Complex adaptive systems

The term “complex adaptive system” refers to a system that emerges over time into a coherent form, and adapts and organizes itself without any singular entity deliberately managing or controlling it, similar to laissez-faire. It is perhaps also akin to what Ken Thompson refers to as a bioteam or swarm. That is quite the opposite of the traditional view of a supply chain as a static and deterministic system that can be planned, controlled and managed. However, viewing a supply network as a complex adaptive systems will facilitate more managerial options, and may even lead to better supply chain performance than a network that is subject to rigid control. How come?

Characteristics of complex adaptive systems

Complex adaptive systems are rooted in and take ideas from many sciences. The main focus of analysis is

the interplay between a system and its environment and the co-evolution of both the system and the environment

The dynamics of this interplay and co-evolution is described in the figure below:

When examining a complex adaptive system, three foci become evident: an internal mechanism, an environment, and co-evolution. These foci serve as the foundation the authors’ argument that a supply network is a complex adaptive system and it should be managed as such.

Internal Mechanisms

Internal mechanisms are the inner workings and underlying driving forces that bind or break a complex adaptive system.

Agents and schema

An agent may represent an individual, a project team, a division, or an entire organization. Agents have varying degrees of connectivity with other agents and possess schems, that is norms, values, beliefs, and assumptions that are shared among the collective.

Self-organization and emergence

Behavior in a complex adaptive system is not induced by a single entity but rather by the simultaneous and parallel actions of agents within the system itself. The behavior of each individual in the supply network, in the aggregate, may lead to complex behavioral pattern on a global scale.

Connectivity

Connectivity is what constrains the range options each individual entity has for itself, and in relation to the other entities. The more connected, the lesser the individual option, and the greater the collective force. The less connected, the weaker and more critical is the connection, but also vice versa, the tighter the coupling, the more critical it can become also, if the connection has a negative influence on performance.

Dimensionality

The dimensionality of a complex adaptive system is defined as the degrees of freedom that individual agents within the system have to enact autonomous behavior. The more autonomy an agent has, the more creativity emerges. Mind you, autonomous decision can be either constructive or destructive to the network as such.

Environment

The environment exists external to the complex adaptive system and consists of agents and their interconnections that are not part of the given system

Dynamism

A complex adaptive system can only thrive through in a constantly changing environment, because equilibrium and stasis means nothing less than death because the system depends on the exchange of interactions. Opening up the system boundaries, by excluding or including different agents and/or their partners and/or their networks and/or their connections changes the underlying pattern of actions and relations.

Rugged landscape

Because the environment is constantly changing as is the complex adaptive system itself, it is practically impossible to reach the optimum, it is only possible to reach a optimum. This local optimum can be an illusion, as one may sit on top of what appears to be a mountain peak, when, in fact, it may simply be a bunny hill. This uncertainty of what really is the optimum, coupled with a changing environment, creates the rugged landscape a complex adaptive system must work in.

Co-evolution

A complex adaptive system and its environment interact and create dynamic, emergent realities. The environment forces changes in the entities that reside within it, which in turn induce changes in the environment, or vice versa. This is what is meant by co-evolution.

Quasi-equilibrium and state change

Normally, a complex adaptive system is always in disequilibrium or in a quasi-equilibrium state or “point of chaos”, where it balances between complete order and incomplete disorder. This allows the system to maintain order while also enabling it to react to qualitative changes in the environment. However, if the internal system changes or external environmental changes push the system too far from this point, a subsequent change may lead to unpredicted and catastrophic changes, where equilibrium can no longer emerge.

Non-linear changes

Because behavior in a complex adaptive system stems from the complex interaction of many loosely coupled variables, the system behaves in a non-linear fashion. This also means that it will respond to changes in a non-linear manner, e.g. small changes generate large outcomes and large changes may generate only small outcomes. Essentially, the behavior of a complex system cannot be written down in closed form.

Non-random future

The inability to determine the future behavior of a complex system in an exact manner does not imply that the future is random, because complex systems, in fact, exhibit patterns of behavior that can be considered archetypal or prototypic. The exact future may not be able to be predicted, but directions or trends are possible.

Supply networks as complex adaptive systems

Building on their discussion, the authors then compare supply network to complex adaptive systems and find many similarities, leading them to ten propositions.

Agents and schema

1. The greater the level of shared schema (e.g. shared work norms and procedures, shared language) among allied firms in a SN, the higher will be level of fitness for each of these firms (e.g. firm performance).

Self-organization and emergence

2. Firms that adjust goals and infrastructure quickly, according to the changes in their customers, suppliers, and/or competitors, will survive longer in their SNs than firms that adhere to predetermined, static goals and infrastructure and are slow to change.

Connectivity

3. Within a SN, firms that are cognizant of activities across the supply chain (including the tertiary-level suppliers) will be more effective at managing materials flow and technological developments than firms that are cognizant of activities of only their immediate suppliers.

Dimensionality

4. Successful implementation of controloriented schemes (e.g. ERP, JIT II) leads to higher efficiencies, but it may also lead to negative consequences such as less than expected performance improvements and reduction in innovative activities by the suppliers.

5. The degree of innovation by suppliers is directly proportional to the amount of autonomy that suppliers receive in working with customers.

Dynamism

6. Supply networks that turn over quickly stand a better chance of exposing weak members and, thus, gaining higher efficiency than supply networks that are artificially bound by long-term relationships.

Rugged landscapes

7. Modularization of tasks will decrease overall inter-dependencies among firms in a supply network, and, thus, offer a higher efficiency when optimizing the overall system.

Quasi-equilibrium and state change

8. Over time, quantum changes will last longer within a supply network than incremental changes that go against the accepted practices.

Non-linear changes

9. Firms that deliberately manage their supply network by both control and emergence will outperform firms that try to manage their supply network by either control or emergence alone

Non-random future

10. In a supply network, upstream suppliers that are more diversified are more likely to survive than those that are not

Some of these make perfect sense, others need some pondering to sink in fully. Nonetheless it is obvious that supply network and complex adaptive systems have much in common. In the end, the authors come up with this definition:

A complex adaptive supply network is a collection of firms that seek to maximize their individual profit and livelihood by exchanging information, products, and services with one another. Therefore, the nature of interactions among firms adjacent in a supply network determines the type of behavior the network as a whole exhibits and the level of control that any one firm has over another.

The profit-maximizing nature of individual suppliers is perfectly described by Paul Cousins in my post on Biting the hand that feeds. “All firms are snakes” he says. Maybe they are? From a supply network management perspective, it is necessary to observe what emerges in or from the complex system and then make contingent, flexible and appropriate changes, while controlling the course of action toward the a priori determined goals.

Virtual enterprises?

Reading the above definition, it strikes that supply networks as complex adaptive systems have much in common with virtual enterprise networks. Interestingly, I did not mention the above article in the reference list of my book chapter on manging risk in virtual enterprise networks. At the time that I wrote it I probably hadn’t even read the article. Today the article makes perfect sense to me, and managing risks in supply networks is like managing risks in complex adaptive systems is like managing risks in virtual enterprise networks.  That said, seeing supply networks as complex adaptive systems brings in  a wider scope of disciplines outside of the virtual enterprise realm. Nonetheless, the linkage is clearly discernible.

Reference

Choi, T. Y., Dooley, K. J., & Rungtusanatham, M. J. (2001). Supply networks and complex adaptive systems: control versus emergence Journal of Operations Management, 19 (3), 351-366 DOI: 10.1016/S0272-6963(00)00068-1

Author links

• asu.edu: Thomas Y Choi
• asu.edu: M Rungtusanatham

Already outdated?

It is more than a year since I submitted my chapter for review, and had I written it today, it probably would have been a different chapter. Well, perhaps not “different”, but more “mature”, as I have gained additional insights  and done more research on risk and vulnerability in supply chains and networks. Many of the thoughts presented in the chapter, in particular the framework for distinguishing different compositions of virtual enterprise networks (see page 5 below) has been refined and used in other settings. Many ideas are still valid and I hope this book chapter will stand the test of time and be referenced by others than me in my own future writings.

Read online

Read at scribd.com: A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks

Reference

Ponis, S. (ed) (2010). Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles. Hershey, PA: IGI

Publisher link

• igi-global.com: Husdal, J. (2010) A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks. In: S Ponis (Ed.)(2010) Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles. Hershey: IGI.

Related

• husdal.com: Managing risk in virtual enterprise networks

My proposal

It was in late 2008 that I received an email from the editor, Stavros Ponis, inviting me to submit a proposal for a book chapter for this book. At that time I had very little knowledge of virtual enterprise networks, but the more I read, the more I realized that supply chains (or supply networks) and virtual enterprise networks shared much common ground. At least the way I saw it, or rather “read” it, as my understanding of virtual enterprise networks came from these two books mainly: The Networked Enterprise by Ken Thompson and The Agile Virtual Enterprise by Ted Goranson. Armed with these two boks and a selection of supply chain risk articles I set out to propose a chapter for a theoretical framework on how to apply supply chain risk principles in a virtual enterprise network.

My chapter

Suprisingly, my chapter proposal was accepted, and now I spent some grueling months actually writing it, while learning even more more about supply chain risk, let alone virtual enterprise networks along the way. The peer review process after submission was quite interesting, too, as one reviewer said “publishable as is”, another said “needs revision” and a third said “not publishable at all”, the latter being a euphemism for “has no idea what he’s talking about”, as the review comments from this reviewer pointed to.  Anyway, in the end, my chapter met the editor’s requirements and my first major publication is out there for everybody to see. I’m published now, so hopefully, I will not perish, like so many others. Initially I had the intention of presenting a short summary of the chapter on risks in virtual enterprise networks as a conference paper at MITIP 2009, but other engagements tied me up, so it never was presented, until now, when it was finally published.

My abstract

This is the abstract of my chapter, aptly titled “A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks”:

Is managing risks in Virtual Enterprise Networks different from managing risks in supply chains? It is not unusual for suppliers in a supply chain to come together and act as a Virtual Enterprise Network (VEN) and the supply chains of today’s globalized and outsourced business environment exhibit many VEN-like features. Looking at VEN risk management from the perspective of supply chain risk management, current ideas on VENs will serve as a base onto which ideas on supply chain risk will be transposed. Many concepts related to supply chain risk will be explored and related to their possible VEN counterparts: risk, vulnerability, robustness, flexibility, resilience and business continuity. Conceptual in its approach and drawing from other areas of research, this chapter introduces four distinct groups of VENS, namely Constrained, Directed, Limited and Free VEN, and concludes that VEN risk management can and should learn from supply chain risk management.

My appraisal

When looking at the publisher’s website, this is what the editor writes in the preface:

The first chapter of this section by Jan Husdal can very well serve as an introduction to the whole book since it attempts to bridge the gap between the concepts of Virtual Enterprise Networks and Supply Chains by building on literature findings drawn from both research areas. Jan Husdal, provides the reader with a novel perspective on VENs and in doing so a new VE taxonomy is introduced. After a fruitful discussion on risk management in both VEN and supply chains, Husdal turns to the ultimate objective of this chapter, which is to propose a conceptual framework for Risk Management in VENs with a Supply Chain Risk Management perspective and provide well argumented evidence that VEN risk management can and should learn from existing supply chain risk management initiatives.

I do feel a bit honored now, as I have the opening chapter of the book, and hopefully I will make readers want to read on after reading my introduction.

My fellow writers

Looking at the 13 other contributions, as described in the same preface, I can already now say that I look forward to reading the whole book:

• Brian Squire takes an exploratory look at the use of formal network measures to further understand the sources of risk in enterprises organized in networks.
• Burak Sari argues that trust is the shared belief that network partners can depend on each other to achieve a common goal and constitutes a critical structural and cultural characteristic that influences the network’s success and performance.
• Samir Dani proposes a risk management framework for Virtual Enterprise Networks based on innovation and the effective feed of its results back to the risk management process.
• Ettore Bolisani provides a knowledge-based view of Virtual Enterprise Networks and attempts an analysis and classification of the possible sources of risk associated to the management of knowledge in a Virtual Enterprise Network.
• Mohammad Shalan aims to provide a comprehensive in depth analysis of risks and issues associated with the IT aspects of Virtual Enterprise Networks from technical and procedural point of view and to prescribe specific guidelines to mitigate the effects of the identified and analyzed risks, processes and consequences.
• Ila Manuj presents a simulation model development process for modeling disruptions and other crises events in global virtual enterprise networks and supports her proposed methodology by providing the reader with an indicative modeling example.
• Klimov et al. present a framework of simulation-based supply chain risk analysis with a risk measurement system,  based on the evaluation of supply chain performance.
• Omera Khan and Alessandro Creazza highlight the importance of keeping product design at the centre of the entire business process and managing it concurrently within the supply chain, utilizing their suggested 4C approach.
• María Jesús Sáenz, Maria Pilar Lambán and Eva Navarro introduce a conceptual framework including a set of best practices which enable flexibility value to be created in the context of an inter-organizational network.
• Stavros Ponis and Epaminondas Koronis study the knowledge-related risks of outsourcing by identifying and taxonomizing the risk sources of the outsourcing initiative, and by pinpointing the related threats and proposing mitigating actions.
• Konstantinos Kirytopoulos, Dimitra Voulgaridou and Vrassidas Leopoulos introduce a decision support framework based on the so-called ANP-BOCR model, focusing on the supplier selection process which is critical for clusters where its members not only cooperate but also compete.
• Nikolaos Panagiotou, Stylianos Oikonomitsios, Christina Athanasiadou and Sotiris Gayialis develop an elaborated toolset that supports the extended role of Internal Audit as a facilitator of change towards the network’s business objectives, thus assisting and improving business processes  and enhancing the quality of the enterprise network.
• Christos Manolarakis, Ioannis Christou and Gregory Yovanof attempt to capture market dynamics and provide Virtual Enterprise Network managers with a new insight on consumer segmentation by proposing an Agent Based Modeling tool that allows the description and simulation of the evolution or interactions of social structures.

Interesting? I think so, and in due time, I will post a full review on this blog.

My conclusion

I can only agree with the editor here, who says that

Hopefully, this book including more than a thousand scientific references will establish the necessary background for further research in the field, attract interest and create challenges for both researchers and practitioners, thus initiating a broad academic discourse.

That remains to be seen, but I will certainly do my part here.

Reference

Ponis, S. (ed) (2010). Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles. Hershey, PA: IGI

Editor link

• ntua.gr: Stavros Ponis

Publisher link

• igi-global.com: Managing Risk in Virtual Enterprise Networks

amazon.com

• amazon.com: Managing Risk in Virtual Enterprise Networks

Related

• husdal.com: On managing risks in Virtual Enterprise Networks
• husdal.com: Understanding risks in Virtual Enterprise Networks

The Virtual Enterprise

The reason why I came across this book in the first place was that I used i to fully understand the concept of virtual enterprises when I was preparing my book chapter on A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks. Prior to that I had only read Ken Thompson’s Virtual Enterprise Network, another visionary book, but Ted Goranson’s book was the one that truly opened my eyes to the virtues of the virtual enterprise.

Agility as a response to unexpected change

Goranson differentiates between agility and flexibility. Agility is the ability to respond to (and ideally benefit from) unexpected change. Agility is unplanned and unscheduled adaption to unforeseen and unexpected external circumstances. Flexibility is scheduled or planned adaptation to unforeseen yet expected external circumstances. Flexibility, agility, robustness and resilience are four very related topics in supply chain risk management.

Agility as a creative response

There’s nothing particularly exciting about flexible manufacturing. It is planned, or at least expected and prepared for. Agile production, on the other hand, entails coming up with a creative solution to an unexpected problem. Agility is fed by creativity.

Agility as an enterprise property

Goranson sets out to define agility on the enterprise level, particularly the virtual enterprise level, where the  virtual enterprise is an aggregation of indivdual enterprises, working together as one entity. Agility then, has an internal direction, within each enterprise and within the virtual enterprise as a whole, and agility as an external direction, from the virtual enterprise  towards the external environment or business opportunities.  The overall agility of the virtual enterprise (or supply chain, we could say) depends on both internal and external agility, and internal agility is a prerequisite for external agility. Unless you are able to rearrange your troops  in the midst of a raging battle you cannot win on the changing battlegrounds that business often is.

Four Key Areas of Agility

Unexpected change (in positive or negative terms) can come from four different key areas. Internal, Resources, Customer, and External:

For an enterprise to be fully agile, it must be able to address changes in all four areas. Each area and each subset of the different areas represents a type of change the enterprise may have to face.

The Dimensions of Agility

One of the best illustrations of agility is a figure that describes how agility defines both the scope of change that an enterprise can adapt to and how gracefully (smoothly) it can adapt to change:

One of the foremost abilities of an agile enterprise is its ability to quickly react to change and adapt to new opportunities. This ability to change works along two dimensions: 1) the number or “types of change” an organization is able to undergo and 2) the “degree of change” an organization is able to undergo. The former Goranson calls “scope”, the latter he calls “robustness”. The more robust an enterprise is, the more radical a change it can gracefully address.

Scope refers to how large a domain is covered by the agile response system, in other words, how far from the expected set of events one can go and still have the system respond well. Robustness is a measure of how well the system responds, given a specific scope.

I my opinion, this definition truly captures the essence of agility. Although, according to what Paul James writes in his post What Every Executive Wants For Christmas on agilecontinuity.org,

If you are an executive then the very last thing you want is an agile business.

I would beg to differ here. Depending on the business you’re in, agility is what you do want.

Conclusion

Admittedly, this book is not new. But I think it deserves to be mentioned, time and again. Simply because it has laid the groundwork for much of the research on agility that has been done since it was published. Indeed, it is hard to find a journal article or book on agility that does not cite Goranson one way or the other.

Reference

Goranson, H.T. (1999). The Agile Virtual Enterprise. Westport: Quorum Books

Author link

• sbg.ac.at: Ted Goranson

amazon.com

• Buy this book: The Agile Virtual Enterprise: Cases, Metrics, Tools

Related

• husdal.com: Robustness, resilience, flexibility and agility
• husdal.com: Supply chain agility as risk mitigation and response
• husdal.com: Book Review: Virtual Teams

Basics of flexibility

Flexibility is an important addition to the more traditional topics of supply chain management, such as quality, cost, time and service, and Winkler defines flexibility as

the ability of a system to perform proactive and reactive adaptations of its configuration in order to cope with internal and external uncertainties.

Note the terms proactive and reactive here. Is it possible to say that proactive is flexibility and reactive is agility?

Strategic Supply Chain Networks

Supply Chain Flexibility is here seen as prerequisite for gaining competitive advantage and improving business success. To improve the flexibility of a supply chain Winkler suggests building up and using strategic supply chain networks.

A strategic supply chain network is characterised by a selected circle of supply chain members, a collective identity, an internal role differentiation and power division, the delegation of responsibility, its’ limited permanence, the possibility to transpose members, and a rational procedure for the realization of common targets executed by all of the participating companies. The strategic supply chain network is a virtual organization because every embedded member remains independent while participating in the network.

It is interesting to see how Virtual Organizations or Virtual Enterprise Networks  slowly but surely are making their way into regular Supply Chain Management theory. It’s not often that I come across this term in journals not specifically dedicated to this subject.

Winkler notes that

To design and manage a strategic supply chain network, the SCM has the task of first establishing an effective structure within the supply chain, and secondly, to guarantee on an efficient performance. The tasks of an SCM can be assigned to the life cycle. It is here that we differentiate between the stage of design, performance, development and termination.

The supply chain life cycle is not often touched upon in SCM literature, and it is only rarely that I encounter papers or books dealing with with life cycle concept. This is another reason for me to wholeheartedly enjoy the holistic approach that Winkler uses.

Literature Review

The literature review centers around some highly recommendable papers,

• Barad, M., & Sapir, D. E. (2003). Flexibility in logistic systems—modeling and performance evaluation International Journal of Production Economics, 85(2), 155-170
• Das, S. K., & Abdel-Malek, L. (2003). Modeling the flexibility of order quantities and lead-times in supply chains International Journal of Production Economics, 85(2), 171-181.
• Duclos, L. K., Vokurka, R. J., & Lummus, R. R. (2003). A conceptual model of supply chain flexibility. Industrial Management and Data Systems, 103(5/6), 446-456.
• Garavelli, A. C. (2003). Flexibility configurations for the supply chain management International Journal of Production Economics, 85(2), 141-153.
• Lummus, R. R., Duclos, L. K., & Vokurka, R. J. (2003). Supply Chain Flexibility: Building a New Model. Global Journal of Flexible Systems Management, 4(4), 1-13.
• Sanchez, A. M., & Perez, M. P. (2005). Supply chain flexibility and firm performance: A conceptual model and empirical study in the automotive industry. International Journal of Operations & Production Management, 25(7), 681-700.
• Vickery, S., Cantalone, R., & Dröge, C. (1999). Supply Chain Flexibility: An Empirical Study. Journal of Supply Chain Management, 35(1), 16-24.

highlighting the various concepts and interlinking the various definitions  of flexibility and the consequent  implications for supply chain flexibility.

The framework

Winkler’s framework appears complex, but it is stunningly simple:

He links supply chain resources with supply chain objects, i.e. subjects of modification to achieve flexibility, which is measured using a set of parameters, which reflect the results of the flexibility improvement (or not).

Supply Chain Flexibility Parameters

In order to judge the supply chain flexibility of the strategic supply chain network, Winkler proposes at set of flexibility parameters:

Transparency

• T = (Σ _j=1:n Known SC elements_j / Σ _i=1:m SC elements_i) X 100

Simplicity

• S = (1 / Σ _i=1:m SC elements_i) X 100

Responsiveness/Agility

• RA = (Σ _j=1:n Standardized SC element_j / Σ _i=1:m SC element_i) X 100

Security/Reliability

• SR = f (quality of SC elements)

Winkler admits that more parameters can be set up, but he has limited himself to these four.

Supply Chain Flexibility Potentials

As already mentioned above, within strategic supply chain networks specific flexibility potentials can be developed to realize a high degree of supply chain flexibility:

I am very fond of this figure. Simple, yet all-encompassing. I am always impressed with scholars who manage to express their ideas in figures that are easy to comprehend. It shows an ability not only to truly understand their own subject matter but also an ability to convey their message in a clear manner to an audience unfamiliar with the subject matter.

Critique

If there is one thing I would want to disagree with here, it is the definition of responsiveness/agility, or rather the lacking definition of agility as I see it. In my world agility and flexibility are inherently different.  Flexibility is scheduled or planned adaption to unforeseen yet expected external circumstances. Agility is unplanned and unscheduled adaption to unforeseen and unexpected external circumstances. With Winkler, agility seems to be a function of how standardized the supply chain is. That said, it does make sense that more operationally standardized a supply chain is, the more responsive it can be.

What is also lacking is a better definition of what constitutes quality of supply chain elements besides referring to the obvious need for high quality in order to gain sufficient flexibility.

I would also have liked to see a clearer expansion of the virtual enterprise concept, albeit it is present in much of the paper.

A new Journal

The article is printed in the first issue of the first volume of Logistics Research, a new journal with an interesting mixture of listed topics: Engineering, Engineering Economics, Organization, Logistics, Marketing, Production/Logistics, Industrial and Production Engineering, Philosophy of Language, Operations Research/Decision Theory and Commercial Law. So far, though, judging only by the first two issues, the topics have centered around logistics and supply chain management, and I have already found a number of interesting papers that I will come back to on this blog.

Reference

Winkler, H. (2008). How to improve supply chain flexibility using strategic supply chain networks Logistics Research, 1 (1), 15-25 DOI: 10.1007/s12159-008-0001-6

Author link

• uni-klu.ac.at: Herwig Winkler
• linkedin.com: Herwig Winkler

Related

• husdal.com: Book Review: Cooperative Strategy
• husdal.com: Managing Risk in Virtual Enterprise Networks
• husdal.com: A conceptual model for supply chain flexibility

A conceptual framework

The title of the paper is From Risks in Supply Chains to Risk in Virtual Enterprise Networks: Ideas, Concepts and a Framework.

Conceptual in its approach and drawing from other areas of research, this paper introduces four distinct groups of VENS, namely Constrained, Directed, Limited and Free VEN, and concludes that VEN risk management can and should learn from supply chain risk management. The abstract was accepted and I have now submitted my final paper. The final paper will be made available on this website after the conference.

The paper is largely based on my submission for a book chapter titled A Conceptual Framework for Risk and Vulnerability in Virtual Enterprise Networks for the book on Managing Risk in Virtual Enterprise Networks: Implementing Supply Chain Principles. The chapter has been accepted, pending some final revisions, and will hopefully be available in print by the end of this year or early in 2010. See my brief pre-review of Managing Risk in Virtual Enterprise networks.

Read online

Jan Husdal MITIP 2009

Links

• MITIP 2009: Conference website

Related

• husdal.com:
  Managing risks in virtual enterprise networks
• husdal.com:
  MITIP 2009 – a conference worth considering
• husdal.com:
  Call for papers – MITIP 2009

Introduction

Supplier management is a key strategic consideration and supplier management strategies such as supplier evaluation and supplier selection are widely used, often based on suppliers’ internal capacities, such as operational capability financial stability, technological superiority, and trustworthiness. However, more often than not, this falls short of addressing the importance of extended networks beyond the immediate dyadic relationship; it does not address how a supplier’s relationship with its suppliers or other buying firms affects its performance:

Considering suppliers in isolation (e.g., evaluating one supplier at a time) may have been appropriate when large, highly vertically integrated buying companies were the norm. The buying companies bought parts from multiple parts suppliers that competed against one another. However, we now operate in an era of integrated suppliers and contract manufacturers that pull together parts from second-tier suppliers. Even some of these integrated suppliers, as they become large, are working with smaller integrated suppliers. Further, buying companies rely more on their suppliers for design activities, and often suppliers are asked to work together to arrive at optimal design solutions. In other words, today we operate in an environment where suppliers have become embedded in their supply networks. If structural embeddedness is not managed well, then the performance of the buying company may ultimately suffer.

Three theoretical foundations

1. A buyer-supplier relationship represents a dyad, with two actors performing activities for the purpose of generating values. Each actor requires resources–the buyer needs parts and materials from its supplier, and the supplier needs contracts and payments from the buyer. Therefore, they create a link and form a dyad or a buyer-supplier relationship. But not just that: The buyer brings to this dyad its own extended business network and so does the supplier. While a buyer-supplier relationship is a dyad, it is also part of other networks  through each other’s extended business relationships. For buying firms, once they establish a relationship with a supplier, they are linked, indirectly, and unwittingly, to the supplier’s overall business networks.
2. Individual actors form dyads, then triads and eventually grow into a discernable network structure on either side of the dyad. These progressive levels are “embedded” in one another, and create not only busienss networks, but also social networks. Embeddedness perspective is one of many research streams in social network research, and enables us to interpret and analyze the individual firm’s behavior or interfirm interactions within the context of larger relational structures.
3. “Structural embeddedness” then focuses on the characteristics of relational structure, the relational quality of interorganizational exchanges and the architecture of network ties. It is concerned with how economic activities are influenced by the network structure and the quality of relations. Needless to say, perhaps, but obviously, a firm’s structural embeddedness will exert both positive and negative effects  on its economic decisions, behaviors, and performance.

Supplier management propositions

The concept of structural embeddedness, when applied to supplier management, helps us see our suppliers in a larger context. We begin to appreciate the value of looking beyond the suppliers to better understand their performance. A buying company needs to understand a supplier’s internal capability and capacity in order to establish supplier management policies regarding that supplier. However, other companies this supplier does business with in the extended supply networks can affect the supplier’s performance:

Proposition 1: Buying companies with good understanding of their suppliers’ structural embeddedness are likely to perform better in both operations and finance, compared with those without such an understanding.
Proposition 2: Buying companies with good understanding of their suppliers’ structural embeddedness are likely to perform better at supplier management, compared with those without such an understanding.

What is it good for?

Buying companies should develop their capability to measure their suppliers’ structural embeddedness or what we might call the “network awareness” capability. This capability refers to a buying company’s ability to effectively and efficiently scan the external networks of its key suppliers beyond its direct relationships with them. It entails observing other, indirect relational dynamics that might potentially lead to future concerns or opportunities. When a buying company has good network awareness, it might choose not to dismiss a supplier just because it has shown poor performance if this supplier is connected to other promising companies (e.g., technologically advanced companies). The buying company may even choose to create a new category of suppliers with whom it might continue relationships, not because of their immediate merits but because of expected benefits from other companies that they are connected to.

Structural embeddedness, thus, takes supplier management to a new level…or not?

Reference

CHOI, T., & KIM, Y. (2008). STRUCTURAL EMBEDDEDNESS AND SUPPLIER MANAGEMENT: A NETWORK PERSPECTIVE Journal of Supply Chain Management, 44 (4), 5-13 DOI: 10.1111/j.1745-493X.2008.00069.x

Author links

• asu.edu: Thomas Y Choi
• linkedin.com: Yusoon Kim

Links

• Read the article online at allbusiness.com

Related

• husdal.com: Why all firms are snakes

Knowledge-laden and heavy

It is a true monster of a book and I mean that in a positive way. I cannot imagine anything that is left uncovered on the topic of virtual teams. Which perhaps makes it rather difficult to keep the necessary distance and oversight, the index alone is some 47 pages long.

The esssence

What is comes down to is that virtual teams have six challenges: Distance, Time, Technology, Culture, Trust and Leadership.  These six challenges are presented in 28 contributions from different authors, where each contribution takes on one or more of these challenges. Luckily the book comes with a matrix, so if you want to read about Time, you can read contribution 1, 14, 19, 25 and 28. And so on for the other challenges. That is very helpful.

So what is it about?

Distance means working without face-to-face contact, resulting in lack of personal bonding.  Time means the challenges from working in different time zones, often globally, and the advantages of 24/7 production versus the disadvantage of no real-time collaboration. Technology deals with the challenges of compatible and incompatible ICT and how to make the team members make the best out of their tools. Culture has to do with the challenges arising from teaming different cultures, especially if your team is global. Trust is usually slow to develop without personal contact, another challenge when you only meet in virtuality. Leadership tells how virtual team leaders must fill many roles and develop different skills than traditional team leaders.

Could it not be shorter?

Is it a bit overdone? Why not simply six chapters for the six challenges? Well, the individual contributions are valuable, and I can tell that, having read some of them. The authors all bring their personal insights into their subjects, and I guess, if you want to focus on the challenges of technology in your virtual team, it is helpful to have a couple of opinions, not just one.

The verdict

Still, reading this book from cover to cover is a daunting task, and not something I am likely to undertake. Nonetheless, I think it is one of the best books on virtual teams currently on the market.

Reference

Nemiro, J., Beyerlein, M., Bradley, L., & Beyerlein, S. (2008). The Handbook of High-Performance Virtual Teams. San Francisco, CA: John Wiley & Sons.

Publisher link

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• wiley.com: Virtual Teams

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Buy this book at amazon.com

Related

• husdal.com: Book Review: Cooperative Strategy

Cooperative strategy

Traditional enterprises can enter into various forms of cooperation depending on what their goal is and this book describes six reasons why firms seek to establish cooperative networks: 1) certainty – by developing relationships , 2) flexibility – by being able to quickly allocate a range of resources, 3) capacity – by “outsourcing” work to other network members, 4) speed – by being able to quickly respond to a wide range of business opportunities, 5) skills and competence -  by gaining access to resources other than one’s own, and 6) intelligence – by sharing market information.

Networks

Placing cooperative networks on a scale, going from independent to integrated, five degrees of networks can be discerned: 1) Equal-partner network, 2) Unilateral agreements, 3) Dominated network, 4) Virtual corporation, and 5) Strategic alliance. The virtual corporation is described as “a loosely coupled enterprise in which the parts are held together through the medium of sophisticated information technology packages”. Interestingly, and somewhat contradictory to Ken Thompson’s The Networked Enterprise, they consider virtual corporations as “a transitional stage of company development on the path to complete hierarchy”.

Virtual corporations

The chapter on virtual corporations focuses not so much on the virtual corporation itself,  as The Networked Enterprise does. Instead it focuses on management. The authors state that a virtual corporation needs a brain and a central nervous system, because a virtual organization too requires strategic direction. In their appraisal of the virtual corporation they do not see it as a solution to all solutions, and in most circumstances, the integrated corporation outperforms the virtual corporation. So they say. Especially when it comes to the communication of tacit knowledge, where there is a need for industry standards and where the growth potential lies in extending existing markets rather than exploring new markets. However, in markets with considerable turbulence, where there is a need for response and flexibility across a global perspective, a single firm may not have the required resources, and that is the place for the virtual corporation. Virtual and integrated corporations are likely to exist side-by-side, with one becoming the selected winner in certain markets, but not in others.

Conclusion

For my part, and for what I needed, the book was very useful. It gave me an insight into different kinds of cooperative networks, what distinguishes them, benefits, disadvantages and pitfalls. Five stars.

Reference

Child, J., Faulkner, D., & Tallman, S. B. (2005). Cooperative Strategy. Oxford: Oxford University Press.

Author links

• rhul.ac.uk: David Faulkner
• richmond.edu: Stephen B Tallman
• bham.ac.uk: John Child

amazon.com

• Buy this book at amazon.com

Related

• husdal.com: Trust, control and risk in strategic alliances
• husdal.com: Biting the hand that feeds. Or why all firms are snakes
• husdal.com: Vulnerability in business relationships: the gap between dependence and trust

A new experience

Writing a chapter for a book has been a whole new experience to me.  Daunting at first…how do your come up at least 9000 words on a topic you don’t really know much about? Following the references in Ken Thompson’s The Networked Enterprise as a starting point, it wasn’t too hard in the end, reaching some 12.700 words. Besides investigating a new field of study hitherto utterly unknown to me, writing a book chapter is considerably different from writing a journal article or a research report (which I do a lot of in my day job), let alone reviewing books or literature or websites and thinking up some posts for this blog. My posts on  Virtual Enterprise Networks are actually partly taken from my chapter proposal. For the sake of copyright and other issues, the full chapter will not be published on this blog until it is finalized and sent to the printers. The preliminary chapter proposal can be seen in my post on Understanding Risks in Virtual Enterprise Networks.

Virtual Enterprise Networks

I must admit that I knew very little, if anything, about Virtual Enterprise Networks when I started this adventure some months back, but I can now say that I am fascinated by the concept, and I believe that much of the future of supply chains lies in virtual enterprise networks. Supply chains have evolved in so far four stages, from the mere optimization of flows to economies of scale and further to economies of scope. The current stage is economies of integration, integrating and involving customer requirements in a value-driven rather than value-pushed supply chain, which leads to the next stage: economies of relationships. The basis for any virtual enterprise network is are the relationships among its partners, and my hope is that my chapter can contribute to managing the risks in the relationships that make up a virtual enterprise network.

What if

What if my chapter submission is not accepted? Well, as we say in Norwegian, “nothing is so bad it’s not good for something else”. I’ve covered some solid research ground and discovered many new articles on topics related to supply chain risk (and re-discovered som old ones I deemed not useful at that time). This means that large parts of my chapter could be re-worked into a journal article, or, if nothing else, at least I will be able to produce a whole string of posts about Virtual Enterprise Networks here on this blog.

Related

• husdal.com:
  Understanding Risk in Virtual Enterprise Networks (chapter proposal)
• husdal.com:
  Is managing risks in Virtual Enterprise Networks different from managing risks in Supply Chains? (conference presentation)
• husdal.com:
  Finally, my book chapter is published