SC Adaption Flashcards
- What is the organisation theory (OT) perspective on supply chain adaptation?
• Why do firms need to adapt to the environment?
The modern perspective thinks of the environment as an objective entity outside an organizations boundary. Hence, the organisation depends on input and output of the environment. However, the organisation may also be able to influence the environment even though it is exogenous
• Environmental contingency theory
o Successful organisations match their internal structure to environmental characteristics (dynamics or stable)
• This is how SCM arose → you need to align you strategy with the environment in terms of uncertain vs. certain
o The environment impose certain demands on the organisation
o Firms try to reach an equilibrium but when a trigger hits they are forces to adapt
o Dictates the best form of an organisation to use:
• In stable environments the mechanistic (hierarchical) form of an organisation works best, because of the efficiencies it can generate using standard procedures to perform routine activities.
• The flexibility of organic forms of organisation is better adapted to a changing environment, because it supports needed innovation and adaption.
• → i.e. isomorphism: reflect your environment
o Environmental uncertainty as the key variable explaining why particular forms of organizations were successful. Environmental certainty is defined by the complexity in and the rate of change of the organisation environment. The problem with this theory was that it assumed that conditions in the environment were objectively real.
o The information theory of uncertainty argues that managers experience uncertainty in the environment when they lack the information they feel they need to make sound organisational decisions.
o The law of requisite variety state that for one system to deal effectively with another it must be of the same greater complexity
• Resource dependency theory
o Organisation depends on resources controlled by the environment
o The environment therefore has the power of the firm and can influence decision making
o Two principles of scarcity and criticality: are reasons to do it yourself
o The basic argument is that analysis of inter-organisational network can help an organisation’s managers understand the power/dependence relationships that exist between their organisation and other network actors.
o An organisation depends on its environment is the result of its need for resources such as:
• Raw materials
• Labour
• Capital
• Equipment
• Knowledge
• Outputs
• Population ecology
o Applies to the dynamics of natural selection from Darwin’s principles of evolution
o The environment of an organisation selects from a group of competitors those organisations that best serve its needs.
o The theory applies most readily to populations that are highly competitive and not all populations conform to this requirement.
• Assume that there is perfect competition i.e. competition is fair, but that is not the case
o How and why some organizations survive:
• Variation: entrepreneurial innovation and provides diversity to the selection process.
• Selection: view economic competition as form of natural selection.
• Retention resources are continuously fed to the organization, thus achieving and maintaining fitness equals organizational survival in the short run
• Operation at the level of the environment: Organizations within an ecological niche are competitively interdepend and compete for survival
• Institutional theory
o To survive and thrive firms need legitimacy and creditability → this is acceptance of rules and norms
o Organisation adapt to the value of the internal groups and external society
o Organisations are institutionalised by their environmental context:
• Pressure – Coercive (regulative dimension of institution e.g. policies and laws – conformance), normative (normative dimension of institutions e.g. beliefs and moral – adaption) and mimetic (cognitive dimension of institutions e.g. best in class principles i.e. trait based – imitation)
o Social legitimacy – institutional environments reward organisation for adopting acceptable practices, and structures. Without this acceptance, organisations can be driven out of business.
• I.e. social legitimacy should be considered as an input to the organisational transformation process along with other resources upon which this process depends.
o Three institutional mechanisms support repeated action: coercive (rules and regulations), normative (cultural expectations) and mimetic (gaining legitimacy by looking successful)
o → The most important implication for organisations is that conforming to institutionalised expectations wins social support and ensures legitimacy.
- What is the OT perspective on globalisation, global supply chains and management?
• What are global supply chains?
• What do global supply chains need to adapt?
• Why do global supply chains need to adapt
Miller (1992) categorize uncertainties and outlines risk management responses:
• General environmental uncertainties are factors that affect the business context across industries.
• Different types of general environmental uncertainties “factors that affect the business context across industries”:
o Policy
o Government policy
o Macroeconomic uncertainties
o Social uncertainty
o Natural uncertainty
• Industry uncertainty
o Input market uncertainties
o Product market uncertainties
o Competitive uncertainty
• Firm uncertainties
o Operating
o Liability – harmful effects due to production or consumption of the firms products
o R&D
o Credit
o Behavioural
o Both strategic responses and financial tactics must be incorporated
• Financial: reduce corporate exposure to particular risks e.g. insurance or by buying or selling financial instruments such as forwards, futures, swap and options.
• Strategic: generally impact the firm’s exposure across a wide range of environmental uncertainties. There is five generic responses:
• Avoidance
• Control
o M&A
o Long-term contracts
o Alliances of JV
o Franchising, licensing and subcontracting
o Imitation of products and process technologies
o Follow other firms and move into new markets
o Diversification
o Operational flexibility
Miller argue that it is important to be aware of trade-off between the exposures and by responding/reducing one dimension it might increase exposure to another
o Ideally a firm could as a part of the strategic planning process develop a comprehensive uncertainty profile encompassing each of the uncertainty dimensions
Manuj and Mentzer:
• Provided a comprehensive risk management and mitigation model for global SC of how to identify, assess and manage risk in global SC
• Types of risks:
o Supply risk
• Reside in the course of movement of materials from supplier’s suppliers to the focal firm
• E.g. reliability of suppliers i.e. moral hazard, adverse selection, or agency problems
• Make or buy decision
• Single vs. multiple sourcing
o Operational risks
• The possibility of an event associated with the focal firm that may affect the firm’s internal ability to produce goods and service, quality and timeliness of production and or the profitability of the company
• E.g. breakdown
o Demand risks
• The possibility of an event associated with outbound flows that may affect the likelihood of customers placing order with the focal firm and or variance in the volume and assortment desired by the customers
• E.g. variation in demand or chaos in the system creating the bullwhip effect
o Security risks
• A threat from an unknown third party who may or may not be a member of the SC and whose motivation is to steal proprietary data or knowledge and/or destroy/upset or disable a firm’s operations
• E.g. hackers or individual leaking vital information
o Macro risk
• Economic shift in wages, interest rates, prices, and exchange rates.
o Political risk
• Actions of national governments like quota restriction or sanctions
o Resource risk
• Unanticipated resources requirements
o Competitive risk
• Lack of information about competitor’s activities and moves
o →The first four are specifically associated with SC as they disrupt the operations of matching supply and demand
• Five steps in risk management:
o 1. Identify SC risks
o 2. Evaluate and access risk
• Holistic vs. atomistic
• Quantitative or qualitative
• Domestic vs. global
o 3. Select appropriate risk management
• Strategies may be chosen based on the quadrant of which the SC lies i.e. supply and demand uncertainty:
• Proposed strategies:
• Postponement
o Delaying the actual commitment of resources to maintain flexibility and delay the incurring of costs
• Hedging
o Insurance
o Global dispersed portfolio of suppliers, customers, facilities such that a single event does not affect all the entities at the same time and/or with the same magnitude
• Control
o Vertical integration
o Flexible contracts that account for environmental change
o Contracts with suppliers based in host country but manufacturing in low-cost countries
• Sharing and transferring
o Outsourcing, offshoring and contracting
o M&A
• Avoidance
o When something is considered unacceptable
• Divestment
• Delay of market entry
• Security
o E.g. sensors in shipments
• Speculation
o Decisions are made on anticipated demand
o 4. Implementation of risk management strategy (for expected events)
• KPIs, Information Systems (filter data for the most important information) or organisational learning (communication and ongoing dialogue, seek feedback, and questioning)
• Reduce complexity is the key activity in strategy implementation
• Complexity can be managed by making the SC more flexible
o Flexibility is the ability to change or react with little penalty in time, effort, and cost of performance
o Mitigation of SC risks (for unexpected events)
• Prepare for unforeseen events
- Is the OT perspective:
• Correct: “Is it necessary to adapt”?
• Comprehensive: “Is adaptation the only perspective explaining global supply chain management”?
Darkow:
• Multinational firms operating in foreign markets have to be aware of the constraints set by local institutions and they adapt to the local environment in terms of resources and capabilities
• His research analyses the above from the LSPs perspective in the Russian market
o The more complex offered service, the higher need for adaption to local environmental factors
When can we be sure? It is how you as a firm perceive risk and uncertainty!
• Refer to the lecture of environmental scanning
Darkow:
• Multinational firms operating in foreign markets have to be aware of the constraints set by local institutions and they adapt to the local environment in terms of resources and capabilities
• His research analyses the above from the LSPs perspective in the Russian market
o The more complex offered service, the higher need for adaption to local environmental factors
When can we be sure? It is how you as a firm perceive risk and uncertainty!
• Refer to the lecture of environmental scanning
Darkow – Case study of Logistic Service Providers in Russia
• Institutional environments affect logistic service providers and they need to adapt in terms of resources and capabilities
• Resource based view
o A firms resources include all tangible and intangible factors that the firm own or control such as human capital, physical capital or organisational capital, which enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness → need to be value creating
• Capabilities
o A firm’s capacity to deploy a combination of resources using organisational process to achieve desired outcome
• Being flexible, reliable, relationship building, information integration etc.
• Dynamic capabilities
o Require continual re-examination and redeployment of resources that reflect the changing conditions of the market
o The firm’s ability to integrate, build and reconfigure internal and external capabilities to address rapidly changing environment
• Institutional environment
o Informal and formal institutions facilitate the rules in the business environment.
o Their existence encourages and sets constraints on certain behaviours, affecting individuals, firms and entire industries accordingly.
o Institutional frameworks affects complexity, uncertainty and reliability in international SCs
o Host market macro institutional environment:
• Social system
• Socialist heritage
• Given the effect of the former Soviet social system on service attitudes and staff loyalty in Russia, firms developed specific HR resources: recruiting, training and retaining employees and in knowledge management
• High value of relationships
• Market liberalization
• Governance and control of factor and product markets
• Access limited within particular market segments
• Uncertain legal framework imposes restrictions on market liberalisation
• Does not support governance of complex outsourcing arrangements
• Political system
• Uncertain legal and regulatory framework
• Foreign LPS can generate new capabilities that enable alternative key service offerings are based on resource combinations grounded in the Russian institutional context and relative competitive advantage in the Russian market by utilizing resources originally acquired to comply with legal requirements
• Regional differences
• Strong centralisation in Russia
• Relational resources instead of physical
• Collaboration with domestic companies
• Investment in large centralised facilities
• → Link between the institutional environment and resources and capabilities of a firm
- What do firms need to adapt to?
* What are the different layers and sectors of environments?
Firms need to adapt to different layers of the environment.
The modern organisation theorists define and analyse organization-environment relations at the 3 levels:
• Inter-organisational networks, stakeholders and SCs
o Meaning that every organisation interacts with other actors of its environment.
o These other actors forming the environment are the stakeholders
o This relationship among an organisation and its stakeholders are called the inter-organisational network
o The concentration of links across the entire network reveals network density the absence of links in an area of the network pinpoints called structural hole
o A popular application of the inter-organisational network is the SC
• Conditions and trends in the environment of an organisation
o In order to analyse organisation environment relations, we need to subdivide the environment into sectors and their contribution of complexity and change:
• Politics e.g. global governance institutions such as UN, WHO
• Economy e.g. global capital market
• Social e.g. social media
• Technology e.g. internet
• Legal e.g. breakdown of authority
• Culture e.g. poplar culture such as slang, fashion, brands, tourism etc.
• Physical e.g. population growth or climate change
• Internationalisation, regionalisation and globalisation
o When firms start interacting cross borders, internationalisation generates new levels of environmental complexity with consequences for the organisational level. → you extend the environment
o Regionalisation occurs alongside internationalisation when governments sponsor programs and legalisation such as NAFTHA and the EU
o Globalisation typically refers to the exchanges and relationships established between organisations and their networks that render existing borders and boundaries between them permeable or irrelevant.
• This is recognising the new level of complexity and interdependency among organisations, their networks, the environmental conditions and trends leading to globalisation
Four main theories with modern perspective: • Environmental contingency theory • Resource dependency theory • Population ecology o Institutional theory
