Strategy-structure theory
From the perspective of Strategy-structure theory (SST), firms aim to more systematic and dynamic ways of their supply chain management in order to develop more effective information systems (Handfield and Nichols, 1999). Therefore, it is now likely to consider horizontal structure as dominant organisational form for efficient supply chains (Easton et al., 1999).
In vertical structure, work and information are managed up and down within functional groups while in a horizontal structure, work and information are managed across groups and between organisations (Lysons and Farrington, 2012 ). According to Easton (1999), the computer industry was one of the first where supply chains have transitioned from vertical structures to forms that now more horizontal. This fact was explained as one which is cyclical with a period defined by conditions at each industry. It is argued that supply chain structures emerge to cycle between vertical and horizontal structures driven by the rate at which companies and products evolve (Fine, 1999). According to Fine (1999), the length of this cycle is considered as “clockspeed” and it can be seen in high-tech industries where firms and products develop very fast compared to other industries. Therefore, awareness of an industry's clock speed is good ability to forecast future plans by considering the events of past cycles.
The evolution of the network form of partnerships involves unrestricted communication flows, companies use their main competencies through long term relationships based on trust. Supply chain management has been transformed because restrictive governance mechanisms have been replaced by willingness of trust where whole information flows freely (Forester and Drexler, 1999). To sum up, supply chain structures that support closer relations between buyer and supplier have been proved to be positively linked with expectations of a continued long term relations and a willingness to share benefits and costs by both parties.
Consolidation
It is argued that, consolidation is one of the key ways in which costs in pipelines can be lowered. To plan consolidation, it is necessary to have reliable information concerning both current and planned inventory status. In addition, it is required to reserve scheduled production for a future consolidation load. Therefore, all aspects of consolidation require timely and relevant information concerning planned activity (Bowersoax and Closs, logistical management). According to Harrison and Van Hoek (….), effective freight consolidation involves market area, scheduled delivery and pooled delivery. The most fundamental type of consolidation is to combine small shipments to different customer in a market area.
Product development
Business now is all about change. All industries are getting more competitive, so the changes and challenges forcing organizations to develop its products. New product development (NPD) is one of the most important factors in order to gain competitive advantage. In the twentieth century, a lot of firms were able to undertake NPD initiatives in house. However, now in highly competitive environment, individual firms are often to need support of their suppliers in order to develop of new products. The main drives have been increasing R&D costs, increasing product complexity, reduced product life cycles, difficulties in adoption of new technologies and the greater amount of resources and knowledge needed to implement. Participation of supplier in NPD programmes has become increasingly commonplace (Strategic Supply Management, Cousins). For example, Delphi Electronics collaborates with their supplier in order to build a bridge to address technology needs. Their suppliers need to bring enough to the party for Delphi Electronics to leverage and help them to be more competitive (http://onlinelibrary.wiley.com/doi/10.1111/j.1055-6001.2005.04103004.x/full). It is even trend for many firms to outsource their NPD programmes. For example, in North America and Europe, organisations are outsourcing around 35 percent of their R&D investments (Roberts, 2001, benchmarking global strategic management of technology). According to D’Aveni and Ravenscraft (1994), suggested that in-house NPD efforts are likely to increase R&D costs 12 different industries so outsourcing is becoming a core competence of firms. The most important decisions made in the development process, influence on quality, cycle ti me and cost of the product. To quote Petersen, Handfiled, ragatz, Supplier integration (2005), 85 per cent of the product cost is committed by the time the product is designed, comprising Procurement function. Procurement is able to add knowledge of the supply market, selecting the right partner and finally managing the relationship, therefore it is able to add real value. When all decisions are made regarding to materials, technology and product specifications and the design proceeds, it costs expensive to do any changes (Strategic Supply Management, Cousins). Consequently, all parties have to be involved early and resolve conflict early in order to develop product effectively and move it quickly to the market. The “value innovation strategy of Toyota combine its suppliers in the design process to find savings spanning the entire vehicle systems. Early involvement of supplier in the development process led Toyota to obtain 50% of its innovations from outside its factories (Information Technology and Product Development).
A buyer always has to decide to involve supplier in product development. There is the range of approaches for supplier involvement:
No supplier involvement. A traditional approach where the buyer provides set instructions to the supplier.
White box involvement. Supplier makes small impact on product development, for instance some customisation of parts is required for a given component.
Grey box involvement. The most difficult approach to manage, where the buyer and supplier undertake NPD initiatives together, for instance, joint design, prototype manufacture and testing. Hence , high trust is a necessary element with intensive knowledge transfer and closer communication
Black box involvement. This approach associated with best practice in supplier involvement in new product development. Japanese automakers have used often this approach, where trusted suppliers are responsible for design completely. In this case, the buyer has little contribution in the activities of supplier. Therefore high levels of trust must be present as design project takes place out of sight of the buyer.
(Strategic supply management: Principles, theories and practice)
Howard and Squire (2007) stated that, in UK manufacturing firms, the involvement of suppliers in new product development has increased information sharing and collaboration in buyer-supplier relationships.