SUPPLY CHAIN COMPLEXITY: A CASE STUDY IN THE DRIVE AND CONTROL INDUSTRY SILKE MALINA Dissertation for obtaining the degree of Doctor of Business and Economics (Doctor rerum politicarum - Dr. rer. pol.) at WHU-Otto Beisheim School of Management Vallendar, Germany 09 October 2019 First Advisor: Prof. Dr. Stefan Spinler Second Advisor: Prof. Dr. Carl Marcus Wallenburg - 2 - Silke Malina: Supply Chain Complexity: A case study in the drive and control industry, © 09 October 2019 - 3 - ABSTRACT Supply chain management (SCM) is known as a competitive strategy in today’s business. Through increasing product variety, structures and processes, managers struggle with an increase in supply chain complexity (SCC), which leads to a negative influence on a firm’s efficiency in terms of lead times, flexibility and costs. In order to manage complexity, supply chain managers need to know its drivers or define appropriate management measures. However, managers can no longer manage SCC internally. In order to cope with this challenging issue and achieve overall benefits, it is necessary that the complete supply chain is involved in optimising supply chain processes. An aligned supply chain should ensure that supply chain partners benefit from cost savings. At the same time, supply chain processes should be agile to respond to market volatility, while also being cost-efficient to survive in the highly competitive world. In this dissertation, three research cases are conducted with different focus areas, whereby first drivers for internal and external SCC are explored in a single case study. In order to gain a representative overview of relevant drivers, not only interviews with top managers from a manufacturer are held but also with key managers from suppliers and customers. With the interviews held from the upstream to downstream supply chain, this part of the dissertation sheds light on topical SCC drivers and provides some hypotheses for managing detailed and dynamic SCC. With this case, an academic contribution is provided to better understand the relevance of SCC. In a second step, another qualitative study addresses the requirements of a supply chain. The basis for this part is the triple-A supply chain of Hau Lee (2004), where he states from a theoretical perspective the prerequisites of a supply chain, namely agility, adaptability and alignment. In this dissertation, this approach is reviewed from a managerial perspective. It is analysed which key performance indicators of a firm are affected by the three aforementioned qualities. Finally, it is presented how agility, adaptability and alignment are linked together. In order to gain a common understanding, semi-structured interviews are conducted to extend literature through managerial experience. - 4 - In a third step, a quantitative simulation creating a discrete-event simulation model is provided to evaluate inventory and logistics costs’ effects in a company that faces significant SCC. The target is to align the supply chain by changing the existing distribution channel to direct delivery. The result shall demonstrate the financial benefit for the supply chain partners, as well as illustrating the conditions and risks when changing supply chain processes. This dissertation shows that companies are increasingly faced by SCC. In order to respond flexibly to market volatility, supply chains must be agile to ensure that financial risk shall not alarm a company’s existence. Therefore, it is recommended to align the supply chain with a collaborative supply chain model. - 5 - ACKNOWLEDGEMENTS I am grateful to my primary advisor Prof. Dr. Stefan Spinler as well as my second advisor Prof. Dr. Carl Marcus Wallenburg from WHU-Otto Beisheim School of Management for their support in this doctoral research. Special thanks go to Prof. Dr. Stefan Spinler, whose expertise, understanding and generous guidance and support made it possible for me to work on a topic that held strong interest to me. It was a pleasure working with him. Furthermore, he has been very constructive in all activities to seek further feedback from fellow researchers and practitioners at conferences or seminars. Moreover, I would like to thank Prof. Dr. Wallenburg for his helpful comments and suggestions, as well as his openness. I would like to thank the company that enabled the case study and all interviewees for supporting this dissertation and providing relevant information for the completion of this dissertation. A special thanks goes to my family. Words cannot express how grateful I am to my beloved husband Kolos and my beloved children Kilian and Sophia, as well as to my parents for all of the sacrifices that you have made on my behalf. - 6 - CONTENTS 1 INTRODUCTION……………………………………………………………15 1.1 Supply Chain Complexity……………………………………………. 18 1.2 Supply Chain Agility………………………………………………… 19 1.3 Discrete Event Simulation for Supply Chain Alignment……………..20 2 DRIVERS OF SUPPLY CHAIN COMPLEXTIY: A LITERATURE REVIEW AND A CASE STUDY IN THE DRIVE AND CONTROL INDUSTRY……………………………………………………………………22 2.1 Introduction……………………………………………………………22 2.2 Literature Review…………………………………………………….. 24 2.2.1 Background and Definition of Complexity……………………24 2.2.2 Supply Chain Complexity……………………………………..25 2.2.3 Types of Supply Chain Complexity…………………………...27 2.2.4 The role of Product Complexity ……...………….……………29 2.2.5 Strategies of Supply Chain Complexity……………………….31 2.2.6 Research Objectives…………………...………………………35 2.3 Methodology…………………………………………………………..37 2.3.1 Data Collection Methodology…………………………………37 2.3.2 Sample Description……………………………………………38 2.3.3 Data Analysis………………………………………………….42 2.4 Findings………………………………………………………….…….43 2.4.1 Review of Supply Chain Complexity Drivers..………………..43 2.4.2 The Role of Product Variety on Supply Chain Complexity...…49 - 7 - 2.4.3 The Role of Performance Indicators for Supply Chain Complexity……………………………………………………..53 2.5 Implications for the Management of Supply Chain Complexity...……..55 2.6 Conclusion……………………………………………………………...61 3 SUPPLY CHAIN AGILITY: A CASE STUDY IN THE DRIVE AND CONTROL INDUSTRY……………………………………………………...65 3.1 Introduction……………………………………………………………..65 3.2 Literature Review………………………………………………………67 3.2.1 Supply Chain Agility…………………………………………...67 3.2.2 Supply Chain Adaptability……………………………………...69 3.2.3 Supply Chain Alignment………………………………………..70 3.2.4 Research Motivation………………………...………………….71 3.3 Research Methodology………………………………………………....73 3.3.1 Case Study Methodology……………………..…….…………..73 3.3.2 Sample Description…………………..…………………….….. 74 3.3.3 Data Collection and Analysis…………………….…..…………75 3.4 Findings…………………………………………………………………77 3.4.1 Design of Performance Indicators……………….…………..…….77 3.4.2 Interdependence of SCAg, SCAd and SCAl…………..……….81 3.4.3 Optimal Levels of Supply Chain Agility, Adaptability and Alignment…………………………………………………..…...86 3.5 Summary of Case Study Findings………………………………………91 3.6 Conclusion……………………………………………………………...94 - 8 - 4 REDUCTION OF SUPPLY CHAIN COMPLEXITY BY REDESIGNING THE SUPPLY CHAIN: A DISCRETE-EVENT SIMULATION IN THE MACHINE CONSTRUCTION INDUSTRY………………………...……..97 4.1 Introduction………………………………………………………….…98 4.2 Literature Review……………………………………………………....99 4.2.1 Background Discrete-Event Simulation..................................... 99 4.2.2 Application of Discrete-Event Simulation…………...……......101 4.2.3 The Role of Supply Chain Complexity………...………….…..102 4.2.4 Research Motivation…………………...……………………...103 4.3 Supply Chain Redesign…………………………………………….….105 4.3.1 Supply Chain Design from the Perspective of an OEM..…..…105 4.3.2 Case Study: Status quo of Supply Chain………………………106 4.3.3 Future Simulation Concept……..………………...…………...111 4.3.4 Simulation with ExtendSim®….……..……………………….113 4.3.5 Relevant Costs for the Simulation……………………………..118 4.3.6 Relevant System Parameters………………...………….……..121 4.4 Scenario Analysis………………………………………………...……126 4.4.1 Comparison Status quo vs. Simulation…..………...…...……..126 4.4.2 Model Verification….…………………………………………129 4.5 Findings and Managerial Implication…………………………………133 4.6 Conclusion…………………………………………………………….134 - 9 - 5 SUMMARY AND OUTLOOK……………………………………………..137 5.1 Summary……………………………………………………………...137 5.2 Outlook………………………………………………………………. 139 A APPENDIX TO CHAPTER 2………………………………………………141 B APPENDIX TO CHAPTER 3………………………………………………152 C APPENDIX TO CHAPTER 4………………………………………………159 BIBLIOGRAPHY…………………………………………………………………...160 - 10 - LIST OF FIGURES Figure 1.1 Global machinery production revenue forecast and annual growth rates…………………………………………….……………………….16 Figure 2.1 Supply chain of the manufacturer……………………..…….………….41 Figure 2.2 Development of number of suppliers and logistics cost for controlling unit………………………………………………………….49 Figure 2.3 Variant analysis of controlling unit……………………………………..51 Figure 3.1 Framework of a Triple A supply chain…………………………………84 Figure 3.2 Vertical and horizontal supply chain alignment………………………..89 Figure 4.1 Diagram of information and material flow; base situation of resale process……………………………………………...………………….108 Figure 4.2 Development of inventories and logistics costs……………………….109 Figure 4.3 Distribution of logistics costs per type in %..........................................110 Figure 4.4 Flow diagram of information and material flow; simulated direct delivery process………………………………………………………….……...112 Figure 4.5 Main screen of the simulation model………………………………….115 - 11 - LIST OF TABLES Table 2.1 Definitions of complexity in SCM………………………..………...…..26 Table 2.2 Case description………………………………………….……………..39 Table 2.3 Participants of interviews………………………………….……………40