Academic journal article Journal of Supply Chain Management

Supply Chain Drivers of Organizational Flexibility-A Study of U.S. Manufacturing Industries

Academic journal article Journal of Supply Chain Management

Supply Chain Drivers of Organizational Flexibility-A Study of U.S. Manufacturing Industries

Article excerpt

INTRODUCTION

Our study is based upon supply network theory which states that supply networks consist of unique, complex, adaptive systems of focal firms and suppliers (Choi, Dooley & Rungtusanatham, 2001; Pathak, Day, Nair, Sawaya & Kristal, 2007). Suppliers function as first-tier, second-tier, and tertiary members in the network, while the focal firm utilizes centralization or decentralization strategies to organize the network. The level of centralization determines the structure of the supply network and extent of direct control by the focal firm over suppliers at different tiers (Choi & Hong, 2002).

Given that interorganizational structures of supply networks change over time due to changes in technology, demand, costs, and supply disruptions (Pathak et al., 2007), supply chain scholars have begun to examine how firms organize their networks in order to manage uncertainty and minimize total operational and transaction costs in their supply networks. The specific purpose of this study is to examine the supply chain determinants of organizational flexibility which enable firms to adapt to changing production requirements, product configurations, and organizational strategies (Schilling & Steensma, 2001).

Firms utilize organizational flexibility arrangements to manage their supply base. For example, firms use organizational flexibility arrangements in a myriad of ways such as to engage in interfirm transactions (Hitt, Keats & DeMarie, 1998; Schilling & Steensma, 2001), enhance the exchange and combination of strategic resources, attain greater diversification, develop scope economies (Helfat & Eisenhardt, 2004), facilitate supply chain coordination to reach synergies (Galunic & Eisenhardt, 2001), and maximize innovation outcomes in complex systems (Ethiraj & Levinthal, 2004). There is a burgeoning body of organizational flexibility research in the supply chain literature (Langlois & Robertson, 1995; Sturgeon, 2002) which has mostly been conceptual in nature (Schilling, 2000) because it is difficult to operationalize and measure the organizational flexibility concept. Schilling and Steensma (2001) provide an important breakthrough by operationalizing organizational flexibility with respect to contract manufacturing and measuring organizational flexibility via U.S. Census Bureau industry-level data. A key finding of Schilling and Steensma (2001) is that overall industry heterogeneity, in terms of the diversity of goods manufactured, drives industries to use higher levels of organizational flexibility.

Recently, streams of empirical work have begun to examine the impact of a key part of organizational flexibility--contract manufacturing--on performance outcomes. Specifically, Cheng (2011) finds that organizational flexibility (or "organizational modularity") leads to superior industry-level profitability and efficiency (i.e., capital utilization) in the manufacturing sector. Cheng, Cantor, Dresner and Grimm (2012) isolate the impact of contract manufacturing on performance and find that it may lead to lower inventory levels. A salient feature of these articles is that organizational flexibility is employed as a variable explaining performance. As such, the determinants of a decision to adopt organizational flexibility are not fully examined. This study seeks to fill this void in the literature.

We focus on the contract-manufacturing component of organizational flexibility and make several significant contributions to the literature. Our study contributes to supply network theory by examining the factors that contribute to organizational flexibility. This article specifically examines how input and demand heterogeneity, the length of the distribution channel, economies of scale, and industry concentration may affect the use of organizational flexibility (or contract-manufacturing) arrangements. Moreover, consistent with ideas expressed by Cheng and Grimm (2006) and Grimm (2008), our study integrates strategic management theory to examine the interfirm arrangements that contribute to organizational flexibility (i. …

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