Organization Studies Workshop, Cyprus, June 57 thAn Ecological Perspective on Supply Networks

Organization Studies Workshop, Cyprus, June 5-7th 2008An Ecological Perspective on Supply NetworksL. Varga1, P.M. Allen1, M. Strathern1, C. Rose-Anderssen2, J. Baldwin2 and K. Ridgway2(1) School of Management, Cranfield University, Beds MK43 0AL, liz.vargacranfield.ac.uk(2) AMRC, Department of Mechanical Engineering, University of Sheffield, Mappin Street, Sheffield S1 3JD AbstractThe notion of supply network management has evolved considerably over the last 50 years to reach a point today where we need a post-normal science to describe the inter-related nature of physical, informational and people networks that transform raw materials into products. Bi-lateral, local arrangements for the creation of relatively simple products are largely superseded by multi-tier, global sourcing regimes for highly integrated, sophisticated products and services. And organizations are concerned not only with intra- and inter-organizational supply chain efficiencies, but also with their future roles within operational and developing supply chains of their customers and other organizations. By examining supply networks from an ecological perspective we provide a description which is grounded in environmental context, path-dependency and coevolutionary processes. A case study of the supply networks within the commercial aerospace sector describes how the structure, behaviour and knowledge of these complex economic systems have coevolved with their environmental contexts and thus how supply network ecology has matured.Key wordsComplex Economic System, Supply Network, Coevolution, Aerospace, Structure, EnvironmentIntroductionOur theoretical knowledge of the nature of the supply network has matured considerably in the last 10 years helping practitioners to understand how decisions, resources and behaviours might be deployed to improve survival and performance. This new knowledge makes the assumption that the supply network is a complex adaptive system located in an ecology with which it coevolves. The emergent structures which persist within the system, together with their associated behaviours, reveal the structural attractors of the system. These structural attractors are the outcome of coevolutionary processes between multi-layer complex economic systems and the environment. An ecological perspective is primarily concerned with organisms or human systems interacting with their environments. In the context of supply networks such organisms or human systems are the structures, including associated behaviours, which are hierarchical, nested within multiple other organisms or human systems, open to influence from the environment and adaptive to change. In complex systems terms, the environment is merely another layer in a nested system “every system takes all other systems as its environment; systems co-evolve as they complexly adapt to their environment” and which coevolves with the systems that constitute the environment “the environment or landscape that each system faces is changed as a result of changes in the systems that constitute the landscape” (Kauffman, 1993)An ecological perspective further seeks to explain the spatial distribution of systems in their environment, their patterns of abundance in time and the functional interactions between co-existent systems. Factors that determine the range of environments that are occupied and that determine how abundant systems are within those ranges are a key component of investigations within ecology. Ecological studies explore how the system interacts with the environment to influence evolutionary mechanisms of survival, growth, development, and reproduction. These evolutionary processes must necessarily produce qualitative change in the system. Qualitative change may be triggered within the system, the environment or the interaction between them. We find that the environment of commercial supply networks is changing rapidly. Through continued globalisation and the availability of transport infrastructure and electronic communications, the reach of even modest sized firms is extended into markets and resources not previously available, thus opening up greater possibilities of change from the environment. Given that organizations and the networks to which they belong are dynamic, and need to adapt, it is relevant to consider the processes of evolution. Aldrichs evolutionary theory (Aldrich, 1999) recognises and incorporates relevant organizational theories such as institutionalism, resource dependence and transaction cost economics amongst others. Processes of evolution, namely variation, selection, retention, and struggle are developed from Donald Campbells work, based originally on Darwin (1859). The importance of organizations as innately dynamic and responsive to the environment and networks is examined in his evolutionary biology approach in which change is stochastic not teleological. Coevolutionary theory extends evolutionary theory further and focuses on competitive leadership positions, and how they are lost and gained over time (Murmann, 2003). An observed supply network form may be a variation which is favoured (selected) in some environments thus retained and diffused within the population. The processes of evolution continue their search for new variations thus species co-evolve with the environment. Small differences in market share can be amplified and develop into much larger differences (Arthur, 1994) so long as self-reinforcing processes, that is positive feedback, dominates self limiting processes or negative feedback which act as a self-regulatory mechanism and the key to equilibrium (Capra, 1996). One action may have varying effects on different parts of the complex system and may result in varying degrees of feedback, driving virtuous or vicious cycles (Holland, 1998). And the firm does not exist in isolation. It is nested within other bodies, including partnerships, regional economies, nationalities; and a firm itself has multiple nested sub-systems, including functions, divisions, teams, projects, individuals; and individuals belong to multiple systems, professional bodies, academic associations, social and leisure groups, etc. No single complex system acts in isolation: “Nothing happens in isolation” (Barabsi, 2002). The Resource Based View (RBV) of the firm provides an explanation of sustainable competitive advantage, which is defined as a “value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy” (Barney, 1991). This implies the identification of a market niche that an organization can either create or exploit in a way which gives it advantage over its competition. In evolutionary terms this equilibrium is an ideal state. Competitors find ways to imitate the firm or re-shape the niche to their own advantage. In a changing environment, sustainable competitive advantage needs to reflect the rate at which the firm can identify new niches, exploit them and then adapt to the next niche, and so on as the environment continues to change. This means that experimentation is important (Allen, 1988) and that innovations and evolutions fit within the wider milieu of the social, cultural, environmental and technological of their own history: the “eco-historical regime” (Garnsey and McGlade, 2006).The importance of an ecological perspective is that it recognises systems (surviving abundant structures) and the environment as an evolving dynamic. Other lenses with which to observe supply networks tend to take a partial view giving prominence to organizations (using neo-classical environmental economics to extrapolate the past using assumptions that do not apply to modern evolving economic systems (Ramos-Martin, 2003); the environment (e.g. population ecology (Hannan and Freeman, 1977), or to equilibrium and so a lack of novelty (e.g. RBV). Such lenses treat environmental change as an exogenous variable (Baum and Singh, 1994). Exogenous variables are economic variables independent of the relationships that determine the levels of equilibrium. However, the environment has significant effects on organizations; arguably organizations are determined largely by their environments. And each organization may interpret its environment differently. The assumption that all organizations within one industry interpret the environment in a single way is false (Aldrich and Pfeffer, 1976; Daft and Weick, 1984) as managers can manipulate environmental features, for example, by political action (Child, 1972) and can change organizational designs (Goold and Campbell, 2002). Industry events can also reinforce or loosen network structures (Madhavan, Koka and Prescott, 1998). Without the explicit inclusion of how the environment of an organization influences the organization and vice-versa, a single-lens view by definition can provide only a partial view of the evolution of the organization. Having established the case for an ecological perspective, the rest of this paper charts the history of supply network perspectives and supply network structures to arrive at current day thinking in the supply network literature. The environmental context of the civil aerospace industry is then considered and propositions are suggested for the key ecological variables influencing supply network structures, behaviours and knowledge. A case study of the UK aerospace industry over the period 2005 to 2008 then takes a critical look at these propositions. The paper concludes proposals for further research.Supply Network PerspectivesThe concept of the supply network has matured through a number of observable stages (see Figure 1): from connecting intra-organizational components of inbound materials and outbound products; to dyadic (two-sided) supplier relationships in which each organization attempts to manage immediate suppliers; to dyadic chains which extend the relationships of the organization to both to customers customers and suppliers suppliers; to supply chain management in which all organizational supply chains are managed holistically; to integrated business networks which manage multiple businesses that create products and service packages; to demand chain communities, which manage multiple enterprises practicing agility to customer demand. Stage of developmentType of trading relationshipReferencesIntra-business chainInternal supply chain integrates business functions involved in the flow of materials and information from inbound to outbound ends of the business(Harland, 1996)Dyadic relationshipThe management of dyadic or two party relationships with immediate suppliers; Extended to downstream distribution channels and upstream production chains;Structure and scope of supply chain consists of material and information processing units: demand, value-adding transformation and supply (Harland, 1996)(Womack. James P. and Jones, 1990; Womack, 2002)(Davis, 1993)Dyadic chainThe management of a chain of businesses including a supplier, a suppliers suppliers, a customer and a customers customer, and so on (Harland, 1996)Supply chainManagement of multiple company relationships (SCM); Managing and coordinating multiple business activities across functions and firms, and viewing the supply chain as a single entity, rather than as a set of separate functions.(Lambert, Cooper and Pagh, 1998)(Mentzer, DeWitt, Keebler, Min, Nix and Zach, 2001)(Larson and Rogers, 1998)(Christopher , 2005; Christopher, 1992)Integrated business networkThe management of a network of inter-connected businesses involved in the ultimate provision of product and service packages required by end customers(Harland, 1996)Demand chain communitiesDemand driven, agile, multi-enterprise organizations, increasingly complex with various inter-relationships between companies, growing number of participants which does not remain constant throughout product life cycles; unlike old models where customer orders were delivered from on-hand inventories. (Hewitt, 2000)(Lummus and Vokurka, 1999)(Bowersox, Closs, Stank, 2000)Figure 1.0 Supply Network MaturityThe evolution of the supply chain discipline has however been fragmented (Harland 1994 & others), with differing and even disparate themes emerging in the field, crossing many traditional research boundaries (OM, logistics, strategic management, etc). Multiple definitions of the Supply Chain and Supply Chain Management are to be found in the literature. Mentzer et al (2001) provide a helpful classification of the literature into three categories: 1) a management philosophy, 2) the implementation of a management philosophy and 3) a set of management processes. The most advanced management philosophy of the supply chain is that of system or single entity, optimizing the entire chain (Bechtel and Jayaram, 1997) and managing the flow of a distribution channel through multi-firm effort, from the supplier to the end user (Ellram and Cooper, 1990). This philosophy is consistent with Harlands (1996) network, the most mature form of supply chain conceptualisation, shown in Figure 2.0. Figure 2.0 Supply Chain Evolution (Harland, 1996)The initial focus of supply chain management was on the internal chain as the method of internal management was known to impact local firm performance (Mintzberg, 1979) as the firm was perceived as having control over these inputs and outputs. Indeed, a supply chain philosophy today includes intra firm capability: “achieve synchronization and convergence of intrafirm and interfirm operational and strategic capabilities into a unified, compelling marketplace force where supply chains rather than firms compete” (Christopher, 1992). This definition raises the importance of the systemic, strategic orientation to the whole chain which is necessarily required of every partner in the supply chain. This systems perspective requires the analysis and management of the entire network to achieve the best outcome for the whole system (Cooper and Ellram, 1993). The philosophy is also consistent with the logistics paradigm that integrated performance produces superior results to that of loosely managed functions (Bowersox, 1996). Thus each firm in the supply chain directly and indirectly affects the performance of all other supply chain members as well as ultimate supply chain performance (Cooper, Lambert and Pagh, 1997). But each organizations networks are idiosyncratic and have followed a path dependent process (Gulati and Gargiulo, 1999) conferring competitive advantage as they are not easily imitated or substituted. As a result of these relationships, dynamic network constraints and benefits occur (Gulati, Nohria and Zaheer, 2000), e.g. benefits of lock-in to a profitable network or lock-out of a failing network. Conversely, the constraints can act disadvantageously, e.g. lock-out of profits and lock-in to a failing network. Conceptual models such as dyadic relationships and supply chains simplify the organization in three major respects. Firstly, organizations are treated as having static relationships but in practice individuals within each organization have relationships with individuals in other organizations, dispersed across the organization and working at different points in the product life cycle, e.g. at design, manufacture, operation, etc. This occurs because of the functional specialisms of staff. As a consequence there is a probability of loss of information, which also occurs due to the turnover of staff. The body of individuals that constitutes the organization does not remain static; people retire, move to other firms or locations and also pass away. Each person has a potentially unique perspective, or a virtual view of the supply chain (Mouritsen, Skjott-Larsen and Kotzab, 2003). Furthermore, we can say that each view is partial, with no one person having a complete and full view of the supply chain. Inter-organizational relationships are thus dynamic as well as path-dependent.Secondly, an organization is likely to operate multiple supply chains concurrently, whilst others will be in a state of development or demise. Even in a simple case, where an organization produces only one product, it will still require multiple suppliers for electrical parts, mechanical parts, raw materials, etc. The organization that produces many similar products may be able to source common parts from a single supplier but this may cause prioritization conflicts for the firm at times of short supply. The organization that produces many different products will need to operate concurrent relationships with many sets of suppliers. This process of supply chain management, i.e. the management of a variety of supply chains within one organization, creates opportunities for and constraints upon organizational performance.Thirdly, an organization is likely to have many customers. Some of these customers will be transactional, whilst others will be long-term relationships perhaps with increasing demand. In a simple scenario, the organization has one customer. However, this customer may require multiple products with different delivery times and priorities. In the 21st century, mass customization has been the trend so significant variety in terms of product look and feel must be created in addition to delivery to various locations, with fluctuating demand over time.Thus there are three types of potential organizational arrangement: simple 1 supplier to 1 customer one-sided n suppliers to 1 customer; 1 supplier to n customers complex n suppliers to n customersRegardless of the number and type of supply chains in operation, an organizations infrastructure services, such as Human Resources Management, ICT services, facilities management, commercial services, strategic marketing and procurement, etc are finite resources, providing services to staff engaged in multiple supply chains. The effect on the organization is that concurrent supply chains vie for organizational resources. And these organizational arrangements may be different in each organization within the network. Ultimately, the network structures and behaviours needed to effect inter-organizational cooperation and coordination are paramount to achieving successful performance.The structure or phenotype of a supply network reflects the underlying genetic code or internal diversity of the system. This genetic code is located within the resources of the organizations people, buildings, machinery and so on. Emergent structures are limited by the genetic code which changes with more or less frequency. Existing structures are the consequence of the irreversibility and path-dependency of the supply network and of the organizations, past and present, within the supply network. The genetic code of the system creates emergent properties at many layers, for example, quality emerges from a particular set of practices, which are directed to optimise desirable features. But the same emergent property may be produced from a different set of practices, that is, the outcome may be produced in more than one way. The property however will not emerge if all requisite practices are not present. The process requires the effort of a combination of many resources: physical, human, informational, technological. Emergence occurs at different layers in the supply network, enabling and constraining the potential for new emergent properties at the next layer (Fuller and Warren, 2006), for example: quality and cost combine to create increased sales in the market place, dyadic relationships contribute to overall supply network relationships.The organizati