environment as an essential influencing factor.Furthermore, the outlined network theories stress the dynamic properties ofnetworks, giving rise to the need for capturing the dynamic nature and the changingcontextual conditions within which buyer-supplier relationships evolve. Therefore, weanalyze the dynamics in supply networks within the following dimensions. Accordingto the theory of structuration, a network’s development results from the interplay ofnetwork members and the network structure. In supply networks, the structure is notorchestrated but rather emerges over time (Choi et al., 2001; Choi and Hong, 2002).Therefore, when analyzing network dynamics we assess the number of levels in thenetwork as well as the quantity of organizations within each level. In addition, we alsoconsider the individual network members characterized by their size, origin, andtechnological capabilities.

4. Discussion: case example of twoWestern OEMs in the Indian automotiveindustry4.1 Case study developmentIn order to demonstrate the applicability, we test our framework for supplynetwork configuration benchmarking in the case of two Western OEMs in the Indianautomotive industry. Case study research is most appropriate to capture the variousaspects within this emerging field of research and presents the best way to test ourbenchmarking framework in detail (Ellram, 1996; Naslund, 2002). Moreover, case studyresearch is a suitable means for capturing the dynamic properties of benchmarkingsupply network configurations with constantly changing practices (Voss et al., 2002).


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In the course of our study, we followed the guidelines outlined by Yin (2003). Followingthe recommendation of Eisenhardt (1989) and Meredith (1998), we used a simpletheoretical sampling to maximize the usefulness of the final results. We chose two global,yet distinctive players within the automotive industry in India in order to capture thespecialties of supply networks in emerging countries. The automotive industry seemsmost suitable for our study because it consists of a complicated and highly integratedproduct with a large bill of materials and a lot of interdependences (Choi and Hong, 2002).Thus, well-managed supply networks are necessary in order to compete in a globalmarket. The data for case ABC were gathered within one of the Indian plants of ABC Ltd,the most important subsidiary of the ABC Group in India. ABC Ltd is one of the largestautomotive component manufacturers globally and in India. Case ZYX was obtained atthe Indian assembly plant of the ZYX Group, a smaller player within India but with asignificant global presence. Although both plants are situated in the network of a globalplayer operating in the Indian automotive industry, the two cases are different in variousaspects and thus provide a great opportunity for testing our benchmarking framework.We based our data collection for the two case studies on multiple data sources. Withinboth organizations, the purchasing manager of the respective plant was identified as thekey person for the information on the supply network management practices. This is inline with Voss et al. (2002) who state the possibility of concentrating on one keyinformant. The same benchmarking analysis was used for both organizations. Toadequately capture the supply network configuration, we structured the interview byidentifying central episodes. An episode – for example, the supplier-selection process –contains several actions and represents a building stone for longer sequences andrelationships. A questionnaire was developed to obtain quantifiable information inaddition to the interviews and to allow a comparison of some statements made.The information received from the interviewee was triangulated with internalcompany documents that are normally accounted confidential and with publiclyavailable data like research reports from investment banks or company press releases(Yin, 2003).

4.2 Case example: analysisWe analyzed the case information applying our benchmarking framework.An overview over the two cases ABC and ZYX, respectively, their supply networkconfigurations can be found in Table II.

ZYX is solely sourcing from large-scale global organizations with a branch in Indiawhereas ABC is sourcing 85 percent from local Indian suppliers. This is mainly due toZYX’s high-quality focus and the type of parts being purchased. Primarily being activein the premium car segment, ZYX is sourcing complex parts and modules whereas ABCis buying mainly commodities from local suppliers. ABC’s high local supplier basecontent also explains why they have already adapted to the Indian way of negotiating.In contrast, it will still require time to develop the Indian suppliers to where they are ableto meet the technical standard and quality level required by ZYX. Since ZYX startedoperating this plant only a few years ago, their local supplier base is still not stronglyintegrated. In the future, ZYX aims at developing more local suppliers. In contrast, ABCalready strives to increase the percentage of large-scale Indian suppliers in order to makeuse of economies of scale. The tight connection of ABC and ZYX to their headquarters inEurope becomes apparent in different aspects but especially when observing

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Case ABC Case ZYX

Generalinformation

Joint venture Wholly owned subsidiaryEstablished in 1951 Established in 2007German first-tier supplier German final assembler, OEMServing all price segments Premium segmentObserved suppliers within the case study:suppliers for the key production parts ofthe engine system ranging from single-cylinder pumps to complex modulesystems

Observed suppliers within the case study:seats and door trim panels are sourcedlocally from large-scale globalorganizations that were already active inthe Indian market before the ZYX plantstarted

Dyadic level Contractual arrangementsHas adapted to the Indian way ofnegotiating: first discuss, then eventuallyissue a formal purchase order

Concludes an outline agreement withsuppliers before making an order

Duration of contract with fixed prices forplanning security for the suppliers

Contract duration based on the model lifetime

Quality and technological requirementsare explicitly set during supplier selection

Quality and technological requirementsare explicitly set during supplier selection

Price reduction targets are part of thecontract

Price reduction targets are part of thecontractSuppliers have to state and prove thatthey are able to comply with proceduresand processes

Physical connectednessSupplier development investments are acentral aspect

Supplier development investments are acentral aspect

Sources several simple parts which do notrequire specific investments on supplierside

High investments due to the complexityof the product and high-quality standards

High degree of general assistance inmanufacturing

Specific training of special equipment,because the suppliers are already highlydeveloped

The quality assurance team activelysuggests new technologies and processes

Joint activities are of minor importance

Joint activities are of minor importanceSocial connectednessFrequent communication and informationexchange

Frequent communication and informationexchange, very transparent

Trust only few suppliers on know-how,commitment, and integrity; the othersuppliers are those deliveringcommodities

Weekly quality meetings

Give preference to close suppliers whenstarting a new product

Differences in relationship closenessderive from varied degrees of productdevelopment cooperation

Supplier relationships are seen asbusiness relationships, which can besubstituted once other alternatives areavailable

Supplier relationships are seen asbusiness relationships, which can besubstituted once other alternatives areavailable; quality is the importantselection criterion

(continued )

Table II.Case example of twoWestern automotive

companies in India


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social connectedness. Despite frequent communication and well-established processessupplier relationships are seen as business relationships, which can be substituted oncebetter alternatives are available.

5. ConclusionBuilding on theories for dyadic relationships and networks, we have developed abenchmarking framework for supply network configuration. Our case exampleexemplifies the applicability of our model in the context of two automotive companiesin India.

Up to now, research has primarily focused on either supplier relationships on thedyadic or network level. Effective supply chain management, however, requires anintegrated and holistic approach in order to capture all relevant interactions and networkdynamics (Buhman et al., 2005; Steele and Court, 1996; Wagner and Bode, 2006).Especially, when benchmarking supply network configurations in emerging countries,researchers and practitioners need to consider the holistic picture. Our framework takesthe interconnectedness of the dyadic, the supply chain and the network levels intoaccount and helps to analyze supply network configurations in order to identify potentialareas of improvement. The case example provides evidence that the proposed modelis addressing the right aspects when benchmarking supply network configurations.The right approach to supplier base selection and supplier management is even moreimportant in emerging countries. During the selection process, basic criteria are set andonly suppliers that comply with the pre-set requirements are selected. It is part ofsupplier management then to develop the relationship and foster communication with

Case ABC Case ZYX

Chain level Rather decentralized relationship with itscustomers and suppliers

Rather centralized relationship with itscustomers and suppliers

Regarding the coordination of designactivities, ABC Ltd gives detailed designspecifications to its suppliers and controlsthem by diligently monitoring theirperformance

Exerts considerable influence on theselection of sub-suppliers

Home-country headquarter clearlyinfluences supplier selection, workers’attitudes and production processes

Home-country headquarter clearlyinfluences supplier selection, workers’attitudes and production processes

Less strong integrated in theheadquarters’ global network becausethey already developed competencies inIndia

Very strong integrated in theheadquarters’ global network

Network level Has continuously reduced its number ofsuppliers within engine systems

Supply network is still very youngbecause the plant just opened in 2007

Aims at increasing the percentage ofpreferred suppliers within the suppliernetwork

Has so far chosen only global suppliers,no Indian suppliers

Focuses on larger suppliers (economies ofscale) who are able to take up morebusiness and are capable of investing85 percent are Indian suppliersTable II.

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the goal to establish trust and motivation. In order to do so, a consistent supplier basestrategy and individual supplier management activities needs to be aligned and adaptedto the local requirements. The identification of the appropriate strategy and reachingan alignment within global operations are exceptional challenges for Westerncompanies operating in emerging markets.

When benchmarking supply network configurations, it is important to ask the rightquestions and look at all relevant aspects from supplier relationship to networkdynamics. The described benchmarking framework can support companies to identifyand adopt the right supply network configuration approach. Emerging markets likeChina, India or Western Europe pose the same challenges in many ways. Therefore,benchmarks within a large corporation but across countries can also provide valuableinsights. Facing similar supplier base characteristics in many the emerging markets,companies entering a new market might be able to transfer the experience of aprevious country to the situation in the current market. When benchmarking acrossdifferent countries, an integrated picture is important in order to ensure comparability.Comparisons are only possible when the company’s local strategy and the localenvironment conditions are similar.

Western companies have often similar hierarchy structures, production systems,and organizational climates. Benchmarks across different firms within the sameemerging country can therefore provide a great opportunity for learning from and witheach other. New entrants can learn from more established companies if their strategiesand operations are comparable. In either way, large companies have the motivation tolearn about and maybe align common patterns in their supply network configurationapproaches in order to jointly develop or at least educate a local supplier base moreefficiently. Companies with similar products and similar production systems also havesimilar requirements when selecting their suppliers. Thus, these companies also have acomparable supplier base. Economies of scale on the supplier’s side are thereforepossible if every OEM follows the same or at least similar standards and allows localsuppliers to leverage on these more efficient processes compared to a system whererelatively small suppliers in emerging markets need to adapt their processes for eachmajor OEM. Our proposed benchmarking framework can support the identification ofthe most efficient processes and align them for all involved companies. This benefitexemplifies how the alignment of processes between competitors can be valuable whenapplied on the network level. Collaboration in terms of supplier development andestablishment of standards like EDI accelerates therefore the development of thesupplier base in an emerging market.

6. Limitations and further research directionsAs with all studies there are some limitations that can be addressed in further research.The development of our general model for supply network configuration benchmarkingis based on a solid theoretical foundation through an extensive literature review but cansurely not cover all potential aspects of such a benchmarking analysis. Further researchmight use the presented framework to extend or shorten specific aspects at any level.It might also be the case that especially service companies require different or at leastadditional elements of analysis at each supplier network level. This provides interestingavenues for further research. We also presented two cases of Western automotivecompanies with their supplier network in India to test the applicability of our proposed


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framework and identify significant differences between the two companies withdifferent objectives and experiences in India. In the context of this paper, a comparisonbetween two companies is sufficient to show that the proposed elements and identifyrelevant differences between the two approaches. However, further research mightinvolve more companies to identify specificities between different potential strategiestowards the management of supplier networks.

Note

1. The IMP Group was formed in 1976 by researchers from five European countries with theaim of studying industrial marketing and purchasing in Europe. The group’s mostimportant concept is the “interaction approach”, which focuses on interactions betweenbuyers and sellers within business relationships.

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Further reading

Cox, A. (2004), “The art of the possible: relationship management in power regimes and supplychains”, Supply Chain Management, Vol. 9 No. 5, pp. 346-56.

Goffin, K., Szwejczewski, M. and New, C. (1997), “Managing suppliers: when fewer can meanmore”, International Journal of Physical Distribution & Logistics Management, Vol. 27Nos 7/8, pp. 422-36.

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van Weele, A.J. (2005), Purchasing and Supply Chain Management: Analysis, Strategy, Planningand Practice, 5th ed., Thomson Learning, London.

About the authorsRoger Moser is Assistant Professor for Strategic and International Management and focuses hisresearch on global sourcing, business development in developing countries and subsistencemarkets in rural areas. Roger Moser is the corresponding author and can be contacted at: [email protected]

Daniel Kern received his Doctoral degree at the Chair of Supply Chain Management at theFriedrich-Alexander-University Erlangen-Nurnberg. His research focuses on supply chain riskmanagement, supply network benchmarking and purchasing competence.

Sina Wohlfarth is a student at EBS Business School focusing on supply chain andinternational management.

Evi Hartmann is Professor for Logistics at Friedrich-Alexander-University Erlangen-Nurnberg.Her primary areas of research interest include services supply management, global sourcing,and environmental supply chain management.


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