In a recently published paper, my co-authors and I examine how much control should a focal firm exert on the suppliers within its supply network. Control over suppliers is a core issue for a buying firm. Despite the amount of research on the topic, how much of its supply network (i.e., scope of control) a buying firm should control, so as to increase supply network performance, is a question that has not received adequate research attention. The study addresses this research question by considering the supply network as a complex adaptive system and developing an empirically informed agent-based simulation model using the NK fitness landscape framework, to examine how varying levels of scope of control influence supply network performance. We also investigate the direct effect of two supply network complexity dimensions (i.e., number of firms and level of supply interactions) on supply network performance and the moderating effect played by the scope of control. Results show that the relationship between scope of control and supply network performance follows an inverted-U shape. Furthermore, we find that the complexity dimensions negatively affect supply network performance with the performance decrease depending on the scope of control. Based on these findings, we formulate different control strategies to mitigate the negative influence of complexity.
Our main finding is that a moderate scope of control results in higher SN performance than when the scope of control is either too high or too low. Controlling a right number of suppliers improves coordination and helps in aligning the conflicting goals of supply chain partners, while with no control, coordinated activities become difficult and performance suffers. At the same time, controlling a large number of suppliers may deteriorate SN performance because it constraints the ability of the SN to adapt. Therefore, focal firms should consider allowing some level of autonomy so as to improve the efficacy of adaptation of their SNs.
Our study also found that the scope of formal control influences the negative effect of complexity on SN performance. In the case of complexity due to high level of supply interactions, if the scope of control is high (low), SN performance suffers less (more). This also suggests that in networks that are highly interconnected, the focal firm should guide its suppliers toward a coherent direction by means of control. As to the negative effect of the number of firms on SN performance, we found that the higher the scope of control, the higher the negative influence on SN performance. This suggests that when SN complexity is associated with a higher number of firms, less control is beneficial. Our results suggest two different strategies to mitigate the negative influence of complexity. If the source of complexity is the level of supply interactions, more scope of control is needed; if the complexity is due to the number of firms, less scope of control should be applied.We were able to establish the validity of our results by exploring the boundary conditions.
To pursue our research aims, we use a simulation-based approach to model supply network and develop an NK simulation model that is based on empirical data that we collected from Honda. In particular, the network data of the Accord’s center console are used to calibrate the NK model parameters and build the baseline model using real values concerning the critical variables of this study (i.e., the number of firms, number of supply interactions among firms, relative power of the focal company vis-`a-vis suppliers in the network, and level of formal control exerted on upstream suppliers). Our interactions with Honda managers during the empirical data collection revealed that Honda exerts control on its supply base with the help of its first-tier suppliers. Hence, in this study, we conceptualize the notion of scope of control to include formal control exerted by either the focal firm (i.e., Honda) or its first-tier suppliers. Complexity is associated with the number of firms and the level of interconnections in the SN.