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Alternative forms of fit in

distribution flexibility strategies

Distribution
flexibility
strategies

Kangkang Yu and Jack Cadeaux

School of Marketing, University of New South Wales, Sydney, Australia, and

1199

Hua Song
School of Business, Renmin University of China, Beijing,
Peoples of Republic China
Abstract

Received 14 August 2010

Revised 15 December 2010,
18 March 2011,
16 June 2011
Accepted 23 September 2011

Purpose In response to highly volatile and uncertain environments, many firms have implemented
flexible strategies and many management researchers have discussed the topic of flexibility. The
purpose of this paper is to focus on distribution flexibility, the aspect of flexibility related to a
downstream supply chain and to examine the construct of distribution flexibility and how
organisations make strategic choices among different distribution flexibility strategies.
Design/methodology/approach This work conducts an exploratory multiple case study which
analyses four Chinese manufacturers from different industries (pharmaceutical, solid/liquid
separation, electric appliances, and clothing).
Findings The results show that, given different circumstances, firms might choose an appropriate
distribution flexibility strategy (one focused on either physical distribution flexibility, demand
management flexibility, coordination flexibility, or on distribution flexibility co-alignment) which fits
with their distribution environment in the contingency theory sense of matching. Furthermore, for
implementation, they fit a given distribution flexibility strategy to both their distribution networks
and their distribution performance outcomes in the sense of gestalts or covariance.
Research limitations/implications This paper has some limitations common to all case studies,
such as the limited generalisability of results (since the sample of firms is not statistically significant)
and the potential subjectivity of the analysis.
Originality/value The paper contributes to the existing literature by empirically investigating the
dimensions of distribution flexibility, by considering how an organisation develops a distribution
flexibility strategy in order to adapt to a particular environment, and by suggesting that final
performance outcomes may arise through a variety of different distribution flexibility strategies.
Keywords China, Manufacturing industries, Distribution management, Supply chain management,
Distribution flexibility, Fit, Focus strategy, Coalignment strategy
Paper type Research paper

Introduction
In benevolent environments, where a threat does not entail major changes, rigid
responses may be the best course of action for some firms. Such responses refer to the
tendency of organisations toward utilising well-learned or dominant strategies to address
environmental disturbances (Fredericks, 2005). However, economic globalisation, the
development of information technology, and the diversification of consumer
requirements increasingly cause enterprises to face highly volatile and uncertain
environments that arise from short product life cycles and frequent and unpredictable
changes in demand. In such instances, existing routines and procedures may be
The authors acknowledge financial support from the China Scholarship Council.

International Journal of Operations &

Production Management
Vol. 32 No. 10, 2012
pp. 1199-1227
q Emerald Group Publishing Limited
0144-3577
DOI 10.1108/01443571211274521

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inappropriate to the extent that a mismatch has occurred between organisational

responses and external demands (Fredericks, 2005). Flexibility, the ability to change or
react to environmental uncertainty with little penalty in time, effort, cost or performance
(Upton, 1994), has become increasingly important. Nevertheless, the key problem facing
managers is not an either-or choice between flexibility and rigidity but a systematic
decision about balancing different dimensions of flexibility under differing conditions.
Within the context of a supply chain, flexibility is driven by market dynamism
(Van Hoek, 2001). A number of streams of literature discuss this topic in a
manufacturing and supply chain context by defining the capability of flexibility as
manufacturing flexibility (Gerwin, 1993; Koste and Malhotra, 1999; Upton, 1994), value
chain flexibility/agility (Swafford et al., 2006; Zhang et al., 2002), supply chain
flexibility/agility (Kumar et al., 2006; Lummus et al., 2003; Prater et al., 2001; Sanchez and
Perez, 2005; Vickery et al., 1999), logistics flexibility (Zhang et al., 2005) and so on.
Although flexibility manifests itself at the lower level of strategy implementation
through different processes, other theories operate at the higher level of strategic
structural planning for the whole organisation. For example, the organisation theory
and strategic management literatures consider the relations between strategy, structure,
and environments and invoke concepts such as fit (Drazin and Van de Ven, 1985;
Venkatraman, 1989; Venkatraman and Camillus, 1984), adaptation (Chakravarthy, 1982;
Hrebiniak, 1981; Miller and Friesen, 1980) and organisation change (Armenakis and
Bedeian, 1999; Greenwood and Hinings, 1996). These studies take a systematic
perspective but do not examine the flexibility process itself, while studies at a lower level
of analysis focus on process but often confuse flexibility with its sources and
performance outcomes. In contrast, the present research tries to explore flexibility
strategies in downstream distribution channels based on theories from studies at both
levels.
The highly volatile and dynamic nature of the contemporary business environment
forces many distributive firms to make adaptations in channel relationships and to
modify the rules of exchange as circumstances change (Sezen and Yilmaz, 2007). For
example, GREE, the worlds largest specialised air conditioner company, carried out a
Vague Refund Profits Policy to give a certain percentage of whole year profits to
distributors whenever competition caused a dramatic decrease in distributors profits
and also implemented an Off-season Sales Policy to give refunds of profits to
distributors who pay for goods before the arrival of the peak season (Huang et al., 2009).
Both reflect their strategic capability to coordinate with distributors flexibly in reaction to
changes in the distribution environment. Even since IKEAs best selling bookcase Billy
exceeded the German environmental public policy E-1 standard, they have carried out
several action plans such as highlighting environmentally friendly products in stores,
drafting a checklist of how IKEA stores could be environmentally oriented, designing
packaging alternatives to maximise the efficient use of transportation space, and
stressing the use of the most efficient transportation mode to reduce the number and
volume of trips, all of which reflect the strategic capability of IKEA to respond flexibly in
physical distribution (Reichert and Larson, 1998). However, it is not clear how such
choices are made, how to implement them, and what benefits they generate. Furthermore,
most studies of flexibility are limited to purely operational issues in the supply chain and
do not specifically address strategic aspects of downstream distribution channels. It is in
this context that we pose our research questions:

RQ1. What is distribution flexibility, and what are its concrete processes? What are
its sources and its performance outcomes?
RQ2. How does an organisation develop a distribution flexibility strategy in order
to adapt to a given distribution environment?
RQ3. How do final performance outcomes arise through a variety of different
distribution flexibility strategies?
Literature review
As a reaction to increasing uncertainty in the business environment, flexibility became a
hot topic in operations management research in the 1980s and 1990s (Gerwin, 1993; Koste
and Malhotra, 1999; Sethi and Sethi, 1990; Slack, 1987; Upton, 1994). A growing body of
literature has begun to recognise that it is important to look beyond the flexible factory to
the flexible supply chain (Duclos et al., 2003; Kumar et al., 2006; Sanchez and Perez, 2005;
Vickery et al., 1999; Zhang et al., 2002). In this literature, flexibility arises at an inter-firm
level as well as at the intra-firm level in that supply chain partners share the responsibility
to respond rapidly to customers demand at each link of the chain (Kumar et al., 2006).
However, only a few studies of flexibility considered as drivers of flexibility such situational
factors as market volatility, product complexity (Bello and Gilliland, 1997), environmental
uncertainty (Swamidass and Newell, 1987; Vickery et al., 1999), or technological complexity
(Sanchez and Perez, 2005). What is less known are the conditions under which flexibility, or
explicitly, each type of flexibility, can enhance a firms effectiveness.
According to the contingency theory paradigm, there is no universal set of strategies
which are optimal for all businesses, and therefore strategies need to be designed for
specific environment contexts. Thus, the present paper takes into account particular
environmental contexts by using the contingency approach which entails identifying
commonly recurring settings and observing how different structures, strategies and
behavioural processes fare in each setting (Hambrick, 1983). Contingency analysts strive to
identify what constitutes environmental fit and seek to show the effect of fit on performance
(Donaldson, 2001). Venkatraman (1989) argued that in some settings, researchers specify fit
that is intrinsically connected to specific criterion variables (e.g. fit as profile deviation, fit
as mediation, fit as moderation), but in other settings they adopt a criterion-free
specification, which has universal applicability (e.g. fit as matching, fit as gestalts, fit as
covariance). In this study, we try to explore through case analysis the mechanisms
underlying distribution flexibility strategies from a systematic perspective based on the
criterion-free kinds of fit. In contrast, the former criterion-based types of fit require a larger
scale survey based data set to capture the various criterion variables systematically.
Fit as matching
The natural selection model posits that environmental factors select those organisational
characteristics that best fit the environment (Aldrich, 1971). Using the expression natural
ecological selection, Aldrich and Pfeffer (1976) emphasise that social organisations are
moving toward a better fit with the environment in a process of organisational change
controlled by the environment. Fit as matching, either between the environment and the
chosen flexibility strategy, or between the network structure and the chosen flexibility
strategy, reflects the population ecology or natural selection approach to adaptation. In
this view of fit, organisations enjoy virtually no control over exogenous factors but have

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to match their structures and decision making processes to the demands of their external
environments. Therefore, the present study suggests that different types of distribution
flexibility strategies fit with specific environmental conditions as matching.
Definition of distribution flexibility. As one dimension of supply chain flexibility,
some researchers define distribution flexibility as the ability to provide widespread or
intensive distribution coverage (Sanchez and Perez, 2005; Vickery et al., 1999). However,
this definition has several limitations. First, the notion of flexibility is clearly missing.
Flexibility should be defined in terms of the ability to change or react to the environment
(Upton, 1994). Although widespread coverage is a potential outcome, it cannot represent
the concrete processes or functions of distribution flexibility. Second, the boundary of
the phenomenon of distribution flexibility in this definition is vague: it arguably is more
reasonable for it to absorb interactive aspects of other dimensions (e.g. product
flexibility, volume flexibility, and responsiveness flexibility). Finally, although such a
definition views distribution flexibility as an ability, this definition is too abstract
to explain both adaptive and proactive processes of marketing-based flexibility
(Claycomb et al., 2005). Based on this analysis, this study defines distribution flexibility
as the ability to change distribution processes in an efficient or effective manner to
adjust to requirements of both direct and indirect customers.
Dimensions of distribution flexibility. A supply chain performs a physical function and
a market-mediation function (Fisher, 1997), thus, distribution flexibility, as a capability
embedded in the supply chain, not only involves physical distribution activities
(Duclos et al., 2003) which are supply-oriented, but also demand-oriented activities.
Zhang et al. (2002, 2005) identified two dimensions of distribution flexibility: physical
distribution flexibility and demand management flexibility. They defined physical
distribution flexibility as the ability of a firm to quickly and effectively adjust the
inventory, packaging, warehousing, and transportation of physical products to meet
customer needs, while demand management flexibility is the ability of a firm to quickly
and effectively respond to the variety of customer needs for service, delivery time, and
price. In addition, a third dimension, coordination flexibility refers to the development of
relationship management processes between partners through integrative capabilities
(Achrol, 1997; Heide and John, 1992; Sezen and Yilmaz, 2007). A company has a choice
about whether to focus on one dimension or to combine all three together, thus yielding
four implicit types of strategies: a strategy focused on physical distribution flexibility,
a strategy focused on demand management flexibility, a strategy focused on coordination
flexibility, and, finally, a strategy of distribution flexibility coalignment. The key
objectives of this paper are to interpret how firms choose strategies under various kinds of
environmental conditions and to understand how they implement chosen strategies.
Fit as gestalts or covariance
When fit is conceptualised and specified using only two variables, it is possible to invoke
alternate perspectives that have precise functional forms, but when many variables are
used, it is necessary to identify a gestalt mechanism (Venkatraman, 1989). A gestalt
mechanism here assumes that different kinds of distribution flexibility pose conflicting
functional demands. This condition predicts that focal firms which attempt to
simultaneously satisfy all functional demands will perform poorly. Therefore, once a focal
organisation chooses a focused strategy of distribution flexibility, a network structure can
be designed to maximise such flexibility, and the internal consistency of each choice will

lead to relatively better distribution performance. Such a perspective conceptualises

strategy as the combination (profile) of environmental, contextual, and structural elements
affecting an organisation at any time when the congruence of environmental, contextual,
and structural complexity increase (Venkatraman and Camillus, 1984).
Fit as covariation depicts a pattern of covariation or internal consistency among a set of
underlying theoretically related variables (Venkatraman, 1989). In contrast to the logic of
fit as gestalts, fit as covariation implies that different kinds of distribution flexibility are
functional demands that are not in conflict but rather act synergistically. Therefore, the
covariation among the three components of distribution flexibility will lead to superior
performance. However, the degree of specification of the functional form determines the
difference between fit as covariation and fit as gestalts. If the resources or capabilities
required are critical and scarce, the degree of conflict in the three different dimensions will
be very high and they will fit as gestalts. In such a situation, the focal firm should use a
large proportion of its limited resources or capabilities to focus on only one dimension and
put less emphasis on the other two. In contrast, if the resources or capabilities required are
different and easy to access, the degree of conflict will be very low and the dimensions will
exhibit fit as covariation. The degree to which firms favour one strategy over another
depends on environmental conditions. Whether they have sufficient resources to
implement the strategy depends on their network structure and performance orientation.
Network sources of distribution flexibility. Compared to manufacturing flexibility,
flexibility in the supply chain entails the implicit requirement of flexibility within and
between all partners in the chain (Duclos et al., 2003). This view regards sources of
supply chain flexibility as not simply constrained to intra-organizational phenomena.
For example, Stevenson and Spring (2007) recognize both a robust network and supply
chain relationships as important components of a flexible supply chain. However, we
argue that contracts requiring flexible procurement, in themselves, constitute only one
aspect of a process of flexibility, and relationship duration, in itself, is arguably a long
run output; thus, only the design of the network structure, itself, is a true source of
flexibility. The reason is that resources can be seized, delivered, and used from strategic
networks, a process in which different kinds of capabilities can be formed. More
specifically, through collaborations with other firms in the industry, a firm involves itself
in an inter-firm network that contains useful information and resource flows (Echols and
Tsai, 2005). Thus, network resources represent the informational advantages associated
with a firms network of ties in which both relational and structural embeddedness are
important dimensions for analysis in network theories (Gulati, 1998).
Performance of distribution flexibility. Distribution channel systems exist and remain
viable through time by performing duties that reduce end-users search, waiting time,
storage, and other costs, which Bucklin (1966) collectively calls the service outputs of the
channel. Some of these dimensions focus on efficiency such as timeliness and
availability, while others may emphasize effectiveness such as product appropriateness
(Bienstock et al., 1997). In the long-term, higher customer loyalty will reduce the need to
find new customers and instead allow effort to focus on retaining existing customers.
Therefore, to the extent that customer retention is less costly than customer acquisition,
a focal firms goal of higher marketing efficiency is partially achieved by enhancing the
operational quality so as to make existing customer satisfied, thus contributing to
long-term loyalty. Another long-term indicator, link duration, measures the amount
of experience that the supplier and the buyer have in dealing with each other

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(Levinthal and Fichman, 1988). To the extent that it yields long-term revenue streams, it
is an effectiveness outcome. However, these dimensions involve substantial tradeoffs.
Donaldson (1984) claims that good performance on one dimension often means
sacrificing performance on another, so no single strategy can be expected to perform
well on all dimensions. Accordingly, different types of flexibility strategy are also
expected to perform differently on distinct performance dimensions.

1204
Case study method
The overall objective of this research is to build and validate theory about distribution
flexibility strategies to the extent that there are few studies in this area and there is no
accepted framework for analysing distribution flexibility. Due to the exploratory nature
of this paper, we adopt the case study method recommended by Yin (1984) and
Eisenhardt (1989). Case studies have a distinct advantage when a how or why
question is being asked about a contemporary set of events over which the investigator
has little or no control (Yin, 1994, p. 4). Thus, the case study method seems appropriate
to obtain an in depth knowledge of distribution flexibility and to explore how firms
make and implement a variety of different distribution flexibility strategies.
Sample selection
As we want to compare the differential challenges and responses in multiple firms, we
develop a multi-site study (Creswell, 1998). The studies of each site instrumentally focus on
the same issue, so we use purposeful sampling to explore the differing environmental
conditions (Stake, 1995). We select manufacturing firms based on different flexibility drivers
or reasons why flexibility exists in different situations (Jack and Raturi, 2002). These are
related to uncertainty to the extent that flexibility is a fundamental reaction to uncertainty
(Gerwin, 1993; Swamidass and Newell, 1987; Vickery et al., 1999). Broadly speaking, there
are two core sources of environmental uncertainty: homogeneity and stability (Thompson,
1967). Duncan (1972) suggests that the number of customers, suppliers, and competitors that
a firm may face is an indicator of homogeneity while the rate of change in such numbers is
an indicator of stability. From a similar perspective, Nonaka and Nicosia (1979) make use of
two dimensions: certainty-uncertainty and homogeneity-heterogeneity to define the
information generated by the markets faced by a seller.
In this study, we analyse four manufacturing firms that represent different
flexibility drivers so as to reflect a cross-classification among levels of two dimensions:
(1) The level of uncertainty, including such questions as In the last five years,
have there ever been any changes in customer demand? Have there ever been
any changes in competitive activity? and Have there ever been any changes of
production technology in your industry?
(2) The level of heterogeneity including such questions as How many different
categories of this product exist? Do you think the range is wide enough for most
of your end customers? and Is there any segmentation of your end customers?
Table I profiles these four firms in terms of their distribution environment.
Company P manufactures mainly mens wear with world class production lines and
auxiliary equipment. Although they are still at an early stage of development, their growth
rate is dramatic, at over 700 percent in 2006. Now they have around 1,000 employees and
30 million RMB in annual sales. Their products are mainly sold in Shandong province,

Uncertainty
Demand
Preferences for product features
Demand volume
Competition
Number and quality of competitors
Strategies of competitors
Technology
Manufacturing technology
Product development
Heterogeneity
Product
Category of existing products
Customer
Number of customer segmentation
Variability of customer demand

Company P

Company Z

Company Q

Company J

Low

High

Low

High

e
e

O
O

O
O

e
e

e
O

e
e

O
O

O
e
Low

O
O
Low

e
e
High

e
O
High

f
f

f
P

P
P

Notes: O indicates evidence of uncertainty; e indicates evidence of certainty; P indicates

evidence of heterogeneity; f indicates evidence of homogeneity; indicates no evidence

where the market is very stable. Suits are their main products and mens suit styles in
China have not changed much for many years. Thus, Company P is in a relatively stable
and homogeneous environment.
Company Z is a professional filter press manufacturer with leading-edge technology
and a wide range of products. They have established 12 branches, around 150 sales
offices, more than 1,300 agents, and above 1.5 billion RMB annual sales revenue. A few
years ago, their market in the coal washing industry had been shrinking and expanding
to many other industries connected with solid/liquid separation, which accelerates the
upgrading of products from small size to large size and energy-efficient types.
Furthermore, prices fluctuate rapidly because of lack of differentiation among
competitors. As a result, Company Zs profit fell by 10-20 percent between 2008 and 2009.
Thus, although their environment is relatively homogeneous, it is also uncertain.
Company Q, one leading pharmaceutical company in China, manufactures quality
and affordable generic drugs. They now have more than 6,000 employees and 6-10 billion
RMB annual value production. In 2009, they were chosen as one of the ten
pharmaceutical companies with the largest growth potential in China. They already
have three product lines and more than 200 categories of products. The customer
demand for most categories has not changed very much in recent years. Although the
number of companies producing similar categories of products is increasing, the number
of strong competitors is very limited. Most products available are generic drugs and the
process of R&D is very arduous, lasting from five to seven years. Thus, previous
products remain on the market for a long time.
Company J invented the Automatic Soymilk Maker and engaged mainly in the
health-oriented household appliances industry. Their average growth rate has kept above
40 percent in the most recent five years and the market share of their soymilk maker has
exceeded 80 percent. They already have 450 first level distributors, more than 20,000 retail
outlets, and 4.3 billion RMB total revenue in 2008. In addition, Company J has entered

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Table I.
Business background

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more than ten other small household appliance categories. In 2008, after the so-called
Poison Milk incident, the market for the soymilk maker became even more intensely
competitive. Therefore, the environment of Company J is not only heterogeneous but is
also quite uncertain.
Evidence collection
To maintain data consistency and improve richness in detail, we use a semi-structured
interview approach (Yin, 1994). In each firm, the key informant participated in a one and a
half hour interview. Qualified key informants ranged from middle managers and senior
managers to presidents/vice presidents all of whom must meet the following requirements:
.
have much experience in dealing with channel management or working with the
downstream distributors/direct customers;
.
be quite knowledgeable of operations and distribution channel management; and
.
be involved in the distribution decision making process and hold opinions that
are representative of the organization or business unit as a whole.
The interview involves questions about the structure of distribution channel, flexibility
in distribution activities, and performance (see the Appendix). The interviews were
conducted between December 2009 and January 2010. In order to increase the reliability
of the case analysis, we use an interview protocol and develop a case study database as
recommended by Yin (1994). The transcripts of the records were first sent back to
interviewees for accuracy, coded and checked for credibility, and subsequently audited
by other researchers to establish dependability and conformability (Lincoln and Guba,
1985). In addition, multiple sources of evidence such as industry databases, product
catalogues, company magazines, web sites, and brochures were used to help establish
convergent validity (Yin, 1994).
Case analysis and results
A staggering volume of data in a case study drives within-case analysis and the overall
idea is to become intimately familiar with each case as a stand-alone entity (Eisenhardt,
1989). Therefore, the first step of analysis involves preparing detailed case study
write-ups for each site in order to understand the unique pattern of each case. Then,
cross-case analysis looks for patterns that can help categorise the sample cases into
subgroups based on within-group similarities coupled with intergroup differences.
Finally, several typologies are constructed to explain the underlying fit mechanisms.
Fit as matching
According to the literature review, fit as matching is a condition in which strategic choice
is low and environmental determinism is high (Hrebiniak and Joyce, 1985). That means
that an organisation can survive the conditions of its environment by adapting its strategy
to cope with changes in the external environment. Based on this theory, we analyse how
the four companies in this study fit their different kinds of distribution flexibility strategy
with their specific distribution environment from a matching perspective. The following
passages first discuss how each dimension of distribution flexibility is manifested in
each company and then make working propositions using contingency theory.
Physical distribution flexibility. Physical distribution management involves activities
such as transportation planning and management, facility structure management

(e.g. warehouse location), inventory management, material handling (e.g. packaging and
loading), reverse logistics, tracking, and delivery (Duclos et al., 2003; Williamson et al.,
1990). Also, based on the definition of Zhang et al. (2002), the present paper suggests that
physical distribution flexibility involves changing manufacturing, delivery, logistics
and other operating processes to respond in an efficient manner to varying requirements
of both direct and indirect customers. Guided by conventional studies of manufacturing
flexibility and logistics adaptability, we analysed the changes that take place in the
manufacturing and logistics strategies in each company and found these to be concerned
with physical distribution flexibility as manifested in manufacturing, transportation,
storage, and inventory.
Company P shows some evidence of physical distribution flexibility, particularly in
terms of volume flexibility, the ability to effectively increase or decrease aggregate
production (Cleveland et al., 1989). For example, in off seasons, there is a workshop
specifically dealing with foreign orders to accommodate a strict time schedule. Their
delivery strategy is also quite unique in that 50 delivery cars not only serve fixed retail
stores but also collect dirty suits for dry cleaning when there are no new products, thus
adjusting delivery requirements to meet the expectations of individual customers. Using
enterprise resource planning (ERP) systems, Company P can transfer stock between
different areas to avoid a large quantity of stock in any one area, which enhances
efficient deployment of inventory and quick inventory replenishment.
Company Z also shows much more evidence of flexibility in manufacturing and
logistics. With more and more rigorous environment policies, demands for product sizes
and press rates are changing. In 2009, Company Z stopped producing machines of small
sizes and gave priority to large sizes. Furthermore, they developed a quick-draw
machine and also changed the washing method from a vertical type to a frame type in
response to customers new demands for higher efficiency and energy savings. These
are manifestations of product flexibility as defined by Vickery et al. (1997). With changes
in product size, the transportation tools of Company Z also changed from small vehicles
to large ones, showing a capability to vary transportation carriers (Lummus et al., 2003).
Furthermore, the interviewee also explained the way that Company Z tried to control
inventory to an acceptable level:
When material prices fluctuate dramatically, we will bring forward enough inventories. If the
fluctuation is not so big, we will transfer inventory to external logistics companies (Mr Zhang,
Marketing Manager, Company Z).

This remark depicts a capability to adjust inventory by enlarging volume or outsourcing

in response to procurement uncertainties.
Company Qs manufacturing process is somewhat rigid compared with the other
companies as suggested by an interviewee who said that:
If the material price is increasing, we will try to ensure normal operation of the original
product lines. Unless it is absolutely necessary, we will not choose to stop producing.
Sometimes we decide to retain a market even when there is no profit in the belief that the
fluctuation is temporary (Mr Tian, Marketing Manager, Company Q).

Furthermore, Company Q thought that there are still financial risks in storing too much
material when material prices are low, so instead they often consider simply managing
demand by increasing the price of their product to their downstream customers who
accept it within limits.

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Company J is similar to Company Z in that it has a high level of physical distribution

flexibility. They increased investment in R&D continuously (to 88.53 million RMB in
2008, an increase of 129.54 percent) and led one major technology evolution every two
years, which constitutes a high level of launch flexibility, the ability to rapidly introduce
many new products and product varieties (Sanchez and Perez, 2005). Company J can
adjust product lines and produce a Fighter periodically which has a high price
performance ratio to gain market share quickly. This is a special case of modification
flexibility, the ability to effectively implement minor changes in current products in
reaction to complex situations of market competition (Pagell and Krause, 2004). On the
arrival of the busy season, the logistics department of Company J carried out plans to
deliver the right goods on time. If orders arrive late, they will work overtime; and if urgent
orders arrive, they will track the entire journey of a shipment. This constitutes high
delivery flexibility (Sanchez and Perez, 2005). Also, the warehouse management
department will start planning methods to adjust storage capacity such as renting
external warehouses, updating machines, and increasing the number of barcode scanners.
Demand management flexibility. Demand management flexibility is a form of
marketing-based flexibility and can be defined as the responsiveness to changing
market conditions and changing customer needs and wants (Duclos et al., 2003).
However, different from ongoing marketing policies, demand management flexibility is
an information-intensive and market-sensing capability that entails quick adjustments
of original processes under a given circumstance (Zhang et al., 2002). This paper
suggests that demand management flexibility involves changing assortment,
promotion, after-sale services and other marketing processes in an effective manner
to adjust to varying responses of both direct and indirect customers to products/services
quality, prices and discounts, promotion, assortment, and involvement in intangible
services. Several aspects of marketing-based flexibility that arise in the cases include
flexibility in assortment and order fulfilment, customer services, price, and promotion.
Both Company P and Company Z are somewhat rigid in marketing activities. For
example, their services, such as the custom-tailored service for special body sizes and the
group orders that Company P provides and the commitment to offer free after-sale
services for the entire year made by Company Z, are common to other competitors. Also,
the price strategies of Company P and Company Z are less flexible than those of other
companies. For example, the price given to either distributors or branches is fixed by
Company Zs headquarters. In terms of order fulfilment, Company P sometimes may
delay domestic orders for a short time within the contract, but they never delay orders
from overseas to balance the fulfilment schedule. For Company Z, if an order is delayed,
they will first communicate with customers and then try to coordinate with other orders
to ensure that the goods arrive on time.
Company Q, in contrast, shows considerable evidence of high demand management
flexibility. Although the products of Company Q are rarely sold together, sometimes
they give free goods allowances by offering free of charge a certain product to those
dealers who achieve good sales performance. However, the percentage of the volume, the
category of the products, and the performance criterion are not fixed as a promotion
reward but implemented quite flexibly and only when dealers reach satisfactory sales.
In addition, if one product sells very well, Company Q will promote another new product
to agents by using their original network. When the products of Company Q are
adopted by a hospital, they offer support including participating in academic activities

such as conferences, giving free documents to academics, and offering brokerage, all of
which show their capability to offer flexible services to direct or indirect customers.
Company Q also changes sales policies with price fluctuations. The interviewee of
Company Q illustrated that:

Distribution
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We fixed a price of 800 RMB each unit (of a drug). But later, other competitors were on the
market and their prices were at about 500 RMB each unit, so we will follow. When we joined
in bidding, the price dropped to 300 RMB each unit. So we had to adjust this price to 100 RMB
each unit or agents would have no profits (Mr Tian, Marketing Manager, Company Q).

1209

This example reveals the capability of Company Q to adjust prices quickly under a
condition of highly uncertain competition.
Company J, which has a strong ability to change marketing processes, is in a similar
condition. In 2008, many small household appliance producers entered into the hot
market of the soymilk maker. Thus, Company J could not rely only on its early promotion
of soymilk as a traditional drink, so they decided to change their marketing strategy.
The Company J interviewee noted that:
We have a big soybean production base in Heilongjiang and send soybeans to the processing
base in Shandong [. . .]. At the early stage, we put some soybeans as a trial in the package of
soybean makers, and now customers can also buy soybeans separately in 5 Star stores
(Miss Han, Public Relations Manager, Company J).

Company J also tried to enhance the level of customer service such as by offering Three
Free service nationwide and establishing a spare parts management department. In
promotion, they increased investment in advertisements, established health clubs, and
proposed an idea of billions of cups of soybean milk free drinking. All of these
represent the capability of Company J to sense long-term trends in their market area and
to frequently adjust their selling practices (Kumar et al., 1992).
Coordination flexibility. Coordination flexibility involves changing relationship
management processes in a long-term oriented manner to adjust to customer demands.
Many studies in marketing connect flexibility to relational norms and suggest that the
relationship will be subject to modification in the light of changed circumstances (Heide
and John, 1992; Sezen and Yilmaz, 2007). This is flexibility in relationship content, which
is a bilateral expectation to be able to make adjustments in an ongoing agreement about
a relationship. However, other studies are also concerned with the structure of relations.
For example, Stevenson and Spring (2007) suggest that it is recognised as important to
be able to re-configure and re-invent a structure as needs change, providing a more
dynamic and evolutionary means of being flexible. Thus, flexibility in relationship
structure is the capability to change the number of partners or relation levels such as
from arms-length to strategic alliance.
Company P has a high level of coordination flexibility. Although the sales of stores in
different districts are calculated separately and generally they are forbidden to do
business across districts, sometimes when there are large or group orders which are
quite hard for a single store to handle the headquarters would allow several stores to
cooperate to fulfil the orders. In addition, Company P has tried to enlarge its distribution
network. For example, the retail stores of Company P in prefecture-level cities represent
the Company P brand image and help in establishing a good reputation, but these stores
may not gain profitable business, so Company P has tried to add new franchisees

IJOPM
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in county-level cities and even allows managers of high performance stores to open new
stores in other places by themselves.
Similarly, Company Q and Company Z also show evidence of flexibility in their
relationships. When agents meet with difficulties, Company Q will help agents to deal
with them even though this is not included in the contract. Company Z also tried their
best to support their distributors. The interviewees from both companies gave examples
as follows:
When agents join in the bidding, some products are easy to deal with, while some are very
hard, so we will support them. If they need us to give a price concession, we will do this to
help them win the bid (Mr Tian, Marketing Manager, Company Q).
For distributors, we offer supports like welcoming customers, showing them around the
factory and giving gifts to them [. . .]. If they require more, we will try to offer more, either
more spare parts or more gifts (Mr Zhang, Marketing Manager, Company Z).

Company Z also wants to develop more distributors not only in the mature coal
washing industry but also in other new areas such as chemical engineering, sugar
manufacturing, and titanium white. The Company Z interviewee observed that:
XX Co. Ltd which sells environmental equipment used our products before and knows this
environmental protection industry very well. Hence, we gave the dealership in Guangdong
province to this company (Mr Zhang, Marketing Manager, Company Z).

This example illustrates a very special way in which some customers may be transformed
into distributors to the extent that they may have more experiences and relations than the
focal firm does in a new untapped market.
Quite differently, Company J established very complex distribution channels. On one
hand, they signed formal strategic alliance contracts with many big retailers; on the
other hand, they have very strict standards for the 5 Star stores and other agents and
inspect their operations and training managers regularly. Through these regulations
and formal contracts, Company J kept very strong mutually beneficial relations with all
distribution channel members. In addition, Company J planned to add 6,000 retailers and
establish more than 800 5 Star stores in the coming two to three years in order to
expand their existing distribution network.
Environment and flexibility strategy. Based on the analysis of distribution flexibility
in each company, we compared these four companies in terms of each dimension of
distribution flexibility. As is shown in Table II, arguably, Company P focused on
coordination flexibility; Company Z had a high level of physical distribution flexibility;
Company Q had a high level of demand management flexibility; while Company J is
special in that it achieved high levels of all three dimensions of distribution flexibility.
Using contingency theory, the following passages construct propositions of fit as
matching between the environment and the strategy chosen by the company.
Company P, which is in a stable and homogeneous environment, focuses on its flexible
relationship with its stores and franchisees. They are able to change relationship content
(e.g. allow stores to cooperate among themselves for large orders) and relationship
structure (e.g. allow store managers the right to open new stores), which suggests a high
level of coordination flexibility. But their capability to change activities related to
manufacturing, logistics and marketing is much weaker, which suggests an average level
of physical distribution flexibility and a lower level of demand management flexibility.

Physical distribution flexibility

Manufacturing
Production volume/category
New product development
Delivery and transportation
Transportation tool
Delivery volume/quality
Storage and inventory
Inventory deployment
Inventory volume
Demand management flexibility
Assortment and order fulfilment
Customer service
Price and promotion
Coordination flexibility
Relationship content
Relationship structure
Number of members
Level of members

Company P

Company Z

Company Q

Company J

Average

High

Low

High

W
W

Low
W
W
W
High

Low
W
W
W
Average

W
W
High

Average

High

High

Notes: evidence of flexibility; W evidence of rigidity; no evidence

These observations imply that Company P survives and prospers in a stable and
homogeneous environment by implementing a systematic strategy that combines a high
level of coordination flexibility, an average level of physical distribution flexibility and a
low level of demand management flexibility.
Company Z is in an environment with a relatively higher level of uncertainty but a
lower level of heterogeneity. They have strong capabilities to increase frequencies of new
product introductions, adjust delivery capacity, change delivery modes when necessary,
and adjust storage capacity. These capabilities constitute a high level of physical
distribution flexibility. However, for marketing activities, their approach is more rigid
than flexible. For example, Company Z try their best to ensure the orders arrive on time,
give a fixed price to their agents, and for many years have offered the same service to
customers as have other competitors. Thus, the level of demand management flexibility
is lower for Company Z compared to the other three companies. These observations imply
that Company Z survives and prospers in an uncertain but homogeneous environment by
implementing a systematic strategy that combines a high level of physical distribution
flexibility, an average level of coordination flexibility and a low level of demand
management flexibility.
In contrast, Company Q, which is in a stable but heterogeneous environment, invests
more in its capability to adjust marketing rather than operational activities. For example,
they adjust prices and allowances according to competitors strategies and offer a variety
of services to direct or indirect customers. But they try to maintain a steady production
level for their product lines and rarely maintain buffer stocks when prices are low, which
together suggest that they are satisfied with a lower level of physical distribution
flexibility. These observations imply that Company Q survives and prospers in a stable
but heterogeneous environment by implementing a systematic strategy that combines

Distribution
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strategies
1211

Table II.
Level of distribution
flexibility in four
companies

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a high level of demand management flexibility, an average level of coordination

flexibility and a low level of physical distribution flexibility.
Finally, Company J, which lies in an environment that is both heterogeneous and
uncertain, is flexible in almost all aspects of distribution strategy. On one hand, they
make adjustments to manufacturing and logistics activities (for example, by investing
more in R&D and reducing product development cycle time, by carrying out plans to
deliver the right product on time in peak demand periods, by maintaining efficient
inventory deployment, and by replenishing inventory quickly). On the other hand, they
also can flexibly change marketing activities. For example, they try to enhance the level
of customer services and increase investments in promotion activities when competition
intensifies. However, the coordination flexibility of Company J is more complex. For their
big retailers, their level of flexibility in relationship content is high, while the level of
flexibility in relationship structure is fairly low. In contrast, for 5 Star stores and other
agents, they have a high level of flexibility in relationship structure but a lower level of
flexibility in relationship content. These observations imply that Company J survives
and prospers in an uncertain and heterogeneous environment by implementing a
systematic strategy that combines a high level of demand management flexibility,
physical distribution flexibility and coordination flexibility.
Fit as gestalts or covariance
The basic assumption of fit as gestalts is that organisations face conflicting functional
demands and have a great deal of structural latitude. The problem of conflicting functions
still persists, but differing configurations of multiple function and structure variables will
be equally high performing. In effect, organisations will differentiate themselves from
each other, both structurally and functionally, by forming niches in which they can
succeed (Gresov and Drazin, 1997). In contrast, fit as covariance is the condition when
functional demands are not in conflict but rather act synergistically and the coalignment
among them leads to superior performance. The differences become clearer when
analysing different distribution flexibility strategies together with the corresponding
network sources and performance orientations.
Network sources of distribution flexibility. Based on general network theories, two
important dimensions for analysing distribution networks include:
(1) relational embeddedness which includes strong ties and weak ties; and
(2) structural embeddedness which includes both dense ties and structural holes.
Structural embeddedness goes beyond the immediate ties of firms and emphasises the
informational value of the structural position each node occupies in a network (Gulati,
1998). An operationalisation of density for a finite portion of a network or partial
network is simply the ratio of the total number of actual ties to the total number of
possible relationships in that partial network (Boissevain, 1974). Thus, density,
D [2Na/N(N 2 1)] where Na actual number of ties, excluding those of the subject and
N the total number of others in the partial network (Cadeaux, 1997). To analyse the
network density of each case, we also considered the ratio of existing linkages between
the focal firm and its distribution channel members to potential linkages between the
focal firms competitors and its distribution channel members.
Figures 1-4 show the distribution network structure of each company.
Company P uses two to three stores at each prefecture-level and additional franchisees

Distribution
flexibility
strategies

Headquarters

Marketing
department

1213

6 regions

Sales
manager
30
Group
order

City/town

County

Store

Franchise

Customers

in county-level cities. There are six regional managers, each of whom takes charge of
30 franchisees, the total number of which is less than 200. Company Z uses the model of
direct sales (85 percent) combined with distributors (15 percent). There are 12 sales
branches, more than 150 sales offices, and more than 1,000 distributors, so the number of
existing linkages is quite large. Company Q simultaneously uses two network models
where one half of sales go through a self-support team and the other half through agents.
There are only three to four agents for each product in one province and all deal
exclusively in Company Qs products. Therefore, comparing the actual number of ties
(Na), Company Z is the largest, while Company P and Company Q are quite close
(NaZ . NaP < NaQ). However, Company Z has only two strong competitors who may
have equivalent power to establish linkages with their distributors who are forbidden to
sell across regions, thus the number of potential linkages is very small. However, either
Company P or Company Q is in a more competitive industry, while stores of Company
P have territorial exclusivity and territorial restrictions to the local market. Thus, for the
number of potential linkages (N), Company Q is the largest and Company P is the smallest
(NZ , NP , NQ). Since density, D [2Na/N(N 2 1)], DZ . DP . DQ. Finally, the
network structure of Company J is very complex. They now have 450 first level
distributors, 8,000 retailers and also a key account (KA) department for nine big retailers.
Here the small distributors network is relatively dense, while the big retailers network is
relatively sparse.

Figure 1.
Distribution network of
Company P

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Headquarters

Marketing
department

1214
85%

15%

Regional
manager A

Distributor A

12 sales
branches

More than1000
distributors

City manager
Downstream
distributors

More than
150 offices

Businessman

Figure 2.
Network of Company Z

Customers

Relational embeddedness stresses the role of direct cohesive ties as a

mechanism for gaining fine-grained information (Gulati, 1998). Much of the early
research on tie strengths draws on Granovetters (1973) conceptualisation of ties with a
focus on information flows among individuals. Recent studies in a strategic network
context associate strong ties with trust, fine-grained information exchange and joint
problem-solving arrangements (Tiwana, 2008; Uzzi, 1997). In contrast, weak ties involve
relatively infrequent interaction between the focal actor and contacts
(Granovetter, 1973).
For Company P, a conference for the placement of orders is held twice a year,
while training sessions are unscheduled. When the off-season comes, all sales managers
are gathered for sales training to help them display products and guide their sales
efforts. They are also offered significant support to their stores or franchisees, for
example:
Managers pay 100000 RMB and then goods valued at 200000 RMB are supplied for an initial
stock [. . .]. We choose location, design storefronts, and make advertising plans [. . .]. 70% of
first year expenses are reimbursed (Mr Liu, Regional Marketing Manager, Company P).

The relationship between Company Z and their distribution channel members is very
strong. They have frequent communication in many ways as reflected in remarks such as:

Distribution
flexibility
strategies

Provice

Headquarters

Key account
50%

1215

50%

Self-support
manager

Agent
manager

A\B\C drugs

D\E\F drugs

Agent A

3-4

Self-support
team

Downstream
distributors

Hospital

A regional manager meeting is held each month which analyses sales conditions and sets the
next period plans. These managers also go around and communicate with each region
periodically [. . .]. There are also non-periodic meetings when problems arise in branches and
then we will send managers to deal with them (Mr Zhang, Marketing Manager, Company Z).

Company Z also shares important information with their members, for example:
Many customers connect with us directly. When they call our marketing department, we will
send customer information back to regional branches who will then contact with customers
(Mr Zhang, Marketing Manager, Company Z).

Furthermore, there is high reciprocity between Company Z and their distribution channel
members as the interviewee observed that:
There are several levels of amounts (of discount for big contracts). If the contract is 5 million,
we will reduce the initial price by 5% (for agents). If the contract is 10 million, we will then
reduce the initial price by 10% (for agents) [. . .] (Mr Zhang, Marketing Manager, Company Z).

However, Company Qs connection with distributors is somewhat weaker. They have

more academic meetings in which experts present information about new drugs,

Figure 3.
Distribution network of
Company Q

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Headquarters

Marketing
department

1216

KA
department

Region

Regional
manager

City manager

270 cities

450 first level

distributors
Big retailer

5S store
(Pre&after
sales)

Dealer
(single-stop type)

Downstream
distributors

Figure 4.
Distribution network of
Company J

More than 20,000

retailers

Customers

which is an important method of promotion to customers rather than means of

communication with agents. In fact, Company Q rarely gathers all the agents in one
meeting as regional price policies are different. In addition, they only use relatively formal
mechanisms to manage key agents such as formal contracts to limit the region, quota, and
the time of promotion and sale for each drug.
Finally, the situation in Company J is complex. They have a dealer conference every
year to evaluate their performance and set goals and also have a new product promotion
conference including gatherings for sharing experiences among distributors. In addition,
regional and city managers hold meetings of distributors periodically, while sometimes
there are also joint problem-solving mechanisms, for example:
For big events, managers in the marketing department, key account department, and
marketing management department will form teams to work with front line dealers

in five districts. We communicate and solve problems with dealers such as new
product supply, special point of purchase supply, and retailers resource investment, etc.
(Mr Lv, Marketing Manager, Company J).

However, for large retailers, Company J signed formal strategic alliance contracts and
their meetings were not held as frequently as they would be at so-called 5 Star stores or
small distributors. In fact, purchasing managers of large retailers only occasionally pay
a visit to headquarters.
Performance of distribution flexibility. According to the analysis of strategic outcomes
discussed in the literature review, there are different kinds of distribution performance in
terms of either short- or long-term performance, efficiency or effectiveness. In the case
studies, we also found that the four companies are oriented to different distribution
performance outcomes.
Company P, a mens wear manufacturer, is long-term oriented. Their sales growth, at
a rate of 708.9 percent in 2006, is remarkable, but still they are at an early volume stage
compared with other large competitors. One of their important goals in the short term is
to promote their brand image nationwide and establish a good reputation in the existing
market. To achieve this goal, they have opened two to three large stores in
prefecture-level cities even though these stores may not be profitable. They even provide
after-sales service consisting of free dry cleaning throughout the life of the garment,
a very unusual practice in this industry. This service builds loyalty and supports retail
sales. They maintain very good relationships with their stores or franchisees. The
interviewee of Company P illustrated that:
Mortality is very low. The cooperation with franchisees can be very long and many
(relationships) are about 6-7 years. From 2002 when the company was established up to now,
60%-70% stores are operated by their original managers (Mr Liu, Regional Marketing
Manager, Company P).

Company Z, a filter press manufacturer, is efficiency oriented. It evaluates distribution

channel performance according to three criteria: contracted sales, delivery capacity, and
net revenue, which should be above 90 percent. Company Zs channel member satisfaction
is not strong. Company Z has conflicts with their channel members from beginning to end.
For example, the interviewee explained that:
Distributors always complain that our price is high, service is poor and few rewards are given
[. . .]. To the manufacturer [Company Z], they always say that the price is too high, while to
customers they will expend more effort and cost to get orders (Mr Zhang, Marketing
Manager, Company Z).

This scenario explains why Company Z emphasises loyalty of their distributors. Company
Z would like to give their distributors a better margin and intends to shield important
industry information from distributors competitors. Unless it performs very badly,
Company Z will not replace an agent with a new one.
Company Q, in the pharmaceutical industry, is effectiveness rather than efficiency
oriented. Despite quantitative targets for their agents, Company Q also has some soft
performance goals such as capability and frequency of academic promotions. Company
Q dealt with complaints from agents very well. The interviewee noted that:
The team (a dealer management team) not only supervises the agents but also serves them as
key accounts [. . .]. The better the performance of the agents, the higher will be the income

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of the team [. . .]. So the team will try their best to reflect problems of agents (Mr Tian,
Marketing Manager, Company Q).

Thus, agents would like to cooperate with Company Q for a long time and the relations
are usually developed steadily.
Company J, in the household appliances industry, is short-term oriented. That is not to
say that Company J has not considered long-term development as they never stop
acquiring new distributors and cooperating with big retailers to strengthen their
distribution network, but at this stage, when their biggest market, the soymilk maker
market, was attacked by many strong competitors, they have focused more on short-term
efficiency and effectiveness outcomes. In 2007, they implemented an ERP project in order
to reduce costs and enhance efficiency and accuracy of delivery. At present, their
after-sale service network has been the source of their competitiveness. In 2009, they were
chosen as Excellent After-sale Service Company. Furthermore, they have invested
heavily in 5 Star store construction, established strategic alliances with several big
retailers, and won the Leap Achievement Prize from Wal-Mart in 2008. They also
planned to add 6,000 retailers and 800 5 Star stores in the next two to three years.
Network, flexibility strategy and performance. As is referred to the literature review,
the position of fit as covariance within the contingency theory classificatory framework
differs from the position of fit as gestalts only in relation to the degree of specification of
the functional form (Venkatraman, 1989). The resources or capabilities required by
physical distribution flexibility, demand management flexibility and coordination
flexibility are critical and scarce for Company Z, Company Q, and Company P, which
means that these three companies must use a large proportion of their limited resources to
focus on only one kind of distribution flexibility and put less emphasis on the other two. In
contrast, these resources are easy to access for Company J, which means that Company J
can take advantage of plentiful resources or different capabilities to balance all three
dimensions. That may also explain why the distribution network structure of Company J
is more complex compared to the other three as well as why co-alignment of distribution
flexibility will lead them to seek corresponding distribution performance outcomes.
According to the cross-case analysis, the density and strength of Company Ps
distribution network lie mid-way between those of Company Z and Company Q. In their
distribution flexibility strategy, the level of coordination flexibility is very high, while the
other two dimensions are lower. As a result, they maintain steady and long-term
relationships with their stores and franchisees whose mortality is very low. But they do
not care whether they will necessarily gain profits from their stores in prefecture-level
cities or whether they have spent too much on their free dry cleaning service in the short
term. These observations suggest that Company P fits a strategy focused on coordination
flexibility with average relational and structural embeddedness in its distribution
network and has a long-term distribution efficiency and effectiveness orientation.
According to the analysis of distribution flexibility strategy, Company Z focuses on
the dimension of physical distribution flexibility. The distribution network of Company
Z is correspondingly composed of dense ties (a large number of existing linkages with a
small number of potential linkages) and strong ties (that is, here, a high frequency of
communications, sharing of important information, and high reciprocity), which
together demonstrate a high degree of relational and structural embeddedness.
Furthermore, Company Z is oriented toward service outputs such as efficiency in
dispatching and it emphasises the loyalty of their distributors, which together suggest

that their distribution performance outcomes are either short- or long-term efficiency
oriented. These observations suggest that Company Z fits a strategy focused on physical
distribution flexibility with high relational and structural embeddedness in its
distribution network and has a short- and long-term orientation toward distribution
efficiency.
In contrast, Company Q focuses on the dimension of demand management
flexibility. Their distribution network is very different from Company Z. They have far
fewer existing linkages with agents, although the number of potential linkages is close
to that of Company Q and they also maintain some bridging connections. Thus, their
network ties are weak and sparse, which suggests low structural embeddedness. In
addition, Company Qs connection with distributors is much weaker than other
companies as their communications with agents are of low frequency, which together
suggest low relational embeddedness. But in contrast to Company Z, Company Q uses
some soft performance evaluations (for example, in terms of the capability and
frequency of academic promotions) and the relationship satisfaction of agents is high,
which together suggest that Company Q is oriented toward distribution effectiveness.
These observations suggest that Company Q fits a strategy focused on demand
management flexibility with low relational and structural embeddedness in its
distribution network and has a short- and long-term orientation toward distribution
effectiveness.
Company J, who exhibits high levels of physical distribution flexibility, demand
management flexibility, and coordination flexibility, has a very complex distribution
network. They have a large number of first level distributors and small retailers but a
limited number of large retailers with whom they sign strategic alliance contracts. All
distributors as well as 5 Star stores exclusively sell Company Js products, but large
retailers may sell many competing brands at the same time. Furthermore, Company J
communicates with distributors frequently and also establishes joint problem-solving
mechanisms with distributors although their meetings with large retailers are only held
occasionally. In addition, there is a key account department that takes charge of issues
related to large retailers. As their market continues to expand, Company J not only
maintains good relationships with all of their channel members but also pays increasing
attention to short-term distribution performance outcomes such as reduced costs,
efficient delivery, and enhanced service quality. These observations suggest that
Company J fits a strategy of distribution flexibility co-alignment with a mixture of
both high and low relational and structural embeddedness in its distribution
network and has a short-term orientation toward both distribution efficiency and
effectiveness.
Conclusions and implications
Using a case study method, this paper analyzes different dimensions of distribution
flexibility and also argues that each company systematically balances or combines
different dimensions under differing conditions. Based on contingency theory, the
results also suggest that the distribution flexibility strategy chosen by the company
should match its particular context. Furthermore, there is a gestalt or covariance among
network structure, flexibility strategy and performance orientation. Table III depicts
four distribution flexibility strategies implicit in the four cases given their respective
environmental situation.

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Theoretical implications
Based on the review of previous flexibility studies, the first contribution of this study is
to clarify the definition and dimensions of distribution flexibility. We suggest that
distribution flexibility is a kind of capability embedded in the supply chain to change
distribution processes including physical distribution, demand management and
relationship management in an efficient or effective manner to adjust to requirements of
both direct and indirect customers. Thus, distribution flexibility is composed of physical
distribution flexibility, demand management flexibility, and coordination flexibility.
Moreover, while analysing the four companies, we found that physical distribution
flexibility manifests itself in terms of flexibility in manufacturing, delivery,
transportation, storage, and inventory; demand management flexibility manifests
itself in terms of flexibility in assortment, order fulfilment, customer service, price, and
promotion; while coordination flexibility includes flexibility in relationship content and
flexibility in relationship structure.
Few studies of flexibility have developed taxonomies that distinguish among
different categories or types of organisations and contexts and that systematically
consider relationships among the variables within each type. Thus, the major theoretical
contribution of this study is its use of contingency theory to explore alternative forms of
fit in making and implementing different kinds of distribution flexibility strategies.
In conclusion, under different circumstances, each company implemented a distinctive
distribution flexibility strategy of focus or coalignment to adapt to their specific
distribution environment. These adaptations depict a condition of fit as matching
between strategy and environment (Venkatraman, 1989). Furthermore, the strategy that
fits a particular distribution network will lead a company to a corresponding
performance outcome, but whether this is a condition of fit as covariation or fit as
gestalts is determined by the degree of specification of the resources and capabilities
demanded by the type of flexibility strategy (Venkatraman, 1989).
Managerial implications
Based on the case studies, we suggest that there are at least four ways of making
decisions about distribution flexibility, although given the limited number of cases,
there might, of course, be more choices not observed here which are also potentially
successful. What is more important than looking at these four companies as benchmarks
is that managers may want to consider a three-step decision making process when
considering what kind of distribution flexibility strategy is appropriate for their
company and how to implement the strategy to achieve their goals.
Uncertainty

Table III.
Distribution flexibility
strategies of the four
cases

Low

Heterogeneity
Low
Company P
Coordination flexibility focused
Average strong and dense network
Long-term efficiency and effectiveness
High
Company Q
Demand management flexibility focused
Weak and sparse network
Short- and long-term effectiveness

High
Company Z
Physical distribution flexibility focused
Strong and dense network
Short- and long-term efficiency
Company J
Distribution flexibility coalignment
Mixed network
Short-term efficiency and effectiveness

The first step would be to scan the distribution environment of their company by using
two dimensions: stability-uncertainty and homogeneity-heterogeneity. To determine the
level of uncertainty, analysis of uncertainties in demand, competition and technology are
important aspects, while variability analysis of the product category and customer
segmentation can help determine the level of heterogeneity. Finally, according to Table I,
after determining (a) whether evidence favours uncertainty or stability, and (b) whether
it favours heterogeneity or homogeneity, the manager could position their company on
the coordinate axes for the distribution environment:
.
low uncertainty and low heterogeneity;
.
high uncertainty and low heterogeneity;
.
low uncertainty and high heterogeneity; or
.
high uncertainty and high heterogeneity.
The second step would be to choose a distribution flexibility strategy that either focuses
on one dimension or combines several dimensions of distribution flexibility as a
mechanism to adapt to the environment in which the company is located. The results of
our case study indicate that:
.
Like Company P, if in a stable and homogenous environment, a strategy focused
on coordination flexibility which invests more resources in making changes in
on-going relationships while maintaining rigidity in other activities is a better
choice.
.
Like Company Z, if in a an uncertain but homogenous environment, a strategy
that focuses on physical distribution flexibility which requires investing more in
adjusting manufacturing and logistics while maintaining relatively rigid levels
of other activities would be more appropriate.
.
Like Company Q, if in a stable but heterogeneous environment, a strategy
focused on demand management flexibility fits best: this strategy requires
relatively more investment in adjusting marketing activities while maintaining
more rigid policies for other activities.
.
Like Company J, if the environmental context is both uncertain and
heterogeneous, a distribution strategy of flexibility coalignment is better,
although the company must have sufficient resources and capabilities to achieve
a high level of flexibility in all activities that are cross-functional.
Moreover, Table II could be used as a check list for managers to make a more complete
plan for each flexibility component.
The final step would be to be sure that the strategy chosen by the company fits with
their distribution network structure as well as their distribution performance
orientation. To identify the type of distribution network structure, managers need to
determine tie density by calculating the ratio between real and potential linkages, and
determine tie strength by analysing reciprocity, communication, information sharing
and other activities. In addition, distribution performance indicators can help determine
whether the company is oriented toward efficiency or effectiveness in the short or the
long term. As shown in Table III, the strategy of Company P which focuses on
coordination flexibility matches their environment to the extent that an average strong

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and dense network offers the resources that are needed for this strategy. Furthermore,
Company P meets the long-term orientation that is arguably associated with
coordination flexibility. But if customers began to ask for high customization, which
would indicate that the environment had become more heterogeneous, Company P
should instead move to a strategy focused on demand management flexibility much like
Company Q and also prepare to establish a weak and sparse distribution network,
resulting in a new orientation toward effectiveness. If, instead, great changes in demand
volume or manufacturing technology took place in a short time, indicating a highly
uncertain environment, they should invest more in physical distribution activities much
like Company Z and adjust their distribution network with more strong and dense ties,
resulting in an efficiency orientation. Or if both situations should occur, a focus strategy
would be replaced with a coalignment strategy much like Company J and a mixed
distribution network could offer the kinds of resources required to make appropriate
adjustment of activities across different functions. The potential importance of such a
dynamic fitting process is also a critical basis for any future longitudinal study.
Limitations and future research
As in many exploratory case studies, there are several shortcomings that limit the
generalisability of this research. First, in these case studies, we did in-depth interviews
of key informants from only four typical manufacturers. Thus, the sample of firms does
not allow for statistically significant inferences. Second, although these companies cover
both domestic and international business, all of their headquarters are located in China.
Clearly as many multinational firms are increasingly considering China as one of the top
strategic markets, one fundamental question concerns the type of distribution channel to
use (Stern et al., 1996). Although the political environment in China is very different from
that of western countries, we did not consider any institutional factors in this study. In
future research, it would be beneficial to conduct a comparative study in a different
institutional environment.
Third, there are also some limitations to the research design. As all the data were
collected at a single point in time, it is not possible to detect changes that occur over time.
But from a dynamic perspective and as indicated in the previous section, many
constructs in our framework would change with time, thus future research could employ
a longitudinal study to trace the dynamic processes. Furthermore, we conducted the
investigation from the perspective of manufacturers, but partnerships between channel
members are created by bilateral and coherent behaviors rather than through the
expectations of one party.
Finally, in order to apply the theoretical contingency frameworks, variance was
gained from companies located in different kinds of environments to ensure that
distribution flexibility strategies chosen by them would be quite distinguishable.
However, this method could result in selecting companies from different sectors of
manufacturing with differences in size, products, internal resources and capabilities,
and even different flexibility cost structures. These trade-offs are very hard to resolve in
one study, especially when the objective of the study is to investigate how a
manufacturer survives in a given circumstance by choosing an appropriate distribution
flexibility strategy. However, future research could examine how organisations who
have chosen a given distribution flexibility strategy configure themselves for optimal
implementation from the standpoint of resource utilisation.

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Appendix. Interview guide of flexible distribution channel
Background
Name:
Job:
Company:
Years in position:
Division:
Years with company:
Industry:
Years in distribution:
Key questions
(1) What kind of industry are you in?
(2) MIn the last five years, have there ever been any changes in customer demand? Have
there ever been any changes in competitive activity? Have there ever been any changes of
production technology in your industry?
(3) What is the major product of your company?
(4) Have there ever been any new products introduced in your industry in the last five years
(the time depends on industry)? Did they become obsolete quickly?

(5) How many different categories of this product exist? Do you think the range is wide
enough for most of your end customers or do they need more? Is there any segmentation
of your end customers? If so, what are the differences in the orders among them?
(6) How many tiers exist in your distribution channel?
(7) How do you select distribution channel members?
(8) How do you control distribution channel members?
(9) How do you make contact with your distribution channel members?
(10) When changes have taken place in the environment, what kinds of manufacturing
strategies did you undertake? What kinds of logistics strategies did you undertake?
What kinds of marketing strategies did you undertake? What kinds of coordination
strategies did you undertake? Please give examples.
(11) How do you evaluate the performance of your distribution channel?
(12) What is your distribution channel members assessment?
(13) How do you evaluate the performance of your distribution channel members?
(14) On the average, how long standing are the relationships between you and your
distribution channel members?
About the authors
Kangkang Yu is currently a PhD student in Marketing at the University of New South Wales,
Sydney, Australia. She has research interests in the areas of alliances and networks, supply
chain flexibility, and distribution channel management.
Jack Cadeaux is currently a Senior Lecturer at the University of New South Wales, Sydney,
Australia. He has research interests in distribution channels, retailing, macromarketing, strategic
marketing of product and service innovations, and marketing strategy. Jack Cadeaux is the
corresponding author and can be contacted at: j.cadeaux@unsw.edu.au
Hua Song is currently a Professor at the School of Business, Renmin University of China,
Beijing, P.R. China and his research interests include supply chain management,
inter-organisational relationships, and strategic management.

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