Collaboration and Technology Linkages a Strategic Supplier Kaufman Et Al

8/10/2019 Collaboration and Technology Linkages a Strategic Supplier Kaufman Et Al

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Background

A study to explore the relationships among collaboration,technology, and innovation in small and medium-sizedmanufacturers (SMM)

Responses of 200 New Hampshire manufacturingcompanies in four SIC code industries [fabricated metals,industrial equipment, electrical and electronic equipment,and instruments)

Develop a strategic supplier typology to explain thedifferences in the composition and performance of varioustypes of suppliers


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Introduction

Literature on inter-firm cooperative relationships to understand

how firms sustain profits or quasi-rents.a. focus on industry characteristics - how an industry gains

bargaining power over suppliers and customers

b. focuses on how individual firms efficiently or inefficientlymanage their resource base

c. focus on innovation - engage in process and product innovationby managing their relationships with suppliers, customers, andother resource providers such as universities or governmentagencies.


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Supply-chain relationships being re-examined; scholars onceargued that a firm may either make a product or servicethemselves or buy it through the market

Now firms have a third alternative: structuring as long-termrelationships with suppliers which more closely resemble'partnerships' than market transactions by citing :

a. Japanese firms managing their supplier relationships as'quasi partnerships - Japanese variant-lean manufacturing

b. information technologies promoted flexible manufacturingsystems that substantially reduce transaction costs andallow managers to harness market efficiency


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The Study Refers to Clark and Fujimoto's (1991) study of auto manufacturers

- classify OEM suppliers by the auto industry's product

development process.

They observed that automotive OEMs divided purchasedcomponent parts (and their manufacturers) into three categories:black box parts, detail-controlled parts, and supplier proprietaryparts . This has three weaknesses:

a. it considers the supply as a single link between the OEM and asupplier;

b. it ignores the SMM as an active participant in the process;c. it provides a sparse taxonomy of SMM strategies rather than a

systematic typology.


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Taxonomy vs. typology

Methodological reviews of organizational classifications

A taxonomy uncovers patterns within a set of variablescreating interesting but theoretically unsupported clusters

or groups.

A typology begins with theory: it specifies combinations ofvariables for testing a priori generated conceptual types


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A. Transaction cost economics

Theoretical constructs for building a strategic supplier typology

and the decision to vertically integrate depends on the relativecosts that arise from the inability to make perfect decisions(bounded rationality) and from the uncertainty which ariseswhen the firm must trust a self-interested external agent

(opportunism). These costs increase when the firm frequently requires large

amounts of work for which specific assets are necessary

Transaction cost economics and the strategic managementliterature recognize numerous categories of uncertainty such asenvironmental, partnership, and task or specific capital assets,shared know-how, and complementary assets


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B. Transaction costs and vertical integration

OEMs compete in product markets on price, quality, and delivery times.

OEMs gain cost and quality advantages when found ways to continuouslyimprove quality and reduce costs, product cycle times and gain competitiveadvantage.

However, when activities do not fall within the firm's core competenciesmanagers must decide whether it is more economical to make or to buy

the parts. But the market does not function so well when :- parts are highly specialized and few suppliers have the skill to

manufacture them and

- the customer demands that these parts be continuously improved to

sustain competitive advantage. In these situations, hierarchy prevails because it allows for future decisions.

It allows managers and employees to innovate and to act as teams toredesign parts and subsystems and integrate systems in a 'relatively'spontaneous way


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Transaction cost economics and strategic outsourcing

Strategic outsourcing produces the efficiencies inherent in amarket division of labour.

First, OEMs regain the market pricing mechanism to calculatecosts. Vertical integration may reduce transaction costs but itcreates a long-standing problem: how to accurately measure

the costs of components produced in-house Second, strategic outsourcing reinvigorates a market division

of labor. OEMs can focus on those skills that distinguish themfrom competitors, while SMMs develop the know-how todesign and manufacture components and subsystems.

SMMs gain broad expertise when they serve a variety ofcustomers whether in the same industry or diverse industries.


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OEM strategic outsourcing and SMM opportunity

Opened new opportunities for suppliers willing to upgradetheir capabilities, strategic outsourcing becomes an effectivecompetitive tool;

Allows SMM managers to identify core competencies,outsource other activities, and use supply chainmanagement techniques to leverage their assets and know-how.


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CONCEPTUALIZING A STRATEGIC SUPPLIER TYPOLOGY

This typology divides along two dimensions: technology andcollaboration-dividing dimensions into high and low categories,authors create four distinct supplier strategies

Quadrant I defines firms that use standardized technologies andrelate to customers through standard market contracts.

Quadrant II contains firms that use standardized technologies(general assets and skills) to make parts which meet customerspecifications and delivery schedules.

Quadrant III describes firms that employ both advancedtechnologies and collaborative methods to promote innovationsin product design and manufacture

Quadrant IV includes firms that emphasize technology anddevelop weak relationships with customers.


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OPERATIONALIZING THE STRATEGIC SUPPLIER TYPOLOGY

The collaboration dimension ranges from spot market arm'slength transactions on the low end to long-term relationalcontracts.

Developed four hypotheses-suggest suppliers continuouslyupgrade their skills and assets to engage in relational-rentactivities:

H1: Problem solvers (PS) will be larger-have more employees and greater salesvolume-than suppliers using other strategies.

H2: PSs will be more profitable than suppliers using other strategies.

H3: PSs will have a higher percentage of their sales in exports than suppliers usingother strategies.

H 4: PSs will pay higher wages than suppliers using other strategies.


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The survey

Hypotheses tested through telephone survey of SMM presidents and CEOs

Telephone survey to gather data on 200 firms in the leading manufacturing industriesin New Hampshire (fabricated metals, industrial machinery and equipment, electricaland electronic equipment, and instruments) using the enhanced Quickview surveyinstrument. Only sampled firms with more than 10 employees. Response rate for oursurvey of nearly 50 percent

METHODOLOGY

Chose variables from the Quickview survey which measure the use of collaborationand technology. Selected 26 'candidate' variables from the survey data to representthe collaboration dimension and 22 candidate variables for the technology dimension.

Analyzed this data using correlation analysis, contingency table analysis (cross-tabulation), analysis of variance, and simple descriptive statistics. To interpret theunderlying multivariate relationship between the two dimensions of the typology,used maximum likelihood factor analysis.


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The Collaboration Factor

Analyzed the collaboration and technology variables to understand the underlyingmultivariate structure. Reduced to five factors that accounted for 52 percent of thevariance - represent different aspects of both internal and external collaboration.

1st factor - process for developing new products : firms communicate both internallybetween production and design personnel and externally with their customers onproduct and engineering design questions.

2nd factor - strategic vision : This factor combines variables that describe how well a

firm involves its employees in developing strategic plans and setting financial goals. 3 rd factor - customer/material supplier certification : firm relates to its primary

customer and material supplier, in the value chain customer long-term contracts andtarget pricing.

4th

factor - insufficient employee training: firms that score high on this factor areunlikely to have high values on the first three factors, reinforces the importance ofempowering employees through education/training in strategic management andquality practices, and developing collaborative supplier relationships.

5 th factor - equipment supplier certification: indicates that firms develop distinct

relationships with their equipment suppliers.


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Technology Factor

With technology variables, five new factors emerged :

1st factor - expert machine utilization - captures the importance of doing things right to

improve machine operations. 2nd factor- quality function deployment - identifies firms that design their own products

with the use of (CAD) and (CAE) and launches into production using complex planning/inventory control systems - firm's ability to do concurrent engineering

3rd

factor - process manufacturing know-how - procedures for operating equipment,specifically computer numerically controlled (CNC) machine tools. We call this factor

4 th factor - inexpert machine utilization.

5 th factor - advanced process technology management - information on the use ofadvanced manufacturing technology and procedures - programmable robotics,programmable controllers, and statistical process control

Together these five factors account for more than 55 percent of the variance. Overall,based on the strategic supplier typology matrix, they found the expected relationshipbetween collaboration and technology. A firm with the administrative skills to enter

partnerships was likely to have the know-how to manage advanced technology.


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Results

H1: Problem solvers (PS) will be larger-have more employees and greater salesvolume-than suppliers using other strategies (is supported)

As predicted, firms in the Problem Solvers (PS) quadrant :

have the largest number of employees,

have the most firms and the highest percentage of export sales of any quadrant,pay among the highest wages, andHave the highest relative gross margins.

Commodity suppliers, like PSs, can earn quasi-rents but 'the old-fashioned way,' bymanaging their input output process more efficiently than their competitors. Thissuggests for strategy researchers that quasi-rents can be made either by focusing on alow-cost strategy or by mastering collaborative and technology skills.

In general, PSs achieve their competitive advantage by developing genericcollaborative/ technological know-how. This advantage comes from the verticallinkages that PSs establish with their multiple OEM customers (learning externalities).

In this respect, global competition provides PSs with both opportunities andchallenges. The opportunities are clear: more profitable business which requires

organizational and individual skills which create competitive advantage.


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DISCUSSION AND CONCLUSION Global competitiveness has altered the relationship between OEMs and their

suppliers

Responded to Japanese lean manufacturing is by strategically outsourcingcomponent parts and services.

Extended the Clark and Fujimoto (1991) study on the automotive industry by

looking at a variety of different industries; and the paper develops a typologyrather than taxonomy.

The strategic supplier typology provides a clear picture of four supplier types.The most advanced and potentially most competitive are the problem-solvers.

If these occur with the greatest frequency as in our sample, strategicoutsourcing may be an important contributor to American manufacturing'srenewed gains in productivity growth


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Future Research

This cross-sectional study identifies four basic supplier types and elaboratesClark and Fujimoto's supplier taxonomy for the auto industry and uses basictheoretical concepts to extend their work beyond a particular industry.

However, while we have data on suppliers from various industries, the dataset itself remains limited by geography and time. Future research shouldexpand the data set across industries, geography, and time (economiccycles).

How OEMs might use the strategic supplier typology to subcontract differentkinds of work: one type of supplier may be less costly or more suitable than

another for a particular product or service.

With the rapid acceleration in privatization and the use of outsourcing in thegovernmental or public sector, the development of a strategic suppliertypology for this area would be a most appealing extension of the current

research.


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Thank You

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Collaboration and Technology Linkages a Strategic Supplier Kaufman Et Al