Development of theoretical and measurement models of supply chain complexity

Transcription

1 Development of theoretical and measurement models of supply chain complexity Created in SS 2015 Masters degree programme Supply Chain Management (SCM) University of Applied Sciences Upper Austria - Campus Steyr Master Thesis Towards the academic degree of Master of Arts in Business (MA) Submitted by Patrick Freinberger, BA Submitted to: Ila Manuj, PhD Steyr, on August, 26, 2015

2 Acknowledgements II Acknowledgements I would like to express my gratitude to my supervisor Ila Manuj, PhD for her time and effort and for her useful comments, remarks and engagements through the learning process of this master thesis. I owe a special thank to her, for helping and supporting me with her expertise, support, and encouragement. I am also grateful to Dr. Markus Gerschberger, supply chain management professor at the University of Applied Sciences, for giving me opportunities and guided me along the way to become a better researcher and student. I would also like to thank my family and friends for supporting me through the last two years. I am especially appreciative of my mother, Gertrude Freinberger, and my father, Franz Freinberger. With their unconditional and ongoing support it is possible to follow my dreams.

3 Table of Contents III Table of Contents ACKNOWLEDGEMENTS... II TABLE OF CONTENTS... III ABSTRACT... VI 1 INTRODUCTION Problem Definition Goal of the thesis Structure of this Thesis DEVELOPMENT OF A CONCEPTUAL MODEL OF OBJECTIVE AND EFFECTIVE SUPPLY CHAIN COMPLEXITY Definition of supply chain Definition of supply chain management Goals of supply chain management System complexity Supply chain complexity Components of objective supply chain complexity Relationship between objective supply chain complexity and effective supply chain complexity Strategies for supply chain complexity management Outcomes of supply chain complexity Summary A THEORETICAL AND MEASUREMENT MODEL OF SUPPLY CHAIN COMPLEXITY Supply chain complexity Methodology Content and face validity Summary CONTRIBUTION, RESEARCH LIMITATIONS, AND FUTURE RESEARCH LIST OF REFERENCES CURRICULUM VITAE DECLARATION... 85

4 Table of Figures IV Table of Figures Figure 1: Thesis structure Figure 2: Direct supply chain Figure 3: Extended supply chain Figure 4: Ultimate supply chain Figure 5: Elements in the Framework of Supply Chain Management Figure 6: Components of objective supply chain complexity Figure 7: Strategies for managing supply chain complexity by Kaluza et al Figure 8: Strategy for managing supply chain complexity by Serdarasan Figure 9: A theoretical model of supply chain complexity... 54

5 List of Tables V List of Tables Table 1: Definitions of supply chain management Table 2: Upstream complexity antecedents Table 3: Types of supply chain complexity antecedents Table 4: Definitions of supply chain complexity Table 5: Strategies to cope with complexity Table 6: Outcomes of supply chain complexity Table 7: Impact of supply chain complexity on performance Table 8: Survey items for objective supply chain complexity Table 9: Survey items for effective supply chain complexity Table 10: Survey items for supply chain integration Table 11: Survey items for human cognitive abilities Table 12: Survey items for firm performance Table 13: Survey item for perfect order index (POI) Table 14: Survey items for supply chain flexibility Table 15: Control variables... 66

6 Abstract VI Abstract Purpose The objective of this thesis is to develop a comprehensive, conceptual model of supply chain complexity, incorporating objective supply chain complexity, effective supply chain complexity, antecedents, strategies, and outcomes to get an understanding of supply chain complexity and the relationships between these constructs. Furthermore a theoretical and measurement model of objective supply chain complexity, effective supply chain complexity, strategies, and outcomes are provided. Design/methodology/approach An extensive literature review was conducted to develop a comprehensive, conceptual model and propositions related to antecedents, strategies, and outcomes of supply chain complexity. In addition a survey comprising of measurement scales for each construct of the theoretical model was developed and content and face validity of survey items were ensured. Findings A clear differentiation between objective supply chain complexity and effective supply chain complexity is provided. In addition the conceptual model provides an overview of antecedents, strategies, and outcomes of supply chain complexity. Derived from the conceptual model a theoretical model was developed of objective supply chain complexity, effective supply chain complexity, moderators (supply chain integration and human cognitive abilities), and outcomes (firm performance, perfect order index, supply chain flexibility). The thesis also provides hypothesis of the relationship between the constructs of the theoretical model. The thesis also provides measurement scales for each construct of the theoretical model. Research limitations/implications This thesis has several theoretical (comprehensive, conceptual model) and managerial contributions (measurement scales to assess potential outcomes and strategies for managing supply chain complexity). Research limitations are: measurement model has not been tested empirically, only two complexity moderators, and only three outcomes are incorporated.

7 Introduction 7 1 Introduction In today s business environment successful supply chain management is a source of competitive advantage for companies. Supply chain management can be defined as the upstream and downstream flow of products and/or services, along with the related finances and information. 123 The goal of supply chain management is the systematic and strategic coordination of these flows within and across companies to reduce costs, improve customer satisfaction and gain competitive advantage for the independent company and the supply chain as a whole. 456 The dynamic, multi-functional, and global nature of supply chains is resulting in shorter product life cycles, higher product variety, increasing customization levels, and more demanding customers. Additionally supply chain partners (upstream and downstream) are becoming more geographically dispersed. 78 As a result the number and variety of interactions among the products, processes, and relationships increase, which consequentially leads to more complex supply chains. 9 In most simple terms, it may be argued that supply chain complexity can be determined by numerousness of elements and the interactions between these elements within a given system. 10 The elements are the structural properties of the supply chain (e.g. the number of participants, facilities, products, transportation links, information flows, etc.). 11 The example below illustrates this argument: Manufacturers seeking to exploit global markets, supply chain opportunities are hitting an invisible but nonetheless debilitating wall: mounting complexity across the value chain. And it is bound to get worse as manufacturers continue to globalize and accelerate new product introductions to spur growth. As a result, the task of coordinating product engineering, sourcing, manufacturing, logistics, and marketing and sales activities that are more and more scattered around the world and supporting an increasing number of new products is growing ever more difficult See Beamon, See Lambert et al., See Mentzer et al., See Cooper/Ellram, See Cooper et al., See Mentzer et al., See Manuj/Sahin, See Mentzer et al., See Manuj/Sahin, See Choi/Krause, See Manuj/Sahin, See Deloitte, 2003.

8 Introduction 8 Say we get an order from a European retailer to produce 10, 000 garments. It s not a simple matter of our Korean office sourcing Korean products or our Indonesian office sourcing Indonesian products. For this customer we might decide to buy yarn from a Korean producer but have it woven and dyed in Taiwan. So we pick the yarn and ship it to Taiwan. The Japanese have the best zippers and buttons, but they manufacture them mostly in China. Okay, so we go to YKK, a big Japanese zipper manufacturer, and we order the right zippers from their Chinese Li & Fung produces a truly global product by pulling apart the manufacturing value chain and optimizing each step. Today it has 35 offices in 20 countries, but its global reach is expanding rapidly. In 1997, it had revenue of approximately $1.7 billion. Then we determine that, because of quotas and labor conditions, the best place to make the garments is Thailand. So we ship everything there. And because the customer needs quick delivery, we may divide the order across five factories in Thailand. Effectively, we are customizing the value chain to best meet the customer s needs. 13 Cisco Systems growth was achieved through an outsourcing strategy that dramatically increased its interdependencies and the level of complexity in the supply chain. 14 Apparently today s supply chains are highly complex and it s expected that the complexity will increase over the next decade. 15 Given the higher number of elements and interconnections of elements within a supply chain system and the fact that supply chain management is seen as a competitive advantage for companies, it can be conjectured that supply chain complexity was/is a key area of managerial consideration - in the past, present, and future business environment Problem Definition Supply chain complexity mostly implies adverse, 17 unpredictable and uncertain outcomes. 18 Several authors have examined the effect of supply chain complexity on certain business performance related outcomes. For example, several authors have studied the negative influence of supply chain complexity on delivery times, operational costs, transaction 13 See Magretta, See Ellram et al., See Capgemini, See Choi/Krause, See Manuj/Sahin, See Bozarth et al., 2009.

9 Introduction 9 costs, and supplier responsiveness Although it seems that higher levels of supply chain complexity automatically lead to adverse outcomes, a certain level of supply chain complexity is required for companies to stay competitive. For example, the following changes to business are critical for success but leads to increased complexity: 2223 Introduction of new products on the market to generate additional revenues Increasing the number of suppliers to force competition among suppliers Increasing the number of suppliers to gain sourcing flexibility Increasing the customer base to sell more products to generate additional revenues To remain competitive it s indispensable for companies to adequately manage the increasing level of supply chain complexity A study by Deloitte found that companies that are able to manage supply chain complexity make up to 73% more in profits. 27 As supply chain managers are facing rapidly changing, continuously expanding, and often increasingly uncertain business environments, they are consequently confronted with more complicated and challenging supply chain related tasks due to huge amount of data, more decision variables, and more interrelationships. These challenges may affect the robustness of, business decisions related to effectively planning, implementing, and controlling supply chains of companies. 28 If supply chain complexity is not appropriately managed, it has negative effects on business performance of companies Major problems when managing supply chain complexity are: identifying sources of supply chain complexity, implementing adequate strategies to cope with supply chain complexity, and linking supply chain complexity to specific outcomes. Addressing the wrong sources of supply chain complexity and having poorly 19 See Perona/Miragliotta, See Choi/Krause, See Wu et al., See Bozarth et al, See Closs et al., See Lewis/Sheinfeld, See Mentzer et al., See Choi/Krause, See Deloitte, See Manuj/Sahin, See Bozarth et al., See Perona/Miragliotta, See Flynn/Flynn, See Vachon/Klassen, 2002.

10 Introduction 10 designed and executed strategies for managing supply chain complexity lead to adverse outcomes. 33 The reason for managing supply chain complexity appropriately often lies in the lack of having a comprehensive and accurate understanding of supply chain complexity, and what strategies may be employed to cope with supply chain complexity. Supply chain managers have to implement specific business strategies to address supply chain complexity, as supply chain complexity may lead to adverse outcomes (e.g. higher costs and risks). Therefore it is important to know the antecedents of supply chain complexity to be able to design and employ the right strategies. Strategies are for example, scope and boundary management, adequate design of information systems strategy, etc. To summarize, supply chains are becoming more complex and to remain competitive it s essential to manage the complexity. A success factor to gain an understanding of supply chain complexity, its linkage to strategies and outcomes, is the development of a conceptual and measurement model of the above mentioned constructs Supply chain complexity comprises of objective supply chain complexity and effective supply chain complexity. While objective supply chain complexity is derived from the structural properties of supply chains and their interactions and effective supply chain complexity is the perceived complexity faced by supply chain managers when making a supply chain related decision. 36 For example, effective supply chain complexity is affected by the uncertainty when making a supply chain related decision (e.g. requested data for decision-making is not available) and objective supply chain complexity is affected by for example, the number of suppliers, customers, etc. Moving forward, to advance the understanding of supply chain complexity, its linkage to strategies and outcomes it is critical to develop theoretical and measurement models of supply chain complexity. To this end, the next section presents the goals and research questions of this thesis. 1.2 Goal of the thesis The overall goal of this thesis is to extend the knowledge on supply chain complexity. First, a comprehensive conceptual model of supply chain complexity is presented. Next, from the conceptual model, theoretical and measurement models of supply chain com- 33 See Manuj/Sahin, See de Leuuw et al, See Isik, See Manuj/Sahin, 2011.

11 Introduction 11 plexity are derived for further investigation. The models include both, objective and effective components of supply chain complexity. In addition to the components of complexity, the models investigate the moderators (strategies) and outcomes of supply chain complexity to get a holistic understanding of supply chain complexity. The comprehensive conceptual model serves as the framework to arrange and link together the extant knowledge on supply chain complexity from multiple disciplines. As a subset of the comprehensive model, the theoretical model serves as the foundation to derive and formulate hypothesis regarding the key constructs of the comprehensive model. The measurement model includes measurement scales for each construct included in the theoretical model. To accomplish the goal of this thesis, an attempt is made to address the following research questions: Research question 1: What is the relationship between objective supply chain complexity and effective supply chain complexity? Research question 2: What supply chain outcomes are affected by objective supply chain complexity and effective supply chain complexity? Research question 3: What factors (moderators) affect the relationship between objective supply chain complexity and effective supply chain complexity? To answer the above research questions, the objectives of this research are: 1. Defining objective supply chain complexity and effective supply chain complexity 2. Investigating moderators and outcomes of objective supply chain complexity and effective supply chain complexity 3. Developing a conceptual and a theoretical model of supply chain complexity 4. Developing a measurement model for supply chain complexity 1.3 Structure of this Thesis Figure 1 shows how the thesis is organized, followed by a detailed description of the chapters.

12 Introduction 12 Introduction Problem definition Goal of the thesis (+ research questions) Structure of the thesis Conceptual model Supply chain management System complexity Supply chain complexity Objective and effective supply chain complexity Components of supply chain complexity Antecedents of supply chain complexity Strategies (moderators) of supply chain complexity Outcomes of supply chain complexity Measurement model Development of a theoretical model of supply chain complexity Moderators of objective and effective supply chain complexity Outcomes of objecitve and effective supply chain complexity Survey development Survey design Content and face validity Measures Contribution Conceptual model of supply chain complexity Theoretical model of supply chain complexity, moderators (supply chain integration, human cognitive abilities), and outcomes (firm performance, perfect order index, and supply chain flexibility) Measurement model including measurement scales for each construct of the theoretical model Figure 1: Thesis structure This thesis is organized in four chapters. The goal of chapter 1 is to present a brief introduction concerning the topic. In addition the goals of the thesis (including research questions), problem definition, and the structure of the thesis are presented. The goal of chapter 2 is an extensive review of supply chain complexity and related literature from a variety of disciplines including, e.g. systems theory, complex adaptive systems theory, etc. It provides definitions for the most relevant subjects (e.g. objective supply

13 Introduction 13 chain complexity and effective supply chain complexity) and gives an overview of supply chain complexity antecedents, components, strategies, and outcomes. Furthermore, grounded in actual literature, propositions are made. The goal of chapter 3 is to develop a theoretical model of objective supply chain complexity, effective supply chain complexity, moderators, and outcomes. The chapter starts with the development of a theoretical model (derived from the conceptual model of Chapter 2) including relationships between the constructs. The measurement model consists of a survey consisting of measurement scales for each construct of the theoretical model. The goal of chapter 4 is to present the contribution of this research to actual literature relating to the field of supply chain complexity. Additionally research limitations and future research directions are discussed.

14 Development of a conceptual model of objective and effective supply chain complexity 14 2 Development of a conceptual model of objective and effective supply chain complexity The following chapter provides an overview of foundational research regarding the main concepts of this thesis. The goal is to develop a conceptual model comprising of objective supply chain complexity, effective supply chain complexity, supply chain complexity antecedents, supply chain complexity components, supply chain complexity moderators, and related outcomes. 2.1 Definition of supply chain In the literature various definitions of the term supply chain exist. Supply chains can be seen as a set of three or more entities (organization or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer. 37 La Londe and Masters state that supply chains are a set of companies that have the goal to pass materials forward (from raw material to end product) including for example raw material and component producers, product assemblers, wholesalers, retailer merchants, and transportation companies. 38 According to Christopher a supply chain involves the upstream (i.e. supply) and downstream (i.e. distribution) linkages of a focal company with the goal to produce value (in terms of products and services) to the ultimate customer. 39 Derived from these definitions supply chains are classified into three categories (in terms of how to differently view the supply chain) 40 direct supply chain (Figure 2) extended supply chain (Figure 3) ultimate supply chain (Figure 4) Figure 2: Direct supply chain 41 As illustrated in Figure 2 a direct supply chain is composed of a focal company, a supplier, and a customer embedded in the upstream and/or downstream flows of products, services, finances, and/or information. 37 See Mentzer et al., See La Londe/Masters, See Christopher, See Mentzer et al., See Mentzer et al., 2001.

15 Development of a conceptual model of objective and effective supply chain complexity 15 Figure 3: Extended supply chain 42 An extended supply chain goes a step further and comprises the supplier of the immediate supplier and the customers of the immediate customers. Due to the higher number of entities and/or tiers of the supply chain, the number of upstream and downstream flows of products, services, finances, and/or information will also increase. Figure 4: Ultimate supply chain 43 All organizations involved in all upstream and downstream flows of products, services, finances, and/or information characterize an ultimate supply chain. In addtion to the entities of the extended third party logistics suppliers, financial providers, and market research companies are part of the ultimate supply chain. Given the different members of the supply chain and their relationships, the management of the entire supply chain is a very difficult and a complicated task. 44 Due to the dynamic and uncertain environment (i.e. product life cycle shortens, product variety and customization levels increase, and supply chain partners become more geographically dispersed, etc.) in which supply chains are operating, supply chains can be seen as complex systems. 45 To address the management of complex supply chains the next section will give an overview of the concept of supply chain management, followed by a detailed explanation of complexity, especially in the context of supply chains. 2.2 Definition of supply chain management In the last decades the term supply chain management has risen to prominence, both in academia and practice See Mentzer et al., See Mentzer et al., See Lambert, See Bozarth et al., See Cooper et al., 1997.

16 Development of a conceptual model of objective and effective supply chain complexity 16 One of the most significant changes in the paradigm of modern business management is that individual businesses no longer compete as solely autonomous entities, but rather as supply chains. Business management has entered the era of inter-network competition and the ultimate success of a single business will depend on management s ability to integrate the company s intricate network of business relationships In academia and in practice it has been realized that real competition is not company against company, but rather supply chain against supply chain. 50 As a result multiple relationships across supply chains have arisen and consequently have to be managed in an efficient and effective manner, which is the goal of supply chain management. 51 Multiple developments and trends are responsible for the increased popularity of the concept. For example: 52 Global sourcing Emphasis on time and quality-based competition Greater environmental uncertainty Although, the importance of supply chain management has increased dramatically, literature on defining the concept of supply chain management is confusing and a single definition is still lacking. One reason for it lies in the fact that several definitions didn t arise from management theory, but rather were developed solely on distinctive business practices. 53 Across several authors the view on supply chain management can be classified into three categories: supply chain management can be either seen as a management philosophy, or in terms of a management process, or in operational terms including the flow of materials and products. 54 The following Table 1 presents some definitions reflecting different views on supply chain management. 47 See Drucker, See Christopher, See Bowersox, See Christopher, See Lambert et al., See Mentzer et al., See Corsten/Gössinger, See Tyndall et al., 1998.

17 Development of a conceptual model of objective and effective supply chain complexity 17 Author, Year Jones/Riley 55 Houlihan 56 Monczka et al. 57 Definition "Supply chain management deals with the total flow of materials from suppliers through end-users. The key to efficiently managing a supply chain is to plan and control the inventories and activities as an integrated single entity. Three elements must come together for integrating the supply chain to operate effectively: recognising end-user customer service level requirements; defining where to position inventories along the supply chain, and how much to stock at each point; developing the appropriate policies and procedures for managing the supply chain as a single entity." Differences between supply chain management and classical materials and manufacturing control: 1) The supply chain is viewed as a single process. Responsibility for the various segments in the chain is not fragmented and relegated to functional areas such as manufacturing, purchasing, distribution, and sales. 2) Supply chain management calls for, and in the end depends on, strategic decision making. Supply is a shared objective of practically every function in the chain and is of particular strategic significance because of its impact on overall costs and market share. 3) Supply chain management calls for a different perspective on inventories which are used as a balancing mechanism of last, not first, resort. 4) A new approach to systems is required integration rather than interfacing. SCM requires traditionally separate materials functions to report to an executive responsible for coordinating the entire materials process, and also requires joint relationships with suppliers across multiple tiers. SCM is a concept, whose primary objective is to integrate 55 See Jones/Riley, See Houlihan, See Monczka et al., 1998.

18 Development of a conceptual model of objective and effective supply chain complexity 18 La Londe/Masters 58 Cooper et al. 59 Mentzer 60 Stevens 61 Ellram 62 and manage the sourcing, flow, and control of materials using a total systems perspective across multiple functions and multiple tiers of suppliers. Supply chain strategy includes:... two or more firms in a supply chain entering into a longterm agreement;... the development of trust and commitment to the relationship;... the integration of logistics activities involving the sharing of demand and sales data;... the potential for a shift in the locus of control of the logistics process. Supply chain management is the integration of key business processes from end-users through original suppliers that provide products, services, and information and add value for customers and other stakeholders. Supply chain management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. The objective of managing the supply chain is to synchronize the requirements of the customer with the flow of materials from suppliers in order to effect a balance between what are often seen as conflicting goals of high customer service, low inventory management, and low unit cost. "Supply Chain Management is an integrative approach to using information to manage the materials flow from suppliers to end-users to achieve improved customer service at reduced overall costs. SCM represents a network of firms interacting to deliver a product or service 58 See La Londe/Masters, See Cooper et al., See Mentzer et al., See Stevens, See Ellram, 1991.

19 Development of a conceptual model of objective and effective supply chain complexity 19 Fawcett et al. 63 Table 1: Definitions of supply chain management to the end customer." Supply Chain Management is the collaborative effort of multiple channel members to design, implement, and manage seamless value-added processes to meet the real needs of the end customer. The development and integration of people and technological resources as well as the coordinated management of materials, information, and financial flows underlie successful supply chain integration. 63 See Fawcett et al., 2001.

20 Development of a conceptual model of objective and effective supply chain complexity 20 Lambert et al. introduced a supply chain management framework (see figure 5) comprising of supply chain network structure (the key supply chain members with whom to link processes), supply chain business processes (that processes that should be linked with each of these key supply chain members), and supply chain management components (the level of integration and management that should be applied for each process link). 64 Figure 5: Elements in the Framework of Supply Chain Management 65 Although there are common approaches and similarities to define supply chain management, a single and unique definition is still lacking. As mentioned above different authors are viewing the concept of supply chain management in different ways. For the purpose of this thesis the definition of Mentzer et al. will be used. It provides one of the most comprehensive view on supply chain management. 2.3 Goals of supply chain management The ultimate reason why companies striving to implement successful supply chain management is to increase supply chain competitive advantage. 66 By installing appropriate supply chain processes companies are able to better satisfy their customer, consequently improve their competitive advantage and profitability. 67 In accordance to the definition of 64 See Lambert et al., See Lambert et al., See Monczka et al., See Giunipero/Brand, 1996.

21 Development of a conceptual model of objective and effective supply chain complexity 21 Mentzer et al. supply chain management tries to systemic coordinate business functions within companies and between the members of the supply chain to increase the performance of an individual company and the supply chain as a whole. Through the synchronization of the flow of physical goods and associated information along the whole supply chain customer value is created. 68 Porter determines competitive advantage as a result of enhanced customer value that companies are creating. 69 Thus, customer value and satisfaction due to successful supply chain management processes are fundamentally important to gain competitive advantage. Beside the overall goal of supply chain management to improve competitive advantage other objectives include: Lowering costs required to provide the necessary level of customer service to a specific segment Decreasing inventory costs 73 Increasing customer service through increased stock availability 74 Increasing customer service through reduced order cycle time 75 Increasing customer service through customer-enriching supply system through the synchronization of the flow of products, services, and information to develop innovative solutions 76 In summary, supply chain management has the aim to improve both, efficiency (e.g., cost reduction) and effectiveness (e.g., customer service) to obtain competitive advantage and consequently increase profitability. As stated earlier the increase of elements along the supply chain, leading to more connections and interactions, and affecting the complexity of supply chains. Therefore, the next sections discuss the concept of complexity of supply chains. 2.4 System complexity There is a wide range of disciplines that have examined complexity, for example: philosophy, physical sciences, and management Although, there are many studies providing 68 See Mentzer et al., See Porter, See Houlihan, See Jones/Riley, See Stevens, See Beamon, See Cooper/Ellram, See Cooper/Ellram, See Ross, See Simon, 1962.

22 Development of a conceptual model of objective and effective supply chain complexity 22 insights to complexity theory, confusion remains regarding a clear and unique definition of a complex system and what constitutes a complex system. As mentioned earlier complexity theory has been applied in the field of management. For example, a lot of research in the field of complexity has been done with regard to organizational theory 8182 mainly with the focus on studying, predicting, and controlling chaotic systems. 83 Studies regarding complexity have also been extended to the field of supply chain management The studies within the field of supply chain management will be discussed in the remainder of this chapter. To gain an understanding of which aspects constitutes complexity in systems some definitions will be presented and discussed. Simon sees a system as complex, when the system is made up of a large number of parts that interact in a nonsimple way. 86 A similar definition of complex systems is contributed by Casti, who states: complexity refers to two major aspects of a system: (a) the mathematical structure of the irreducible component subsystems of the process and (b) the manner in which the components are connected to form the system. 87 In their definitions numerousness and interactions of parts of a system are the underlying foundational aspects to determine systems complexity. Another definition is provided by Yates, where complex systems exhibit one or more of the following attributes: 88 Significant interactions High number of component parts and interactions Nonlinearity Broken symmetry Nonholonomic constraints 78 See Casti, See Holland, See, Choi et al., See Stacey, See Stacey et al., See Stewart, See Choi et al., See Wilding, See Simon, See Casti, See Yates, 1978.

23 Development of a conceptual model of objective and effective supply chain complexity 23 According to Flood and Carson the last three characteristics lead to high system complexity, which is explained by the assumption that they make the response of the system hard to predict. 89 Nonlinearity refers to the non-proportional outcome to a given set of inputs (which is also supported by Dubois et al. 90 ). Asymmetry of the system means that portions of the system are not accessible from other portions of the system. And nonholonomic constraints arise when one or more portions are left outside the central control. A supply chain related example regarding this would be, when multiple downstream demand points placing orders independently on a centralized supply point without regard to supply constraints. In this case, the same input can have varying effects, depending on the state of the supply chain These aspects are in alignment with Waldrop, who states that systems are complex when they have a kind of dynamism that makes them qualitatively different from static objects such as computer chips or snowflakes, which are merely complicated. 93 In addition to the definitions above, Senge points out that the complexity of systems is a combination of detail and dynamic complexity. The distinction between these two can be described as follows: detail complexity is the number of variables embedded in a system, whereas dynamic complexity are situations where cause and effect are subtle, and where the effects over time of interventions are not obvious. 94 Later, Bozarth et al. transferred this concept to a supply chain context. 95 Based on these studies, it can be summarized that complex systems are made up of a high number of parts/elements and the interaction of those. Those interactions are consequently leading to unpredictable outcomes to a given set of inputs and therefore generate uncertainty. 2.5 Supply chain complexity In the literature supply chain complexity has been studied from different theoretical perspectives such as, information theoretic perspective 96, systems theoretic perspective 97, and complex adaptive systems perspective See Flood/Carson, See Dubois et al., See Yates, See Flood/Carson, See Waldrop, See Senge, See Bozarth et al., See Sivadasan et al., See Bliss et al., See Choi et al., 2001.

24 Development of a conceptual model of objective and effective supply chain complexity 24 To gain a clear understanding about what constitutes supply chain complexity, this section aims to give an overview of the current literature about supply chain complexity. The goal of an organization is to gather information about other organizations and their environment to adapt and co-evolve with their environment. Viewing organizations as systems, the behavior can be described as adaptive, complex, and emergent Increasing the number of connections organizations have, the larger is the variety of behaviors they can exhibit. As a result higher levels of adaptability can be reached According to Choi et al. 105 and Wycisk et al. 106 supply chains are complex adaptive systems and to manage them efficiently and effectively is a challenge for supply chain managers. 107 The findings of Mentzer et al. 108 and Choi/Krause 109 strengthen this by stating that supply chain complexity is an issue confronting many supply chain managers. Therefore, the following statement of a supply chain manager of a leading automobile producer indicates the dynamic and uncertain environment in which supply chains are operating: 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 whole 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. 110 Given the dynamic and uncertain environment (e.g. due to various companies, high number and variety of relations, processes and interactions between and within the companies, dynamic processes between and within companies, etc.) in which supply chains are 99 See Brown/Eisenhardt, See Kauffmann, See Ashmos et al., See McDaniel/Walls, See Stacey, See Ashmos et al., See Choi et al., See Wycisk et al., See Ellinger et al., See Mentzer et al., See Choi/Krause, See Choi et al., 2001.

25 Development of a conceptual model of objective and effective supply chain complexity 25 operating, supply chains are inherently complex systems, 111 embedded in networks comprising of entities in the upstream and downstream flows of products and/or services, along with the related finances and information Hereby, the literature refers to the term supply chain complexity, where the degree of supply chain complexity is derived from the structural properties (determined by the number and variety of elements defining a system) and the interaction between these elements, leading to an uncertain and nonlinear behavior of the system Several authors found that higher degrees of supply chain complexity mostly imply adverse, 117 unpredictable and uncertain performance outcomes. 118 One of the first attempts to apply complexity theory in the field of supply chain management was done by Wilding. Wilding introduced the concept of a supply chain complexity triangle, composed of deterministic chaos, parallel interactions, and amplifications. 119 Another research conducted by Vachon/Klassen conceptualizes supply chain complexity as the level of complicatedness and uncertainty. 120 Choi et al. presented a model of supply chain complexity, stating that supply chains are complex adaptive systems. In their work they view supply networks as complex adaptive systems and complexity arises from the numerousness of suppliers and their interconnectedness with supply chain entities, 121 which was also conceptually applied to supply chain management research by Surana et al. 122 and Pathak et al. 123 More recently, models of supply chain complexity were developed by Bozarth et al. 124, de Leeuw et al. 125, Manuj and Sahin 126, and Frizelle/Woodcock 127. The later stating that supply chain complexity is the variety and uncertainty associated with a supply chain introducing two classifications of supply chain complexity: structural complexity (=variety embedded in the static system) and operational complexity (=uncertainty embedded in the dynamic system). Bozarth et al. were using survey research to empirically testing the effect of supply chain complexity on plant manufacturing performance. In 111 See Serdarasan, See Beamon, See Lambert, Cooper, Pagh, See Mentzer et al., See Choi et al., See Yates, See Manuj/Sahin, See Bozarth et al., See Wilding, See Vachon/Klassen, See Choi et al., See Surana et al., See Pathak et al., See Bozarth et al., See de Leeuw et al., See Manuj/Sahin, See Frizelle/Woodcock, 1995.

26 Development of a conceptual model of objective and effective supply chain complexity 26 their study supply chain complexity can be seen as the level of detail complexity and dynamic complexity exhibited by the products, processes, and relationships that make up a system, where detail complexity is defined as the distinct number of components or parts that make up a system and dynamic complexity is the unpredictability of a system s response to a given set of inputs, driven in part by the interconnectedness of the many parts that make up the system. De Leeuw et al. used the same definition of supply chain complexity, applying it to a wholesale environment. Manuj and Sahin provide a comprehensive model of supply chain complexity and supply chain decision-making complexity including antecedents, moderators, and outcomes using qualitative research Most of the studies view supply chain complexity as objective supply chain complexity, where objective supply chain complexity comprises of the structural properties of supply chains and their interactions. Consistent with the idea of Mentzer et al. (a supply chain is a set of three or more entities - organizations or individuals - directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer) objective supply chain complexity for the purpose of this thesis is defined as: The number and variety of elements at multiple levels (manufacturing, supply, demand and related logistics) of the supply chain, the interactions between these elements, and uncertainty that results from these interactions. Beside the structural properties of supply chain complexity and their interactions (=objective supply chain complexity), supply chain managers are facing complexity in the sense of human cognitive and organizational decision-making processes (due to vastness of data, more decisions variables, and interrelationships among variables) when it comes to make supply chain related decisions to manage supply chain complexity and arrive at sound business decisions. This includes the effort required for (related to a supply chain related problem): understanding and defining it, collecting data to solve it, using data to develop a solution, implementing a solution, controlling the implementation of the solution. 131 Hereby the difficulty of decision-making is resulted from the objective and subjective supply chain complexity (e.g. Meijer argues that complexity is in the eye of the beholder and what is complex to one, might not be complex to another reasoned in different levels of experience and knowledge 132 ). Facing a supply chain related decision this can be seen as the effective supply chain complexity decision-maker have to deal with. Effective supply chain complexity is (in alignment with the definition of supply chain decisionmaking complexity from Manuj/Sahin, 2011) 133 : 128 See Bozarth et al., See Manuj/Sahin, See de Leeuw et al., See Manuj/Sahin, See Meijer, See Manuj/Sahin, 2011.

27 Development of a conceptual model of objective and effective supply chain complexity 27 The effort required for (related to a supply chain related problem): understanding and defining it, collecting data to solve it, using data to develop a solution, implementing a solution, controlling the implementation of the solution. A study conducted by Deloitte showed companies that are able to manage supply chain complexity make up to 73% more in profits. 134 Several authors examined in their studies that the management of supply chain complexity results in better supply chain performance Therefore, supply chain complexity, which if not managed or mismanaged leads to uncertainty, risk, and consequently higher costs Combined with the findings of Capgemini, stating that supply chain complexity will increase over the next few years, 140 the importance of drawing managerial and academic attention on this topic is obvious. To understand the concept of supply chain complexity it is vital to view supply chains as one overall system, due to the nature of complex systems (the overall systems complexity is not the sum of each parts complexity) 141. Achieving this, requires the definition and identification of various supply chain complexity antecedents. Gaining insight into supply chain complexity antecedents enables better understanding of supply chain complexity and lead to more likely addressing the right and effective strategies dealing with supply chain complexity. Consequently outcomes of supply chain complexity are positively affected. Given a highly competitive business environment, supply chains need to have a certain degree of complexity to remain competitive. Furthermore many studies are focusing on specific dimensions of supply chain complexity (e.g. upstream complexity, manufacturing complexity, product complexity, etc.) without viewing the supply chain as a whole system and capturing the multi-faceted dimensions of the construct. 142 Given these aspects, it is obvious that gaining insights into the management of (supply chain) complexity is an important issue for both, academia and business practice. Addressing this issue the research purpose of the chapter is to provide a conceptual model of supply chain complexity components, antecedents, moderators, outcomes and related propositions, grounded in actual literature. 134 See Deloitte, See Bozarth et al., See Perona/Miragliotta, See van der Vorst/Beulens, See Christopher et al., See Manuj/Mentzer, See Capgemini, See Choi et al, See Hofer/Knemeyer, 2009.

28 Development of a conceptual model of objective and effective supply chain complexity Components of objective supply chain complexity The multi-faceted and multi-functional nature of supply chains implies that objective supply chain complexity arises from different parts of the supply chain. It is important to note that different complexity components have to be considered when examining the concept of objective supply chain complexity, as the overall systems complexity is not the sum of each parts complexity. 143 The next section reviews the literature on different parts of the supply chain where complexity can occur. These are upstream complexity, downstream complexity, manufacturing, and logistics complexity. Upstream/supply complexity In the literature two terms exists, characterizing complexity related to activities and linkages with upstream supply chain entities, namely: upstream and supply complexity. In most of the times these terms are used synonymously. 144 For simplification in this thesis the term upstream complexity will be used. Upstream complexity has been identified as an important key property of objective supply chain complexity and consequently strongly influences the management of supply chain complexity 145 proposing that higher levels of upstream complexity result in lower performance Choi/Krause provides a three-dimensional definition of upstream complexity stating that upstream complexity consists of the number of suppliers in the supply base, the degree of supplier differentiation, and the inter-relationships between suppliers. 149 Another definition of upstream complexity, in the context of a supply chain of a manufacturing plant comes from Bozarth et al. They state that upstream complexity is the level of detail and dynamic complexity originated in a manufacturing facility s supply base. 150 On the level of an individual buyer-supplier relationship Gimenez et al. define upstream complexity as the complexity of the process in which buyer s orders are converted into the supplier s manufacturing orders, resulting in the delivery of goods according to the buyer s expectations. 151 More recently upstream complexity was examined by Bode and Wagner. In their study structural upstream complexity (=detail complexity) was investigated in terms of vertical, 143 See Choi et al, See Blome et al., See Ray et al., See Choi/Krause, See Gimenez et al., See Bozarth et al., See Choi/Krause, See Bozarth et al., See Gimenez et al., 2012.

29 Development of a conceptual model of objective and effective supply chain complexity 29 horizontal, and spatial complexity. 152 Drawing from these definitions it can be stated that upstream complexity is the complexity of the upstream side of a company incorporating both complexity aspects: dynamic complexity (e.g. variability in supplier lead time) and detail complexity (e.g. number of suppliers). Author Upstream complexity antecedents Bozarth et al Number of immediate suppliers - Long and/or unreliable supplier lead times - Globalization of the supply base Choi and Krause Degree of supplier differentiation - Number of suppliers - Level of interrelationships between suppliers Bode/Wagner Number of supplier tiers (=vertical complexity) - Number of supplier in each tier (=horizontal complexity) - Extent of geographic dispersion of suppliers (=spatial complexity) Blome et al Number of direct suppliers - High market dynamism on the supply side - Reliability of supply base Azadegan Number of suppliers - Length of delivery lead time - Delivery reliability - Geographic dispersion of purchases Table 2: Upstream complexity antecedents Downstream complexity Downstream complexity is the level of detail and dynamic complexity originating in a manufacturing facility s downstream markets. Downstream complexity increases with the number of customers, heterogeneity in customer needs, shorter product life cycles, and 152 See Bode/Wagner, See Bozarth et al., See Choi/Krause, See Bode/Wagner, See Blome et al., See Azadegan et al., 2013.

30 Development of a conceptual model of objective and effective supply chain complexity 30 higher demand variability All those aspects have considerably effects on supply chain complexity (for further discussion see Bozarth et al.) 160 In accordance to the definition of Bozarth et al., Milgate stated that downstream complexity is part of the overall concept of supply chain complexity defined by the uncertainty of the downstream side of a focal firm s supply chain (in addition to upstream uncertainty, technological intricacy, and organizational systems). 161 Manuj and Sahin found out that increased customer expectations lead to higher levels of supply chain complexity. 162 In general downstream complexity is characterized by the same elements as upstream complexity on the downstream side of a company, e.g. number of customers, instead of number of suppliers. Manufacturing complexity Downstream and upstream complexity are often driven by external factors, but there is also complexity, which arises from a company s internal processes and activities, which refers to internal complexity. Internal complexity of a company is mainly driven by decisions and factors within the organization such as the product and process design. 163 Transferring this to a manufacturing context Bozarth et al. examined the role of internal manufacturing complexity. Where internal manufacturing complexity is defined as the level of detail and dynamic complexity found within the manufacturing facility s products, processes, and planning and control systems. This part of complexity is driven by: number of products, number of parts, one-of-a-kind/low volume batch production, and manufacturing schedule instability, and again detail complexity (e.g. higher number of products) and dynamic complexity (e.g. unstable production schedules) are affected. The logistical (manufacturing) complexity of a product is derived from the number of manufacturing steps and the number of different parts handled in a factory according to Funk. 164 In the context of a scheduling problem van Donk and van Dam found these factors affecting complexity: number of products, number of production lines, number of machines, and labor constraints. 165 Calinescu et al. divided the complexity of manufacturing systems into three categories: decision-making complexity, behavioural complexity, and structural complexity See Bozarth et al., See Azadegan et al., See Bozarth et al., See Milgate, See Manuj/Sahin, See Serdarasan, See Funk, See Van Donk/van Dam, See Calinescu et al., 2001.

31 Development of a conceptual model of objective and effective supply chain complexity 31 In general manufacturing complexity is part of the overall objective supply chain complexity and higher levels of internal complexity lead to higher levels objective supply chain complexity. Logistics complexity The above mentioned components of objective supply chain complexity have already captured big parts of supply chain complexity and have been widely discussed in the literature. Other complexity generating parts are logistics functions, such as storage and transportation of goods. Some factors that are highlighting the importance of logistics functions are: More decentralization Less vertically integrated Less single-site manufacturing facilities Outsourcing of logistics function Those trends are consequently leading to more geographically dispersed networks of resources and logistics processes have to be aligned to these developments For a focal company logistics complexity is generated on the inbound and outbound side of a company. Therefore the drivers of logistics complexity are (again, on each side inbound and outbound), e.g. number of warehouses, number of transportation modes, number of transportation providers, etc When studying logistics complexity it is important to keep in mind that these logistics functions are very often operated by external companies (e.g. 3PLs). 176 In accordance with the definition of supply chain complexity ( number and variety of elements and the interactions between these elements ) it can be argued that this will increase supply chain complexity. Although the logistics complexity has been examined in some studies , it falls short in considering them when investigating supply chain complexity. 167 See Stock et al., See Rao and Young, See Greis/Kasarda, See Quinn, See Brunell, See Manuj/Sahin, See Rao/Young, See de Koster, See Perona/Miragliotta, See Razzaque/Sheng, See Stock et al., See Rao and Young, 1994.

32 Development of a conceptual model of objective and effective supply chain complexity 32 In general it can be concluded that objective supply chain complexity is multi-faceted and multi-dimensional and it is important to incorporate all these aspects, as understanding the functioning of each single part of a complex system does not imply to understand the whole system. 180 The following Figure summarizes the different complexity components of supply chain complexity and leads to the first proposition: P1: Objective supply chain complexity comprises of various complexity components (upstream, downstream, manufacturing, logistics complexity. Figure 6: Components of objective supply chain complexity Antecedents of supply chain complexity To understand the concept of supply chain complexity it is important to understand the antecedents that drive the level of complexity. Therefore, the literature refers to the term supply chain complexity antecedents (=drivers that increase supply chain complexity by increasing the structure, type and volume of interdependent activities, transactions, and processes in the supply chain or increasing the number of constraints and uncertainties under which these activities, transactions and processes take place). 181 Supply chain complexity antecedents can be classified, as follows (for a more detailed overview see Serdarasan 182 ): 179 See Masson et al., See Forrester, See Manuj/Sahin, See Serdarasan, 2013.

33 Development of a conceptual model of objective and effective supply chain complexity 33 Type of supply chain complexity antecedents Authors In accordance to origins: internal, demand/supply interface, external al. 184, Hoole 185, Blecker et al. 186 e.g., Perona & Miragliotta 183, Sivadasan et In accordance to type: static, dynamic, decision-making Manuj/Sahin 189, Meijer 190 e.g., Efstathiou et al. 187, Soydan et al. 188, Table 3: Types of supply chain complexity antecedents The first group of supply chain complexity antecedents is in accordance to their origins: internal, demand/supply interface, external. Internal antecedents are generated by, for example product and process design processes (within the organization). The next group of antecedents demand/supply interface is associated with the material and information flow between suppliers, customers and/or service providers. Market trends, governmental regulations, etc. are external supply chain complexity antecedents Another way to classify antecedents is: static, dynamic, and decision-making. Hereby, the classification corresponds to the way supply chain complexity antecedents are generated: vie physical situations (e.g., number of products), operational characteristics (e.g., process uncertainties), dynamic behavior (e.g., demand amplification), and organizational characteristics (e.g., decision-making process, IT systems) An important thing to note is that various supply chain complexity antecedents contributes in different ways to supply chain complexity (e.g., for many companies internal are easier to handle than external antecedents due to the span of control). And therefore, different strategies have to be implemented to cope with different supply chain complexity antecedents See Perona & Miragliotta, See Sivadasan et al., See Hoole, See Blecker et al., See Efstathiou et al., See Soydan et al., See Manuj/Sahin, See Meijer, See Perona/Miragliotta, See Sivadasan et al., See Hoole, See Blecker et al., See Efstathiou et al., See Soydan et al., See Manuj/Sahin, See Meijer, See Serdarasan, 2013.

34 Development of a conceptual model of objective and effective supply chain complexity 34 Table 3 gives an overview of the existing supply chain complexity antecedents in the literature. Furthermore supply chain complexity antecedents affecting different complexity components are discussed in the remainder of this chapter. It can be concluded that supply chain complexity antecedents increase the level of supply chain complexity and therefore proposition 1 for this thesis is: P2: Supply chain complexity antecedents increase the level of objective supply chain complexity Relationship between objective supply chain complexity and effective supply chain complexity The current literature gives spatial insights into the relationship between objective supply chain complexity and effective supply chain complexity. In general, research of complexity in supply chains is quite recent and has several limitations While several authors are investigating the structural elements ( objective dimensions) of supply chain complexity and the effects on certain outcomes , it falls short in explaining the relationship between supply chain complexity and effective supply chain complexity (except Manuj and Sahin 206 and Perona/Miragliotta 207 ). A comprehensive model of objective supply chain complexity and effective supply chain complexity along with strategies to cope with it and related outcomes is lacking. It s important to note that most of the studies view supply chain complexity on the level of objective complexity, where the degree of complexity is derived from the number and variety of structural properties defining a supply chain (e.g. number of products, customers, suppliers, facilities, etc.) and their interactions. As complexity not only arises from those complexity elements, but also from the complexity inherent in the process of decision-making, additional measures of complexity has to be considered. In the literature this can be referred to the concept of supply chain decision-making complexity. 208 Hereby, the literature on cognitive and decision-making processes provides insights to the concept of supply chain decision-making complexity. According to Wood and Campbell decision- 200 See de Leeuw et al., See Nilsson and Gammelgard, See Serdarasan, See Blome et al., See Wycisk et al., See Meyer, See Manuj/Sahin, See Perona/Miragliotta, See Manuj/Sahin, 2011.

35 Development of a conceptual model of objective and effective supply chain complexity 35 maker has to cope with a task s objective (=problem attributes that can be enumerated) and perceived complexity (=unattended level of complexity leading to observed outcomes), which is related to the difficulty at arriving at a problem solution. To do so cognitive skills are applied to make decisions Therefore, supply chain decision-making complexity is associated with the volume and structure of information cues involved when making a supply chain related decision Addressing this to a supply chain problem, Robinson/Swink and Swink/Robinson found out that objective and perceived complexity are not always positively correlating. In their study supply chain managers were able to find better solutions for problems with high objective complexity due to the use of managerial tools (for example information systems) and applying cognitive skills, which resulted in a lower level of perceived complexity A survey based study regarding task complexity was conducted by Handley/Benton with the aim to show effects of objective task complexity on coordination and control costs in the context of outsourcing activities. 215 In a supply chain objective complexity arises from all the elements - which can be enumerated - embedded in the supply chain and their interactions, leading to uncertainty. Decision-makers have to deal with the generated uncertainty and are confronted with an effective supply chain complexity when managing supply chain complexity. As supply chain complexity increases, information cues also increases and decision-making is more complex for supply chain managers. Given these aspects it is proposed that: P3: Higher levels of objective supply chain complexity will lead to higher levels of effective supply chain complexity. 209 See Wood, See Campbell, See Efstathiou et al., See Serdarasan, See Robinson/Swink, See Swink/Robinson, See Handley/Benton, 2013.

36 Development of a conceptual model of objective and effective supply chain complexity 36 Author Definition Antecedents Wilding 216 Supply chain complexity is the deterministic chaos (=aperiodic, Deterministic chaos, parallel bounded dynamics in a deterministic system with sensitivity on initial conditions, and has structure in phase space), parallel interactions interactions, demand amplification (=interactions that occur between different channels of the same tier in a supply chain network), and demand amplification (=amplifying change in demand as it passes between organizations) exhibited by a supply chain. Vachon/Klassen 217 Supply chain complexity is the result of an information processing Recent investments in advanced dimension for complexity and a technological dimension. manufacturing tech- Note: Information processing dimension: uncertainty (inherent noise or variations in the existing in the system) vs complicatedness (the level and type of interactions present in the system) Technological dimension: structural (i.e. related to physical product and process) vs infrastructural (related to management systemsnology; High value of purchased materials; Large number of rejects of incoming material; High scrap rate; Large number of rejects at final inspection; Relatively large size of supply network; Considerable product variety; High frequency of changes made in scheduling; High level of make-to-order production Bozarth et al. 218 Supply chain complexity is the level of detail complexity (=distinct Number of customers, prod- 216 See Wilding, See Vachon/Klassen, See Bozarth et al., 2009.

37 Development of a conceptual model of objective and effective supply chain complexity 37 Manuj/Sahin 219 de Leeuw et al. 220 Choi et al. 221 Choi and Krause 222 number of components or parts that make up the supply chain) and dynamic (=unpredictability of a system s response to a given set of inputs, driven by the interconnectedness of many parts that make up the supply chain) complexity exhibited by the products, processes, and relationships that make up a supply chain (includes upstream, downstream, and manufacturing complexity) Supply chain complexity is the structure, type, and volume of inderdependent activities, transactions, and processes in the supply chain that also includes constraints and uncertainties under which these activities, transactions and processes take place. Supply chain decision-making complexity is the difficulty faced by a decision-maker when managing a supply chain. It is a measure of the collective effort required for problem definition, data collection, problem analysis, solution implementation, and control. Supply chain complexity is the level of detail and dynamic complexity of supply chains. Supply network complexity is the sum of firms that collectively supply a given part or subassembly to buying firm and their inter- ucts, components, suppliers; Heterogeneity of customer needs; Shorter product life cycles; Considerable demand variability; One-of-a-kind/low volume manufacturing; Schedule instability; Long and/or unreliable supplier lead-times; Globalization of supplier base Supply chain size and structure; customer expectations; environmental conditions; globalization; organizational restructuring Uncertainty, diversity, size, variability, structure, speed, lack of information synchronization, lack of cooperation Number of suppliers, degree of differentiation among suppli- 219 See Manuj/Sahin, See de Leeuw et al., See Choi et al., 2001.

38 Development of a conceptual model of objective and effective supply chain complexity 38 Milgate 223 connectedness. Supply chain complexity comprises of uncertainty (upstream, downstream), technological intricacy (product, process), and organizational systems (internal, external). Table 4: Definitions of supply chain complexity ers, level of interrelationships between suppliers Uncertainty (late deliveries from suppliers, quality level of incoming materials and parts, customer-related forecast error); technological intricacy (total number of raw material parts, number of product lines); organizational system (product variety, breadth of supplier base, export orientation) 222 See Choi/Krause, See Milgate, 2001.

39 Development of a conceptual model of objective and effective supply chain complexity Strategies for supply chain complexity management If you are in supply chain management today, complexity is like a cancer that destroys supply chain efficiency and one that you have to fight. 224 Since supply chain complexity has several impacts on the performance of companies and it is expected that supply chain complexity will increase over the next couple of years 225, supply chain managers have to think about how to manage supply chain complexity, as complexity is an inherent part of supply chains and, when not properly managed leading to unnecessary costs and risks. 226 To manage this complexity, companies are employing supply chain complexity moderators. 227 Consequently the implementation of supply chain complexity moderators has the goal to affect the outcomes. A study conducted by Deloitte says companies that are able to manage supply chain complexity make up to 73% more in profits. 228 According a study made by A.T. Kearny companies are able to increase their EBIT by 3-5% when they actively manage their supply chain complexity. 229 As mentioned earlier it is important for companies to have a certain level of supply chain complexity to remain competitive or increase performance (e.g. a company may take on customers whose demand is unpredictable which increases supply chain complexity but sales margins are considerably higher than orders from customers with a more predictable demand 230)231 ).Therefore, addressing supply chain complexity with the right strategies is a vital task of every supply chain manager. To restate, supply chain complexity can occur among different parts of the supply chain and is driven by various factors. Facing these aspects Kohn/McGinnis state that complexity has to be managed internally, externally, and interactively. 232 This section should give an overview of which factors are important when managing supply chain complexity. Additionally supply chain complexity coping strategies are presented. There are some general approaches on how to deal with supply chain complexity. The tasks for complexity management provided by Kirchhoff et al. are: See Gilmore, See Jäger et al., See Christopher, See March/Shapira, See Deloitte, See Scheiter et al., See Bozarth et al., See Aelker et al., See Kohn/McGinnis, See Kirchhof/Sprecht, 2003.

40 Development of a conceptual model of objective and effective supply chain complexity 40 Considering and solving problems resulting from the variety, the range, and the dynamics of internal and external elements and relations of the company and the environment Observing the problems of actors subjectively dealing with complexity, expressing themselves in thinking and behavior patterns, perceptions, decisions, and actions as well as in management and organizations structures Integrating different individual measures of dealing with complexity into a synergetic framework Kaluza et al. provide a strategy matrix. In their study the differentiation among four basic strategies for managing complexity is made, namely reducing, avoiding, controlling, and accepting complexity. The application of the strategies depends on: 234 Potential impact of integrated complexity management on supply chain performance Effort for realization of integrated supply chain management Figure 7: Strategies for managing supply chain complexity by Kaluza et al. 235 Although these general recommendations are good orientation points a lack for practicability in regard to supply chain decisions in business life exists. A similar approach was undertaken by Serdarasan 236 stating that the complexity in a supply chain is either necessary or unnecessary and the complexity is already in the system or will occur in the future. Derived from this the following 2x2 matrix is developed. 234 See Kaluza et al., See Kaluza et al., See Serdarasan, 2013.

41 Development of a conceptual model of objective and effective supply chain complexity 41 Figure 8: Strategy for managing supply chain complexity by Serdarasan 237 As already mentioned some authors suggest that one way to handle supply chain complexity is to reduce it Given that not all sources of supply chain complexity can be reduced easily, companies have to consider strategies to accommodate high levels of complexity In the literature several strategies that moderate supply chain complexity are discussed See Serdarasan, See Childerhouse/Towill, See Hoole, See Bozarth et al., See de Leeuw et al., See Perona/Miragliotta, 2004.

42 Development of a conceptual model of objective and effective supply chain complexity 42 Author Type of complexity Type of research Strategy Funk 243 (product) logistics Conceptual Co-ordination mechanisms (internal teams working together with complexity suppliers/informal and formal communication of teams; crosstraining; visible management; adequate performance measurement systems) Stock et al. 244 Logistics complexity Quantitative survey Logistics integration (internal and external) Manuj/Sahin 245 Supply chain complexity Grounded theory Strategic: scope and boundary management; cultural alignment, integration, collaboration, relationship management; eliminating non-value added steps; information systems strategy; knowledge management Human cognitive abilities: experience; training; problem understanding Tactical: buffers; flexible workforce de Leeuw et al. 246 Supply chain complexittion; Case study Inventory; resource flexibility; information exchange; rationaliza- outsourcing; isolate activities Perona/Miragliotta 247 Manufacturing and Case study Partnerships with suppliers; product modularization; information logistics complexity systems for production planning and control Blome et al. 248 Product and supply Quantitative survey Internal and external knowledge transfer complexity Masson et al. Supply chain com- Case study Market sensitivity, postponement strategies, information-sharing 243 See Funk, See Stock et al., See Manuj/Sahin, See de Leeuw et al., See Perona/Miragliotta, See Blome et al., 2014.

43 Development of a conceptual model of objective and effective supply chain complexity 43 plexity Gimenez et al. Supply complexity Quantitative survey Supply chain integration (cooperative behavior, structured communication) Tavares Thome et al. Manufacturing complexittion Quantitative survey Meetings and organization, measurement, technological integra- Closs et al. 249 Product complexity Case study Product/technology portfolio strategy; organization and governance regarding complexity decisions; product design and decision support systems Hoole 250 Supply chain complexitworply Theoretical frame- Supply chain configuration (e.g. reduce distribution layers); sup- chain management practices (e.g. postponement); supply chain relationships (e.g. supply chain collaboration); supply chain organization (e.g. vendor managed inventory); supply chain systems (e.g. information systems) Table 5: Strategies to cope with complexity 249 See Closs et al., See Hoole, 2005.

44 Development of a conceptual model of objective and effective supply chain complexity 44 In general it can be concluded that the management of supply chain complexity is an important task of supply chain managers. Due to many various complexity components that make up supply chain complexity supply chain managers have to be aware of many different strategies coping with different complexity components of supply chain complexity. To manage supply chain complexity successfully those strategies have to be evaluated and designed to manage supply chain complexity as a whole. Therefore proposition 3 of this thesis is: P4: Supply chain complexity strategies negatively moderate the relationship between supply chain complexity and effective supply chain complexity. For future research it will be necessary to integrate strategies coping with different complexity components into a comprehensive model of supply chain complexity and quantitatively investigate the relationships Outcomes of supply chain complexity Supply chain complexity has several impacts on supply chain performance measures According to Manuj/Sahin outcomes of supply chain complexity are often unplanned or unexpected and/or undesirable. 254 This is in alignment with the nature and characteristics of complex systems, where given inputs lead to uncertain and unpredictable outcoumes. Table 6 provides an overview of the impact of supply chain complexity on outcomes. According to van der Vaart/van Donk performance measures can be grouped into: Overall-related measures (e.g. profit) - Service-related measures (e.g. delivery reliability) - Cost-related measures (e.g. transportation costs) Some studies state that supply chain complexity impacts both, efficiency (cost) and effectiveness (service) of supply chain operations Therefore, supply chain complexity affects all performance dimensions along the supply chain and consequently is a key issue confronting supply chain managers. 251 See Perona/Miragliotta, See Choi/Krause, See Deloitte, See Manuj/Sahin, See van der Vaart/van Donk, See Perona/Miragliotta, See Blecker et al., 2005.

45 Development of a conceptual model of objective and effective supply chain complexity 45 As stated earlier not all sources of supply chain complexity are bad and reducing it would not necessarily leads to improvements in performance. De Leeuw et al. see an important task of supply chain managers to examine the trade-offs of managing/reducing supply chain complexity and related outcomes (e.g. investments in additional inventory may reduce complexity related to uncertainty, but it will increase costs and assets and it requires appropriate capabilities to manage inventory). 258 In addition to the findings mentioned above, it is important to note that not all complexity sources have the same impact on performance measures. For example, Bozarth et al. found out that dynamic supply chain complexity has a stronger effect on manufacturing plant performance than static supply chain complexity. 259 Similar to these Manuj/Sahin provide findings of their qualitative study regarding the linkage between specific complexity antecedents and the most relevant strategies and outcomes. Additionally they found out that there is a link between supply chain complexity and outcomes, and effective supply chain complexity and outcomes. 260 In regard to the relationship between effective supply chain complexity and outcomes, the studies of Robinson/Swink and Swink/Robinson showed that the effective supply chain complexity and outcomes are not always correlated positively. They found out that decisions of supply chain managers lead to better solutions, when confronted with more complex problems (due to the application of human cognitive processes) See de Leeuw et al., See Bozarth et al., See Manuj/Sahin, See Robinson/Swink, See Swink/Robinson, 1997.

46 Development of a conceptual model of objective and effective supply chain complexity 46 Author Manuj/Sahin 263 Bozarth et al. 264 Choi/Krause 265 Bode/Wagner 266 Vachon/Klassen 267 Stock et al. 268 Closs et al. 269 Handley/Benton 270 Milgate 271 Adani et al. 272 Effect on: Total costs; transaction costs; cycle times; incoming material quality; outbound delivery performance; inventory turnover; uncertainty; reserve capacity requirements Manufacturing plant performance (in terms of manufacturing schedule attainment and unit manufacturing cost performance) Transaction cost; supplier responsiveness; supplier innovation; supplier risk Supply chain disruptions on the demand side Delivery performance (delivery speed and delivery reliability) Operational performance (cost, delivery speed and reliability, quality, flexibility) and financial performance (sales growth, return on investment, market share) Holdings costs; service levels; inventory levels; delivery reliability Control costs; coordination costs Delivery performance (upstream: late deliveries by suppliers, quality of incoming material; manufacturing: throughput time; downstream: delivery lead-time, late delivery) Operative performance (components running capital costs, obsolescence costs, finished products running capital costs, transportation costs, administrative costs); economic performance (operating profits, average yearly turnover increase) 263 See Manuj/Sahin, See Bozarth et al., See Choi/Krause, See Bode/Wagner, See Vachon/Klassen, See Stock et al., See Closs et al., See Handley/Benton, See Milgate, See Adani et al., 2002.

47 Development of a conceptual model of objective and effective supply chain complexity 47 Tavares Thome et al. 273 Hu et al. 274 Manufacturing performance - Cost (unit manufacturing cost, procurement costs, manufacturing overhead costs) - Delivery (delivery speed, delivery reliability, manufacturing lead time, procurement lead-time) - Flexibility (product customization ability, volume flexibility, mix flexibility, time to market) - Quality (manufacturing conformance, product quality and reliability, customer service and support) Quality and productivity Table 6: Outcomes of supply chain complexity 273 See Tavares Thome et al., See Hu et al., 2008.

48 Development of a conceptual model of objective and effective supply chain complexity 48 Therefore, the propositions for this thesis relating the outcomes of supply chain complexity and effective supply chain complexity are: P5a: Supply chain complexity negatively affects performance measures (overallrelated, service-related, cost-related) along the supply chain. P5b: Effective supply chain complexity negatively affects performance measures (overall-related, service-related, cost-related) along the supply chain. It can be stated that supply chain complexity negatively affects various performance measures. Furthermore, derived from supply chain complexity there is also a direct link between effective supply chain complexity and outcomes. Fur future research it is necessary to investigate quantitatively the relationship between supply chain complexity and outcomes on the one hand, and the link between effective supply chain complexity (as the link between supply chain complexity and effective supply chain complexity can be moderated by implemented complexity coping strategies) on the other hand, to see which strategies (and to which extent) have an impact on the management of supply chain complexity and therefore have an impact on the outcomes of supply chain complexity and associated effective supply chain complexity (similar to the study of Manuj/Sahin, where the study participants were able to identify outcomes of supply chain complexity and effective supply chain complexity but had difficulties to quantify them 275 ). Furthermore specific complexity components of supply chain complexity should be linked to certain performance outcomes. The following illustration presents the relationships between the various constructs of the model. 275 See Manuj/Sahin, 2011.

49 Development of a conceptual model of objective and effective supply chain complexity 49

50 Development of a conceptual model of objective and effective supply chain complexity Summary The complexity inherent in supply chains has several impacts on the performance (overall-related, cost-related, and service-related) of a company. Due to various business trends (e.g. geographic dispersion of customers and suppliers, shorter product life cycles, more demanding customers, etc.) the number of elements (e.g. number of customers, suppliers, products, etc.) and the interactions between these elements, which leads to uncertainty, are increasing. Therefore, supply chain complexity increases and is an important issue in business practice and academia. Literature in the field of supply chain complexity mainly focused on objective complexity (= complexity, which can be enumerated). With a few exemptions (Manuj/Sahin 276 and Perona/Miragliotta 277 ) perceived complexity was not part of supply chain complexity research. To fill this gap, this chapter incorporates both, objective and perceived complexity when investigating the concept of supply chain complexity. This leads to the next research gap: the relationship between supply chain complexity and effective supply chain complexity. Beside the qualitative study of Manuj/Sahin 278 there are no research studies on this relationship. Recent studies just focused on the direct relationship between supply chain complexity and related outcomes. To fill this gap the concept of effective supply chain complexity is introduced and part of the conceptual model. Hereby, strategies to cope with supply chain complexity and moderate the relationship between supply chain complexity and effective supply chain complexity are part of the model. Furthermore, many research studies only address specific complexity components (e.g. manufacturing complexity, supply/upstream complexity). As supply chain complexity has various complexity components it is vital to consider all of them, when examining supply chain complexity. To address this, supply chain complexity in this thesis includes upstream, downstream, manufacturing, and logistics complexity. The main contribution of this chapter is to present a comprehensive model of supply chain complexity and effective supply chain complexity along with strategies to cope with complexity and related outcomes. Another important issue would be to figure out which complexity components are most associated to supply chain complexity. Additionally the strategies which are most important for managers to handle complexity should be evaluated. Statistically analysis (e.g. structural equation modelling) would be a possibility to address this. 276 See Manuj/Sahin, See Perona/Miragliotta, See Manuj/Sahin, 2011.

51 Development of a conceptual model of objective and effective supply chain complexity 51 As measuring supply chain complexity is one important issue for managers future research should provide a comprehensive measurement model of the conceptual model presented in this chapter. A way to fill this gap is the survey development to be able to measure quantitatively the relationship between constructs of the conceptual model. For this reason the goal of the next chapter is the survey development with a full set of scales for supply chain complexity, effective supply chain complexity, strategies to cope with complexity, and related outcomes.

52 A theoretical and measurement model of supply chain complexity 52 3 A theoretical and measurement model of supply chain complexity The chapter starts with a short introduction to complexity literature, addressing particular attention to the concept of supply chain complexity. After that a theoretical model of objective supply chain complexity, effective supply chain complexity, moderators (supply chain integration and human cognitive abilities), and related outcomes (firm performance, perfect order index, and supply chain flexibility) is presented with the goal to develop hypothesis of the relationships between the constructs of the model. Additionally the development of measurement scales of the constructs is discussed aiming to provide a full set of scales for each construct of the model. The chapter ends with a conclusion and directions for future research. 3.1 Supply chain complexity Nowadays companies are operating in dynamic, multi-functional, and global business environments which are characterized by shorter product life cycles, higher product variety, increasing customization levels, more demanding customers, and more geographically dispersed supply chain partners (upstream and downstream side of the supply chain) Given these trends firms are faced by high number of supply chain entities, consequently leading to a higher number of relationships and interactions between them. The literature therefore refers to the term supply chain complexity. Although there is no unique definition of supply chain complexity there is broad consensus that what constitute supply chain complexity are the number of elements that make up the supply chain and the interactions between them resulting in uncertainty Furthermore, the multi-faceted and multi-dimensional nature of supply chains imply that supply chain complexity occurs in different parts of the supply chain (e.g. upstream, downstream, manufacturing, etc.). Therefore many studies solely focused on specific complexity components, such as upstream complexity, manufacturing complexity, etc. To get a comprehensive understanding of supply chain complexity it is important to incorporate the different complexity components when investigating supply chain complexity. In addition effective supply chain complexity has to be incorporated, when investigating supply chain complexity. 279 See Manuj/Sahin, See Mentzer et al., See Bozarth et al., See Manuj/Sahin, See Blackhurst et al., See Stock et al., 2000.

53 A theoretical and measurement model of supply chain complexity 53 As supply chain complexity will increase over the next couple of years it is obvious that managerial (as supply chain complexity has various effects on firm performance ) and academic attention (as supply chain complexity has not been conceptualized unambiguously ) should be drawn on this topic. Especially the development of a measurement model, as the measurement of supply chain complexity is a prerequisite to manage it. 290 The comprehensive conceptual model was presented in the previous chapter. The key points are as follows: In this research, a theoretical and measurement model is developed. The models incorporate parts of the conceptual model. The criteria driving the choice of the constructs are as follows: 1. The effect of antecedents is well established. 2. The main gap is the relationships between objective supply chain complexity, effective supply chain complexity, and outcomes. Therefore, these relationships are the main focus of this research. 3. Not all moderators may be tested in a single study due to limited time and resources and the length of the questionnaire. The focus of this research is on supply chain integration, and human cognitive abilities as they are consistently cited as being important for managing supply chain complexity. Based on the above criteria, the resulting model is presented in figure See Manuj/Sahin, See Bozarth et al., See Milgate, See Perona/Miragliotta, See Wu et al., See Sivadasan, 2006.

54 A theoretical and measurement model of supply chain complexity 54 Figure 9: A theoretical model of supply chain complexity The following discussion elaborates on hypotheses development of the above theoretical model. Objective supply chain complexity and effective supply chain complexity As mentioned earlier Campbell introduced the concept of objective task complexity and perceived task complexity. 291 Transferring this concept to supply chain complexity and restating that objective supply chain complexity comprises of the number and variety of elements at multiple levels and the interactions between these elements. On the other hand effective supply chain complexity is the effort required for (related to a supply chain related problem) understanding and defining it, collecting data to solve it, using data to develop a solution, implementing a solution, and controlling the implementation of the solution. Derived from these definitions it can be assumed that higher levels of objective supply chain complexity increases the effort (due to more decision variables) for understanding and defining the problem, collecting data, using data to develop a solution, implementation of the solution, and controlling the implementation of the solution. 292 Therefore, the first hypothesis of this research is: H1: In the absence of any moderating variables there is a positive relationship between objective supply chain complexity and effective supply chain complexity. Moderators of supply chain complexity For supply chain managers it is important to decrease the potential adverse impact of objective supply chain complexity on effective supply chain complexity. To do so, companies 291 See Campbell, See Manuj/Sahin, 2011.

55 A theoretical and measurement model of supply chain complexity 55 are employing complexity moderators. 293 Manuj/Sahin found that supply chains which have almost similar levels of objective supply chain complexity are facing different levels of effective supply chain complexity due to the use of, e.g. better information systems or more experienced and better trained supply chain managers. 294 In their study Perona/Miragliotta came to the same conclusion stating that a certain level of complexity is embedded in every supply chain (basic complexity, which can be compared to objective supply chain complexity). The basic complexity then can be reduced/managed by using complexity levers (strategies to moderate basic complexity) and resulting in actual complexity. 295 This means that companies can have the same level of objective supply chain complexity but different levels of effective supply chain complexity. In this research two moderators of supply chain complexity are investigated: supply chain integration and human cognitive abilities. Supply chain integration Numerous conceptual and empirical research has been done regarding supply chain integration. An unambiguously definition and scales to measure supply chain integration are lacking. 296 In the literature supply chain integration has been analysed from a wide range of perspectives. 297 For example: integration with suppliers and customers , integration with suppliers , integration with buyers For this research it is important to analyse integration on both, the demand (downstream) and supply (upstream) side, because the effect of supply chain integration on supply chain complexity should be investigated. Therefore supply chain integration in this research is defined as: the collaborative management of processes, technologies, and information with customers and suppliers. 293 See March/Shapira, See Manuj/Sahin, See Perona/Miragliotta, See Gimenez et al., See van der Vaart/van Donk, See Frohlich/Westbrook, See Salvador et al., See Narasimhan/Kim, See Scannell et al., See Wagner, See Das et al., See Kulp et al., See Fynes et al., See Gimenez/Ventura, 2005.

56 A theoretical and measurement model of supply chain complexity 56 Supply chain integration reduces duplication and redundancy in supply chains 307 and reduces decision-making complexity (effective supply chain complexity) due to simpler supply chains. 308 Another study by Stock et al. also states that supply chain integration is used as a moderator of supply chain complexity. In their research the fit between complex supply chains and the right level of integration has to be achieved. 309 The management of complex supply chains needs the integration of members along the whole supply chain, for example through collaborative planning and sharing of information. 310 In the context of upstream complexity Gimenez et al. found that in environments of high upstream complexity higher levels of integration are needed. 311 In summary it can be concluded that supply chain integration is an effective strategy to decrease objective supply chain complexity and enables supply chain managers to make better supply chain related decisions. Therefore it can be concluded that supply chain integration affects the relationship between objective supply chain complexity and effective supply chain complexity. Human cognitive abilities When making a decision the volume and structure of information cues have to be considered. 312 Supply chain managers who arrives at a (supply chain related) problem are applying cognitive skills which allow them to implicitly enumerate many potential solution paths while explicitly evaluating only a few promising paths when deriving a problem solution. 313 In this research human cognitive abilities are defined as: applied cognitive skills to address a complex problem (knowledge and skills gained through experience, training, and natural intellect). The literature gives spatial insights into the moderating effect of human cognitive abilities. For example are learning, training, and education factors that help to reduce complexity. 314 Swink and Robinson 315 and Robinson and Swink 316 identified human cognitive abilities as complexity moderators (applied cognitive skills allow supply chain managers to decrease the high levels of objective supply chain complexity into a more tractable level of effective supply chain complexity) within the context of designing facility networks. Relating to hu- 307 See Rodrigues et al., See Manuj/Sahin, See Stock et al., See Masson et al., See Gimenez et al., See Efstathiou et al., See Campbell, See Schwaninger, See Swink/Robinson, See Robinson/Swink, 1994.

57 A theoretical and measurement model of supply chain complexity 57 man cognitive abilities as a moderator of complexity Manuj/Sahin found that for example a clear understanding of the business, processes, and systems helps supply chain managers to manage supply chain complexity. To gain knowledge and understanding prior experience is an important factor. 317 In accordance to previous research it can be concluded that human cognitive abilities are moderating the relationship between objective supply chain complexity and effective supply chain complexity. Given these aspects the next hypothesis of this research is: H2: Human cognitive abilities and supply chain integration negatively moderate the relationship between objective supply chain complexity and effective supply chain complexity. Objective supply chain complexity and effective supply chain complexity and outcomes In the literature there are some studies investigating the outcomes of objective supply chain complexity (e.g. Manuj/Sahin 318, Bozarth et al. 319, Choi and Krause 320, Stock et al. 321, Closs et al. 322 ). In general the studies show an adverse relationship between objective supply chain complexity and performance and negatively impacts both, efficiency and effectiveness. In addition research should always incorporates both, efficiency (e.g. cost) and effectiveness (e.g. service) performance measures to prove that the trade-off equilibrium point is not only shifted. 323 Only a few studies focus on the outcomes of effective supply chain complexity. As stated earlier higher levels of objective supply chain complexity lead to higher levels of effective supply chain complexity (in the absence of any moderating variables). The focus of this research is the effect of objective supply chain complexity and effective supply chain complexity on firm performance, the perfect order index, and supply chain flexibility. Firm performance In this study firm performance incorporates measures which are related to the overall firm performance (e.g. market share, return on assets, etc.) and more specifically to costrelated performance measures (e.g. cost of sales, cost of production, etc.). In the past 317 See Manuj/Sahin, See Manuj/Sahin, See Bozarth et al., See Choi/Krause, See Stock et al., See Closs et al., See Perona/Miragliotta, 2004.

58 A theoretical and measurement model of supply chain complexity 58 several research studies found a negative impact of objective supply chain complexity on certain performance measures. The following table gives an overview of these studies. Performance measures Overall-related Cost-related Authors Stock et al. 324, Tavares Thome et al. 325, Azadegan et al. 326 Manuj/Sahin 327, Bozarth et al. 328, Closs et al. 329, Handely/Benton 330 Table 7: Impact of supply chain complexity on performance Perfect order index The perfect order index measures order accuracy, invoice accuracy, on-time delivery, and defect and damage free deliveries of a focal company and his customers. Therefore the perfect order index is a service-related performance measure. Recent studies on this relationship showed that objective supply chain complexity has a negative impact on delivery performance, such as delivery reliability (in terms of time and quality) and delivery lead-time Given these aspects, the next two hypothesis on the relationship between objective supply chain complexity, effective supply chain complexity and related outcomes are: H3a: Objective supply chain complexity has a negative impact on firm performance and on the perfect order index. H4a: Effective supply chain complexity has a negative impact on firm performance and on the perfect order index. Supply chain flexibility In the literature many definitions of supply chain flexibility exist. A very common definition is provided by Upton stating that flexibility is the ability to change or react with little penalty time, effort, cost or performance. 335 Research on the relationship of supply chain complexity and supply chain flexibility is rare. 324 See Stock et al., See Tavares Thome et al., See Azadegan et al., See Manuj/Sahin, See Bozarth et al., See Closs et al., See Handley/Benton, See Manuj/Sahin, See Closs et al., See Milgate, See Gimenez et al, See Upton, 1994.

59 A theoretical and measurement model of supply chain complexity 59 Christopher and Towill claim that companies in highly competitive markets need to have for example high product-variety to serve different customer groups (especially the flexibility to be able to serve different customer groups). This implies to have a large changeable supply base resulting in various sourcing alternatives/options. 336 In this case higher supply chain complexity (higher number of products, higher number of suppliers) leads to higher supply chain flexibility. A study in the fashion industry showed that the use of a high number of intermediaries (again, which increases elements and interactions and therefore supply chain complexity) enables companies flexibility in terms of product capability. Coupled with a rapid identification and utilization of spare finishing manufacturing capacity ensures rapid lead times. 337 Another example would be the number of manufacturing facilities. If a company has more manufacturing facilities they are eventually able to have a higher output, which in turn make them flexible in terms of serving higher demands. In general, the higher number of elements and interactions embedded in a supply chain, the greater is the variety of behaviors it can exhibit and consequently being able to react to changes Given these aspects the next hypothesis are: H3b: Objective supply chain complexity has a positive impact on supply chain flexibility. H4b: Effective supply chain complexity has a positive impact on supply chain flexibility. 3.2 Methodology Beside the development of a theoretical model of supply chain complexity the goal of this research is to develop a measurement model of supply chain complexity and test it for content and face validity. This section focusses firstly on various aspects of survey development and then presents scales for the constructs of the theoretical model. Survey design The development of the survey was conducted in several stages in accordance to standard scale and survey development techniques This process included an extensive 336 See Christopher/Towill, See Masson et al., See MacDaniel/Walls, See Stacey, See Ashmos et al., 2000.

60 A theoretical and measurement model of supply chain complexity 60 literature review, preliminary interviews, continuous development of measurement scales together with research professionals. In addition the following survey development rules were applied (to ensure high response rate for future use of the survey): 343 Ease of use Low burden on respondents Keep respondents interested until completion Furthermore the survey offers anonymity (on the level of the respondent) and provides only general information about the study s objectives, and no clues about the actual relationships under investigation. A reason for this is that the survey should not force the respondents to give socially desirable answers, or respond how they believe researchers want them to respond. Measures The survey included items for all constructs of the theoretical model, which resulted in the development of a broad range of items for objective supply chain complexity, effective supply chain complexity, moderators, and related outcomes. The unit of analysis is the supply chain of a firm. Some of the measures were derived from previous research and adapted for the purpose of this study and some (where there were no or limited research) were developed by the researcher together with research professionals. The following tables provide an overview of the items used to measure each of the constructs. 341 See DeVellis, See Dillman et al., See Dillman et al., 2009.

61 A theoretical and measurement model of supply chain complexity 61 Objective supply chain complexity Our demand and/or the composition (mix of products) is difficult to predict (1=strongly disagree, 5=strongly agree) Our delivery requirements vary considerably from customer to customer (1=strongly disagree, 5=strongly agree) Our volume and mix requirements vary considerably from customer to customer (1=strongly disagree, 5=strongly agree) We frequently introduce new products (1=strongly disagree, 5=strongly agree) Our suppliers provide materials with consistent quality (1=strongly disagree, 5=strongly agree) We have very few alternative sources for most of our raw materials or components (1=strongly disagree, 5=strongly agree) Our supply requirements, in terms of volume and mix, vary considerably from month to month (1=strongly disagree, 5=strongly agree) Our suppliers provide materials with consistent delivery speed (1=strongly disagree, 5=strongly agree) We need to change our weekly master production schedule (1=frequently, 5=never) We need to change our production capacity (1=frequently, 5=never) We experience significant changes in our production technology (1=frequently, 5=never) Our manufacturing processes are tailored for (1=Make-to-Stock, 2=Assemble-to-Order, 3=Make-to- Order, 4=Engineered-to-Order The number of supplier tiers in our supply chain is (number) The number of customer tiers in our supply chain is (number) The approximate number of stock keeping units our company produces or maintains is (number) The number of immediate customers for our company is (number) The number of immediate suppliers for our company is (number) The number of inbound and outbound warehouses for our company is (number) Author Adapted from Bozarth et al. Adapted from Bozarth et al. Adapted from Bozarth et al. Adapted from Perona/Miragliotta Adapted from Milgate Adapted from Milgate Adapted from Vachon/Klaasen Adapted from Bozarth et al. Adapted from Bozarth et al. Adapted from Perona/Miragliotta Adapted from Perona/Miragliotta Adapted from Bozarth et al. Adapted from Bode/Wagner Adapted from Manuj/Sahin Adapted from Rao and Young Adapted from Bozarth et al. Adapted from Bozarth et al. Adapted from Rao and Young

62 A theoretical and measurement model of supply chain complexity 62 The number of transportation providers (inbound and outbound) our company works with is (number) The geographic dispersion of our customer base (as a percent of the total customer base) is (1=North America (USA, Canada, and Mexico), 2=Europe, 3= Asia/Pacific, 4=South America, 5= Rest of the world) The geographic dispersion of our suppliers (as a percent of the total supplier base) is (1=North America (USA, Canada, and Mexico), 2=Europe, 3= Asia/Pacific, 4=South America, 5= Rest of the world) The percent of our total shipments that are full truckloads is (percentage) The percent of our total orders that are split over multiple shipments is (percentage) The percent of our total shipments that are transferred between our locations is (percentage) The allocation of shipments across transportation modes (as a percent of total shipments) for our company is (1=air, 2=Water/Ocean, 3=Rail, 4=Ground, 5=Pipeline) The percent of our warehouses operated by 3 PLs is (percentage) Table 8: Survey items for objective supply chain complexity Adapted from Rao and Young Adapted from Bozarth et al. Adapted from Bozarth et al. Adapted from Rao and Young Adapted from Rao and Young Adapted from Rao and Young Adapted from Rao and Young Adapted from Rao and Young Effective supply chain complexity Understanding and defining the challenges (1=very low, 5=very high) Collecting data related to solving the challenges (1=very low, 5=very high) Using data (both numeric and qualitative) to develop a solution (1=very low, 5=very high) Implementing solutions to address the challenges (1=very low, 5=very high) Controlling the implementation of the solution (1=very low, 5=very high) The number of supplier tiers we actively manage is (number) The number of customer tiers we actively manage is (number) Table 9: Survey items for effective supply chain complexity Author Adapted from Manuj/Sahin Adapted from Manuj/Sahin Adapted from Manuj/Sahin Adapted from Manuj/Sahin Adapted from Manuj/Sahin Self developed Self developed

63 A theoretical and measurement model of supply chain complexity 63 Supply chain integration Our firm shares relevant demand information with supply-side partners (1=never, 5=always) Our supply-side partners use the shared information for decision-making (1=never, 5=always) We use collaborative tools (joint forecasting, joint planning systems, etc) with our supply-side partners (1=never, 5=always) The information we share with our supply-side partners is sufficient for our partners to make rational decisions (1=strongly disagree, 5=strongly agree) The information we share with our supply-side partners is used to make joint decisions (1=strongly disagree, 5=strongly agree) Our demand processes are formally integrated with our supply-side partners (1=strongly disagree, 5=strongly agree) Our firm shares relevant demand information with demand-side partners (1=never, 5=always) Our demand-side partners use the shared information for decision-making (1=never, 5=always) We use collaborative tools (joint forecasting, joint planning systems, etc.) with our demand-side partners (1=never, 5=always) The information we share with our demand-side partners is sufficient for our partners to make rational decisions (1=strongly disagree, 5=strongly agree) The information we share with our demand-side partners is used to make joint decisions (1=strongly disagree, 5=strongly agree) Our demand processes are formally integrated with our demand-side partners (1=strongly disagree, 5=strongly agree) Author Adapted from Pettit et al. Adapted from Pettit et al. Adapted from Frohlich/Westbrook Adapted from Pettit et al. Adapted from Pettit et al. Adapted from Chen/Paulraj Adapted from Pettit et al. Adapted from Pettit et al. Adapted from Frohlich/Westbrook Adapted from Pettit et al. Adapted from Pettit et al. Adapted from Chen/Paulraj Table 10: Survey items for supply chain integration

64 A theoretical and measurement model of supply chain complexity 64 Human cognitive abilities Their formal education in supply chain management and related fields (1=very low, 5=very high) Their training (on-the-job, workshops, conferences) in supply chain management and related fields (1=very low, 5=very high) Their understanding of the causes and effects and trade-offs involved in designing or developing solutions (1=very low, 5=very high) Their work experience in supply chain management and related fields (1=very low, 5=very high) Table 11: Survey items for human cognitive abilities Firm performance Our company's 3-year average growth in market share (percentage) 3-year average growth in market share compared to your industry s average (1=much lower, 5=much higher) 3-year average growth i n profitability compared to your industry s average (1=much lower, 5=much higher) 3-year average return on assets compared to your industry s average (1=much lower, 5=much higher) 3-year average cost of sales compared to your industry s average (1=much lower, 5=much higher) 3-year average cost of production compared to your industry s average (1=much lower, 5=much higher) 3-year average cost of procurement compared to your industry s average (1=much lower, 5=much higher) Table 12: Survey items for firm performance Author Adapted from Manuj/Sahin Adapted from Manuj/Sahin Adapted from Manuj/Sahin Adapted from Manuj/Sahin Author Adapted from Kim Adapted from Kim Adapted from Patel/Jayaram Adapted from Kim Adapted from Patel/Jayaram Adapted from Bozarth et al. Adapted from Patel/Jayaram

65 A theoretical and measurement model of supply chain complexity 65 Perfect order index 3-year average perfect order index compared to your industry s average (POI) (POI measures order accuracy, invoice accuracy, on-time delivery, defect and damage free) (1=much lower, 5=much higher) Table 13: Survey item for perfect order index (POI) Supply chain flexibility Our suppliers quickly react to changes in order quantity (1=strongly disagree, 5=strongly agree) Our suppliers quickly react to changes in product mix/configuration (1=strongly disagree, 5=strongly agree) Our suppliers quickly react to changes in delivery times (1=strongly disagree, 5=strongly agree) Our company quickly reacts to changes in customer order quantity (1=strongly disagree, 5=strongly agree) Our company quickly reacts to changes in customer product mix/configuration (1=strongly disagree, 5=strongly agree) Our company quickly reacts to changes in customer delivery times (1=strongly disagree, 5=strongly agree) Table 14: Survey items for supply chain flexibility Author Adapted from Gilmore Author Adapted from Swafford et al. Adapted from Swafford et al. Adapted from Swafford et al. Adapted from Swafford et al. Adapted from Swafford et al. Adapted from Swafford et al. Control variables Author In what industry does your company operate? Adapted from Kim The sales volume (in U.S. dollars, most recent years) for your company is (<$1M; $1M-$50M; Adapted from Kim $51M-$100M; $101M-$500M; >$500M) What is the extent of your involvement in the supply chain related strategic decision-making process of your firm? (1=no involvement, 5=extensive involvement) Adapted from Conant et al. What is the level of your knowledge about the supply chain related strategic decision-making Adapted from Conant et al.

66 A theoretical and measurement model of supply chain complexity 66 process of your firm? (1=no knowledge, 5=extensive knowledge) Table 15: Control variables

67 A theoretical and measurement model of supply chain complexity 67 Control variables are used for this survey for the following reasons. Firstly, industry type and firm size may influence the level of structural embeddedness and associated performance Secondly, the extent of involvement and knowledge about supply chain related strategic decision making should check for the validity whether the respondents were likely to be knowledgeable about the issues under study Content and face validity In the field of social sciences a fundamental research interest lies in testing relationships between constructs of theoretical models. An issue researchers are confronted with is measurement errors (e.g. random error or systematic error). 346 Measurement errors can have serious confounding influences on empirical research and consequently yield misleading conclusions and provide potential threats to the validity of research findings. Therefore it is important to validate measures before testing theory. 347 In this research the validity of the items was ensured through content and face validity. Content validity is the degree to which an instrument has an appropriate sample of items for the construct being measured. 348 To gain content validity involves two distinct stages. A priori conceptualization and domain analysis prior to item generation and posteriori evaluation of the relevance of the scale s content through expert assessment The first stage was done by the researcher. Multiple items - grounded in literature - for each construct were collected. Regarding the second stage of the content validity process the items were presented to two professors (professors in research fields related to the constructs under study and with industry work experience) resulting in excluding items and adding new items. Face validity is defined as the extent to which a measure reflects what is intended to measure and respondents are able to respond. 352 To make sure that face validity is gained the survey was presented to supply chain management professors and was judged whether it is face valid or not. This means that the survey is designed to ensure that potential respondents are able to answer the questions. All in all the professors confirmed that the items are measuring the constructs of the theoretical model. Although pro- 344 See Rowley et al., See Dhanaraj et al., See Fiske, See Campbell/Fiske, See Polit/Beck, See Beck/Gable, See Lynn, See Mastaglia et al., See Nunnally/Bernstein, 1994.

68 A theoretical and measurement model of supply chain complexity 68 fessors are not the target population it is possible to ensure face validity through them, as they are experts in the research field under study. 3.3 Summary The understanding of supply chain complexity is an important issue for supply chain managers. To gain an understanding of supply chain complexity it is vital for supply chain managers to know strategies to manage complexity and to know related outcomes. Beside the structural properties of supply chain complexity (objective supply chain complexity) supply chain managers are confronted with complexity related to the decision-making process (effective supply chain complexity). For this purpose the first section of this chapter presents a theoretical model of objective supply chain complexity, effective supply chain complexity, complexity moderators (supply chain integration and human cognitive abilities) and related outcomes (firm performance, perfect order index, and supply chain flexibility) derived from the conceptual model in the previous chapter. Furthermore hypothesis are developed regarding the relationships between the model constructs. To understand the effects of supply chain complexity and consequently being able to manage it, companies have to understand how to measure complexity. Therefore, a measurement model of supply chain complexity was developed. It comprises of measurement scales for each construct of the theoretical model. In addition content and face validity of the measurement scales is ensured.

69 Contribution, research limitations, and future research 69 4 Contribution, research limitations, and future research Today s supply chains are highly complex and it s expected that the complexity will increase over the next decade. Given the higher number of elements and interconnections of elements within a supply chain system and the fact that supply chain management is seen as a competitive advantage for companies, it was argued throughout this thesis that supply chain complexity is a key area of theoretical as well as managerial considerations. However, several gaps continue to exist. For example, while there is a significant research on objective supply chain complexity, it falls short to incorporate effective supply chain complexity. Additionally the literature lacks a comprehensive model of supply chain complexity antecedents, components, moderators, and related outcomes. To this end, this thesis makes several contributions to practice and research in the field of supply chain complexity by attempting to answer the following research questions: Research question 1: What is the relationship between objective supply chain complexity and effective supply chain complexity? Research question 2: What supply chain outcomes are affected by objective supply chain complexity and effective supply chain complexity? Research question 3: What factors (moderators) affect the relationship between objective supply chain complexity and effective supply chain complexity? With regard to research question 1, the literature lacks a clear distinction between objective supply chain complexity and effective supply chain complexity. This thesis investigated the two definitions for the two concepts. It was found that the literature, for the most part, does not incorporate effective supply chain complexity in supply chain complexity models. However, there is evidence that given the multitude of decisions faced by today s supply chain managers, effective supply chain complexity must be a part of models dealing with supply chain complexity. To advance supply chain complexity theory, this thesis presents a comprehensive, conceptual model of objective supply chain complexity that draws from various streams of literature to develop the concept of effective supply chain complexity and include it as a part of a comprehensive model of supply chain complexity. In particular, it is argued that high objective supply chain complexity will lead to high effective supply chain complexity. With respect to research question 2 the conceptual model gives a comprehensive overview of outcomes (e.g. delivery performance, supply chain flexibility) affected by objective supply chain complexity and effective supply chain complexity. Derived from the concep-

70 Contribution, research limitations, and future research 70 tual model specific outcomes were identified and became part of the theoretical model (firm performance, the perfect order index, and supply chain flexibility). In the literature these outcomes were identified as being important outcome variables affected by supply chain complexity. In this thesis it is hypothesized that objective supply chain and effective supply chain complexity have a negative impact on firm performance and the perfect order index and a positive impact on supply chain complexity. In addition to the conceptual and theoretical model scales were developed for each of the outcome variable, that can be used by researchers in the future. The most recent conceptual model of supply chain complexity is by Manuj/Sahin. 353 Compared to that model the conceptual model in this thesis combines and integrates the antecedents, strategies, and outcomes of supply chain complexity. It provides a clear differentiation and relationship between objective supply chain complexity and effective supply chain complexity. Derived from the conceptual model the theoretical model was developed. It is hypothesized that there is a positive relationship between objective supply chain complexity and effective supply chain complexity. Furthermore relationships between objective supply chain complexity and outcomes (negative relationship between objective supply chain complexity and firm performance and the perfect order index; positive relationship between objective supply chain complexity and supply chain flexibility) and effective supply chain complexity and outcomes (negative relationship between effective supply chain complexity and firm performance and the perfect order index; positive relationship between effective supply chain complexity and supply chain flexibility) are hypothesized. In addition a negative moderating effect of supply chain integration and human cognitive abilities on the relationship between objective supply chain complexity and effective supply chain complexity was hypothesized. Finally, a measurement model was developed, following the latest guidelines, which presents scales for objective supply chain complexity, effective supply chain complexity, supply chain integration, human cognitive abilities, firm performance, perfect order index, and supply chain flexibility. These scales could be employed by researches in future studies. To answer research question 3 the conceptual model examined several business strategies (e.g. supply chain integration, scope and boundary management) and human cognitive abilities (e.g. knowledge, experience) as moderators of the relationship between objective supply chain complexity and effective supply chain complexity. As in the literature it is stated that outcomes of objective supply chain complexity and effective supply chain complexity can be moderated through complexity moderators. Supply chain integration and human cognitive abilities are mentioned in literature to be important supply chain 353 See Manuj/Sahin, 2011.

71 Contribution, research limitations, and future research 71 complexity moderators, especially when drawing attention to the relationship between objective supply chain complexity and effective supply chain complexity. Therefore it is hypothesized that both, supply chain integration and human cognitive abilities have a negative moderating effect on objective supply chain complexity and effective supply chain complexity. In addition to the conceptual and theoretical model the measurement model provides scales for the two moderators. From a managerial perspective, the model may be used by managers to understand the antecedents to supply chain complexity and how to manage it. The extensive scales may be used my managers to assess the factors affecting complexity in their supply chains, the level of moderators, and how to effectively leverage the strategies. Research limitations and future research This thesis attempts to give additional insights into to the research field of supply chain complexity. In this section, the limitations of this research and consequent future research to address these limitations are discussed. First, empirically testing the survey coupled with quantitative analyzing the responses (e.g. structural equation modelling) to test the relationships between each construct of the theoretical model to quantify the impact of objective supply chain complexity and effective supply chain complexity on outcomes is required. Furthermore it would be possible to know the moderating effect of supply chain integration and human cognitive abilities. Conducting the survey in different industries and countries (or geographic regions) would be helpful for identifying potential differences of supply chain complexity. Second, the theoretical and measurement model provides measures for only two complexity moderators (supply chain integration and human cognitive abilities) due to limited time resources and questionnaire length. As in the conceptual model stated there are several other moderators (e.g. scope and boundary management, eliminating non-value added steps, information systems strategy, knowledge management). In future research those moderators and their effect on complexity should be also tested. Third, the theoretical and measurement model incorporates measures for only three outcomes of complexity, namely firm performance, the perfect order index, and supply chain flexibility. In the literature other complexity outcomes were identified (e.g. cycle times, incoming material quality, reserve capacity requirements, inventory turnover), that are important for managers and therefor how complexity affects them, should be empirically tested. Fourth, specific complexity moderators and outcomes should be linked to specific components of supply chain complexity. As the impact of different moderators on different com-

72 Contribution, research limitations, and future research 72 plexity components can vary. An example would be that supplier integration can have a strong impact on upstream supply chain complexity, whereas there is no great impact on downstream supply chain complexity. The same principle could be transferred to outcomes of supply chain complexity. E.g. inbound delivery performance is eventually more affected by upstream supply chain complexity than by downstream supply chain complexity. Fifth, as mentioned earlier future research should compare supply chain complexity between different industries. Therefore the development of industry-related supply chain complexity benchmarks could be an interesting topic. Supply chain complexity benchmarks could identify average levels of supply chain complexity within an industry due to varying complexity antecedents between industries (based on the different industry specific characteristics). Consequently this implies that the management of supply chain complexity will differ from industry to industry. A prerequisite is the collection of sufficient data related to supply chain complexity components, strategies, and outcomes among different industries.

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84 Curriculum vitae 84 6 Curriculum vitae Personal information Name Patrick Freinberger Birth date and place , Amstetten Address Grub Neuhofen/Ybbs Nationality Austria Education Volksschule Neuhofen/Ybbs Hauptschule Neuhofen/Ybbs Handelsakademie Amstetten 2010 Bachelor program International Logistics Management, FH OÖ Campus Steyr WS 2011 Semester abroad, Ewha Womens University, Seoul, South Korea Master program Supply Chain Management, FH OÖ Campus Steyr Work experience February September 2010 Order processing, Bene AG March 2013 July 2013 Internship, voestalpine Anarbeitung GmbH and voestalpine Stahl Service Center GmbH Since Sep Graduate assistant Logistikum Steyr Language skills Englisch Spanisch Russisch fluent basic basic

85 Declaration 85 7 Declaration I hereby declare and confirm that this thesis is entirely the result of my own original work. Where other sources of information have been used, they have been indicated as such and properly acknowledged. I further declare that this or similar work has not been submitted for credit elsewhere. Place, Date Signature