1. Supply Chain Design
Thomas Y. Choi Bebbling Professor in Business Professor of Supply Chain Management W. P. Carey School of Business Arizona State University Prepared for Laurier Center for Supply Chain Management Wilfrid Laurier University October 2007

2. Overview Supply Chain As Complex Adaptive System
Snap Shot of Supply Networks
Supply Base As Visible Portion of SN
Basic Relational Units
Buyer-Supplier Dyads
Supplier-Supplier Dyads
Buyer-Supplier-Supplier Triads

3. (A manager from a leading automaker)
“A few years ago, our engineers mapped a supply chain of a small assembly [by] tracing it all the way back to the mine. From that exercise, we demonstrated the benefits of supply chain management, and we set out to manage the supply chain as a system. Frankly, we have not been able to do it. The problem was, as soon as we came up with a strategy for managing the chain, the chain changed on us—we got new suppliers and new relationship configurations. It took a lot of effort to map one supply chain, and we could not possibly map it every time something changed.”
(A manager from a leading automaker)

4. Initial Observations
Supply chains or networks were there before we tried to manage them.
No one company can possibly orchestrate the whole supply networks.
Supply networks are a self-organizing and emergent system.
CAS is a system that emerges over time into a coherent form, and adapts and organizes itself without any singular entity deliberately managing its totality.

5. Supply Network as Complex Adaptive System
Co-Evolution
How the internal mechanisms and the
environment interact and evolve together
Internal Mechanisms
Environment
How a system operates
Dynamics outside a system

6. Key Lessons: Control and Emergence
Deterministic approach
Reduction of dimensionality
Deviation correcting mode
Proactive
Emergence
Wholistic approach
Increasing dimensionality
Deviation amplifying mode
Reactive/Adaptive

7. What might a supply network look like
in the real world?

8. First Attempt at an Empirical Study
The goal was to map the complete supply network and to study the structure therein—what’s controlled and what emerges?
Honda Accord, Acura CL/TL, and Chrysler Grand Cherokee
Data collection done over three years
Funded by the National Science Foundation

9. Supply Chain Mapping
Select focus of the study—the center console assembly
BOM’s and identification of suppliers
From final assembler
From top-tier supplier
Reconciliation of differences
Interviews with select second- and third-tier suppliers

10. Accord’s SN

11. Acura CL/TL’s SN

12. Grand Cherokee’s SN

13. Comparison of Honda and Chrysler
Manages more suppliers in second- and third-tiers
Supply network more complex
Expends more corporate resources
Takes less risk in supply chain stability
Chrysler
Manages less suppliers in tertiary level
Supply network less complex
Spends less corporate resources on supplier management
Takes more risk in supply chain stability

14. What would you call the suppliers
that are being "controlled" by the focal company?

15. Supply Base
A group of suppliers within the reach of the “visible hand” of the focal company
The portion of the supply network within the purview of the focal company
Suppliers actively managed by the focal company
Not all suppliers in the supply base are top-tier suppliers.

16. Focal Company and Its Supply Base
The Focal Company
Supply Base

17. And Beyond…. Story of a man looking for his key….
Story of Toyota and its Phoenix supplier…

18. Supply Base Management
Number of Suppliers
Number of current suppliers with enduring business relations
Differentiation of Suppliers
Degree of different characteristics among suppliers (e.g., culture, operating practices, etc.)
Links among Suppliers
Supplier-supplier relationships

19. Supply Base Management and Performance Implications
Transaction
cost +
Supply base management
Supply
risk 
Number of Suppliers
Differentiations
Inter-Relationships -
Supplier responsiveness 
Supplier
innovation

20. What might be the basic relational
building blocks within a supply base?

21. Basic Building Blocks Buyer-Supplier Dyads Supplier-Supplier Dyads
Buyer-Supplier-Supplier Triads

22. Buyer-Supplier Dyads Competitive Cooperative Deep Adversarial
New Adversarial
Cooperative
Information and resource sharing
Common goals
Deep
Understanding
Tough love

23. Supplier-Supplier Dyads
Competitive
Cooperative
Co-Opetitive

24. Competitive Supplier-Supplier Dyads: From the Buyer’s Perspective
Pros
Maintaining leverage power
Control of information exchange between suppliers
Cons
Lack of supplier synergy
High administrative and transaction cost

25. Cooperative Supplier-Supplier Dyads: From the Buyer’s Perspective
Pros
Information and knowledge sharing
Capacity flexibility
Cons
Potential for supplier collusion
Forward integration by suppliers

26. Co-Opetitive Supplier-Supplier Dyads: From the Buyer’s Perspective
Pros
Opportunity to gain advantage of both competitive and cooperative relationships
Low supplier switching cost
Cons
Relationship uncertainty
Risk of suppliers’ opportunistic behaviors

27. What do we get if we put buyer-supplier
and supplier-supplier dyads together?

28. Triads The “Real” Fundamental Building Block
Three States of Buyer-Supplier-Supplier Triads
Balanced States
Unbalanced States
Structural Hole States

29. Balanced States and Unbalanced States
All positive relationships
One positive and two negative relationships
Unbalanced States
All negative relationships
Two positive and one negative relationships

30. Balanced States and Unbalanced States
Buyer + S2 S1
Balanced State 1 S1 S2 - +
Buyer
Balanced State 2 S2 S1 + -
Buyer
Balanced State 3 + - S2 S1
Buyer
Unbalanced State 1 S2 S1 + -
Buyer
Unbalanced State 2 S2 S1 -
Buyer
Unbalanced State 3

31. Future Research
Control and emergence—supplier-supplier relationship as the interface between control and emergence; positive feedback or deviation amplifying loop
Other triads beyond B-S-S triads such as B-S-B’s customer or B-B-S
Tetrads
B-S relationship as embedded in larger network
Triads in service outsourcing—Bridge transfer and bridge decay
Social network analysis of Supply Networks
Simulation of supply base as CAS using cellular automata
Econometric studies of CAS using archival data

32. Questions?

33. Thank you!

34. The presentation slides have been built based on following published/unpublished articles
“Supply Networks and Complex Adaptive Systems: Control Versus Emergence,” Journal of Operations Management 19 (2001) , Thomas Choi, Kevin Dooley, and Manus Rungtusanatham
“Unveiling the Structure of Supply Networks: Case Studies in Honda, Acura, and DaimlerChrysler,” Journal of Operations Management 20 (2002) , Thomas Choi and Yunsook Hong
“Supplier-Supplier Relationships and Their Implications on Buyer-Supplier Relationships,” IEEE Transactions on Engineering Management, 49, 2, May (2002), Thomas Choi, Zhaohui Wu, Lisa Ellram, and Balaji Koka
“Building Deep Supplier Relationships,” Harvard Business Review December (2004), Jeffrey Liker and Thomas Choi (Reprint R0412G)
“Supplier-Supplier Relationships in the Buyer-Supplier Triad: Building Theories from Eight Case Studies,” Journal of Operations Management 24 (2005) 27-52, Zhaohui Wu and Thomas Choi
“On the Dark Side of Strategic Sourcing: Experiences from the Aerospace Industry,” Academy of Management Executive, (2005) 19, 1, Christian Rossetti and Thomas Choi
“The Supply Base and Its Complexity: Implications for Transaction Costs, Risks, Responsiveness, and Innovation,” Journal of Operations Management 24 (2006) , Thomas Choi and Daniel Krause
“Triads in Supply Networks: Interpretation through Balance Theory and Structural-Hole Concept,” Under review, Thomas Choi and Zhaohui Wu