Servitization Alberto de la Calle

Authors: Alberto de la Calle

Arantza Múgica

Supply chain integration as a dynamic

capability for servitization: empirical evidences

from the Basque Country manufacturing

companies

3rd International Conference on Business Servitization

Bilbao, 13th-14th November, 2014

1. Introduction and Objectives: SC integration and Servitization

2. An integrated value framework & Research model

3. Research Methodology

4. Results

5. Conclusions & Future research

2 3rd International Conference on Business Servitization Bilbao, 13th-14th November, 2014





4. Results


In order to remain competitive, companies usually changes their value offered due to the instability and uncertainty of internal and external factors: Scarce resources, core competences (internal) Industry clock-speed, economic situation (external)

Change in the paradigm of value propositions.

From a value offer centered in product to the service-dominant logic.

Price Quality

Availability Functionalities

Before

Design customization Product innovation

Maintenance Customer responsiveness

Nowadays

In addition to traditional value propositions

1. Introduction and Objectives


Organizations continuous search the manner to increase the value

offered coordinating up and downstream value chain.

However:

• Companies still view the collaboration with customers and suppliers as

a role in reducing costs and sustain revenues. (Eight Annual Global

Survey of Supply Chain progress, 2010)

It is time to:

• Understand how the entire value chain respond to customer

expectations from an holistic value perspective

• Align value proposition and supply chain strategies towards customer

satisfaction




6

IFunctionalenterprise

IIBusiness

excellence

IIIInter-

enterprisecollaboration

IVValue chainintegration

VNetwork

Collaboration

Segmented

company

Intra-enterprise

integration

Inter-enteprise

collaboration

Activities

integration

Network system

Need to overcome the

barrierIntegration

degree

Adapted from CSC, 2006

3rd International Conference on Business Servitization Bilbao, 13th-14th November, 2014


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Objectives of this research paper

To understand the supply chain as an integrated value chain (product + service value)

We propose an integrated value framework from the value chain perspective.

To measure the impact of SC integration into Servitization and Business performance

We propose a research model and hypothesis



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SC integration & Servitization


Servitization is defined by Vandermerwe and Rada (1988) as a process of

value creation through fuller market packages or “bundles” of customer-

focused combinations of goods, services, support, self-service and

knowledge.

Value creation parameters exceed an isolated company’s responsibilities.

• SC becomes an interesting framework to analyse servitization.

SC integration could be a first step for changing the business models, to a

service dominant logic.





4. Results




Demand Creation

Demand Fulfillment

Customer Focal company Suppliers End customers

Value creation

Value delivery

Value measured

Demand Performance

To understand, create and stimulate the demand

To fulfill customer demand

Strategic fit: Alignment between value creation and

delivery


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Demand Creation

Demand Fulfillment


Value creation

Value delivery

Value measured

Demand Performance • Value chain strategy (alignment) • Value chain performance (measurement)

• Market intelligence

• Purchase • Manufacturing • Delivery • Return


So, this framework makes explicit the responsibility of the whole chain to satisfy customer needs.


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Demand Fulfillment


Value creation

Value delivery

Value measured

Demand Creation

SUPPLIER

INTEGRATION CUSTOMER

INTEGRATION

INTERNAL

INTEGRATION

Value creation

Value delivery




Customer integration

Internal integration

Supplier integration

Supply chain integration

Market intelligence Customer service

Servitization

Business performance

Economic performance

Social performance

H3

H1 H2

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4. Results



3. Research methodology

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ADVISORY GROUP

• 4 Academics

• 6 Practitioners

– 5 managers of manufacturing companies

– 1 consultant

FIELD RESEARCH

Questionnaire design


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In our company we have a high level of responsiveness within our plant to meet other department’s needs

In our company we have an integrated system across functional areas that allows the collection and quick

access to accurate information by all departments

Within our plant, we emphasize on information flows among purchasing, inventory management, sales and

distribution departments

Within our plant, we emphasize on physical flows among production, packing, warehousing and transportation

departments

Company managers promote collaboration between departments as a way to improve organizational

performance

We have a high level of information sharing about market information

We closely follow the comments and opinions of our main customers

We share information with our main customers through information technologies

Our customers provide us with information about their demand forecast key to our production planning

We involved our customers in our product development processes

We share relevant information (technical, production plan, demand forecast) with our main suppliers through

information technologies

We have a high degree of strategic partnership with suppliers

We have a high degree of joint planning to obtain rapid response ordering process (inbound) with suppliers

Our suppliers provide information to us about their production planning

We involved our suppliers in our product development processes


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Market intelligence

Customer service

Capability for being update with market knowledge

Capability for developing our brand

Capability for using new technologies and knowledge

Capability for marketing and sales innovation

Capability of the production system for being flexible

Capability for reducing customer order response time

Capability for delivering correct quantity with the right kind of products on time


Social performance

Market share

Growth of market share

Success and consolidation of the new launched products

Return on Assets

Employment stability

Global customer satisfaction

Global employees satisfaction

Prestige of the brand in the society

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The study is focused on manufacturing firms of the Basque Country (Spain).

GDP (2013): 62,780 million euro • 6,1% of the Spanish GDP

Inhabitants (Jan_2013): 2,190,230 • 4,6% of the Spanish population

It is the third most industrialized Spanish region

• 21,1% of the GDP was generated by manufacturing industry in 2013. (Spanish average: 12,2%)

Data from the Spanish Statistical Office (1st estimation for 2013)


Sampling and data collection


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The questionnaire could be filled out and collected by interviews, web or via fax. 111 usable responses were received:

• 60% of the respondents used the web-survey • 40% of the responses were through in depth interviews.


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The same questionnaire was sent to different links of the supply chain.

-OEM- Original

Equipment Manufacturer

-Tier 1- -Tier 2- -Tier 3-4- -Distributors- -Point of Sale-

-Users-

-Raw

Mat

eri

al p

rovi

der

-


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14

30

2 1 5

1 1 2

51

3 1 0

10

20

30

40

50

60

By company size (number of employees) By sector

By position in the Supply chain

Nº of employees

Total

Industry sector

Po

sit

ion

in

th

e s

up

ply

ch

ain

<10 10-50 50-250 >250 Aero Auto Metal Other

OEM 0 10 16 13 39 0 1 27 11

Tier 1 1 4 12 8 25 5 12 6 2

Tier 2 4 11 13 4 32 5 16 9 2

Tier 3-4 4 6 0 0 10 3 0 7 0

RWsupp 0 0 2 3 5 1 1 2 1

Total 9 31 43 28 111 14 30 51 16

0

10

20

30

40

50

<10 10-50 50-250 >250

0

10

20

30

40

50

OEM Tier 1 Tier 2 Tier 3-4 RWsupp


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Structural equation modeling

using Partial Least Squares method

Measurement model Structural model

To assess reliability and validity of the constructs

• Individual item reliability (Factor loading,

Construct item total correlation,

exploratory factor analysis to check

unidimensionality)

• Construct reliability (Composite reliability)

• Convergent validity

• Discriminant validity

To assess validity and predictive power

• Bootstrapping techniques (significance

level of relationships)

• Stone-Geiser test (predictive power)


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Structural equation modeling

using Partial Least Squares method

Content validity

Reliability

Convergent validity

Discriminant validity

Literature review, Advisory group

Factor loading (>0.7): One item is removed, the

rest: OK. Corrected item-total correlation (>0.35)

and Exploratory factor analysis for checking

unidimensionality. Composite reliability has also

been checked (>0.8)

Average variance extracted (AVE) (>0.5)

Square root of the AVE is the highest value

compared with the correlation values between

each construct with the others.






4. Results


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4. Results

0.245**

0.502*** R2=0.45**






Servitization



Social performance

H3

H1 H2

R2=0.34**

0.588***

***p<0.001, **p<0.01, *p<0.05 (T-student with 499 degrees of freedom and one-tail: t(0.001;499)= 3.107; t(0.01;499)=

2.334; t(0.05;499)= 1.282


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4. Results

1. In the aggregate model all the relationships are significant.

It means that:

• SC integration is positive and significantly related to Servitization and Business performance.

• Servitization clearly contributes to improve Business performance.

2. Servitization construct mediates (partially) the effect of SC integration

into Business performance.


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4. Results

R2=0.46






Servitization



Social performance

R2=0.26 R2=0.21


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4. Results

1. Both Customer and Supplier integration have a positive and significant impact into market intelligence, but not internal integration.

• External integration increase demand creation capabilities • The relationship between internal integration and market intelligence

may be influenced by the product physical flow orientation of some of the internal integration items.

2. Supplier and Internal integration are positively related to customer

service. • Internal integration relationships is stronger than the supplier’s

3. Both market intelligence and customer service are positively related to Business performance.

• Market intelligence relationship weight is double the customer service relationship weight.

4. Supplier integration has a positive relationship to Business performance.






4. Results


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1. The model shows the relationships between Supply chain integration dimensions and companies' capabilities for developing competitive advantages in demand creation and fulfillment (product and service attractiveness).

2. Internal and supplier integration are clearly oriented to service efficiency. External integration is extremely important to increase demand creation capabilities.

3. Companies should take into account SCI as a dynamic capability as a first step for servitize their value propositions.

4. Results are interesting for the competitive strategy research. They contribute to the field of knowledge of supply chain management through an empirical study

Suggestions for Future Research • To analyse the interactions between the supply chain integration dimensions • To include control variables (company size, position in the SC...) • To study the Demand performance chain.


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Thank you very much for your attention

Comments/ Questions?


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Servitization Alberto de la Calle