Improving supply chain flexibility and agility through variety management

• Pages: 464-487
• Date: 08 May 2017
• Published date: 08 May 2017
• DOI: https://doi.org/10.1108/IJLM-07-2015-0113
• Author: Juneho Um
• Subject Matter: Management science & operations,Logistics

Improving supply chain flexibility

and agility through

variety management

Juneho Um

Business School, Liverpool Hope University, Liverpool, UK

Abstract

Purpose –A trade-off exists between product variety and supply chain (SC) performance. To help mitigate

the impact on SC of increased product variety, the purpose of this paper is to examine how variety

management activities including variety management strategy (VMS), supplier partnerships and close

customer relationships affect SC flexibility and agility at different levels of customisation.

Design/methodology/approach –A survey-research methodology is employed using data from 363

manufacturing firms from the UK and South Korea. In particular, cluster analysis and structural equation

modelling were used to evaluate the proposed model according to the level of customisation.

Findings –The results suggest that internal variety management strategy and external SC integration have

a positive influence on SC flexibility and agility. Customer relationships and variety management strategies

influence SC flexibility more than partnerships with suppliers whereas variety management strategies and

partnerships with suppliers influence SC agility more than customer relationships. In fact, for external

integration in particular, customer relationships influence SC flexibility (i.e. reaction capability) rather than

agility (i.e. reaction time) whereas partnerships with suppliers influence SC agility rather than flexibility.

In a high-customisation context, close customer relationships are the most effective way to increase SC

flexibility, whereas partnerships with suppliers are the most effective way to increase SC agility. In a

low-customisation context, a VMS and customer relationships are the most effective way to increase both SC

flexibility and agility.

Originality/value –Thispaper suggests key varietymanagement activitiesto aid managers to better manage

productvariety ambitions in SCunder varying customisationprofiles through internaland external approaches.

Keywords Supply chain flexibility, Customisation, Supply chain agility, Product variety management

Paper type Research paper

1. Introduction

Today’s supply chain (SC) managers recognise that their roles are becoming more

complex, mainly as a result of rapid changes, globalisation and especially uncertain

business environments. Lack of understanding of the complexity of drivers and

poorly designed and executed strategies to address this complexity make SC decisions

much more difficult, often leading to undesirable outcomes (Manuj and Sahin, 2009).

In an ideal world, SC should be designed from the “customer backwards”rather than by

the conventional approach that has a tendency to be from the “factory outwards”.

The temptation is to create SC that is more focussed on the goal of “efficiency”rather than

that of “effectiveness”(Christopher et al., 2006). For products with highly customised

options, product variety can be an especially challenging driver of complexity, which can

disrupt the SC (see van Donk and van Dam 1996; Faber et al., 2002). Most manufacturers

recognise that a trade-off exists between product variety and SC performance

(Thonemann and Bradley, 2002). High product variety leads to an increase in sales

and market share, but it can also add complexity to demand forecasting and create

difficulties in aligning supply with demand in the SC (Whang and Lee, 1998; Randall

and Ulrich, 2001). Although the initial impact of product variety on sales is positive,

beyond a certain level, increased product variety may gradually lead to lower sales

(Wan et al., 2012). Therefore, companies that need to increase product variety should

consider the potentially negative impacts on SC performance such as complexity in

design, manufacturing and scheduling as well as cost of production and market mediation.

The International Journal of

Logistics Management

Vol. 28 No. 2, 2017

pp. 464-487

© Emerald PublishingLimited

0957-4093

DOI 10.1108/IJLM-07-2015-0113

Received 9 July 2015

Revised 11 December 2015

28 January 2016

3 May 2016

6 May 2016

Accepted 9 May 2016

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

464

IJLM

28,2

To optimise the trade-off between product variety and SC performance, manufacturers

manage product variety by limiting it through focussed manufacturing or increased flexibility

(Kekre and Srinivasan, 1990; Yeh and Chu, 1991; Gerwin, 1993; De Groote, 1994; Silveira, 1998).

However, when considering long-term profits and competition for market share as demand

uncertainty increases, continuous improvement in flexibility and agility offers a more

competitive method of responding to customer needs. Organisations may focus on either SC

flexibility or SC agility to achieve the appropriate response capability, and this is often better

than considering both aspects. Also, organisations’SCagilitycanbeimpactedbythesynergy

between the flexibilities in the SC process (Swafford et al., 2006). To manage increased

product variety and customisation, SC should be immediately responsive to a constantly

changing market (Yang and Burns, 2003). Flexibility and agility have repeatedly been shown to

enhance an organisation’s ability to effectively react to disruptions in the SC (Skipper and

Hanna, 2009). SC flexibility and agility also have a positive influence on both resource

efficiency and customer service (Narasimhan and Jayaram, 1998; Hiroshi and David, 1999;

Tummala et al., 2006). SC performance includes these cost-efficiency and customer service

indicators (Tummala et al., 2006) whereas, in this research, SC flexibility and agility are define d

in terms of SC responsiveness in managing product variety.

Given that maintaining SC flexibility and agility remains crucial for managing variety-

related issues, what are the most effective variety management activities to optimise the

trade-off between product variety and SC performance? What are the most effective variety

management activities to improve SC flexibility and agility, respectively? First, adopting

internal variety management strategies (VMSs) such as modularity (i.e. a product-based

strategy), cellular manufacturing (i.e. a process-based strategy) and postponement (i.e. a

structure-based strategy) has proven essential to achieving SC flexibility and agility

(Qiang et al., 2001; Nair, 2005; Scavarda et al., 2010; Jacobs et al., 2011; Patel and

Jayaram, 2013). However, are internal variety strategies sufficient to mitigate the trade-off

between product variety and SC performance? Firms can often best appropriate the benefits

of innovation by opening their technology to an outside network of cooperating partners

because the development of a modular concept and systems can lead to vertical and

horizontal disintegration (Langlois and Robertson, 1992). Therefore, a second, external

integration of supplier and customer is another crucial driver in managing variety issues

and promoting the modular concept. External integration emphasises collaboration with the

upstream and downstream partners. To respond to customer needs, an increasing number

of organisations are attempting to develop partnerships with suppliers and customers

(Slack and Chambers, 2007), suggesting that SC integration that focusses on both demand

and supply is required to handle the increased complexity and uncertainty caused by

product variety (Fisher, 1997; Mendelson and Pillai, 1999; Heikkilä, 2002). According to

Vickery et al. (2003), two fundamental practices that accomplish integration across a SC are

supplier partnering and the establishment of closer customer relationships. Partnership

with suppliers to ensure high product quality and low cost entails earlier supplier

involvement in product design, or acquiring access to suppliers with superior technological

capabilities (Narasimhan and Das, 1999). Close customer relationships enable firms to seek

information about customer preferences and needs, which enables firms to become more

responsive. Insights gained by establishing strong relationships with customers can also be

used to enhance operational effectiveness and cost efficiency (Vickery et al., 2003).

Integration of the SC through supplier partnerships and close customer relationships can be

crucial, especially for management of product variety and new product development.

Also, external integration has been demonstrated to be positive to cost, delivery, quality and

flexibility (Mackelprang et al., 2014).

However, variety-related issues require considering customer involvement (i.e. customisation).

Products can be differentiated according to the stage in the value chain where customisation

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Improving SC

flexibility and

agility