15th ANZAM Operations SC and Services Management Symposium - Conference Proceedings (July 2017)

THEME: Value adding role of operations and supply chain
management for firms and the society

Edited by: Assoc Prof Pavel Castka, Dr Mark Wilson and Dr Mesbahuddin Chowdhury

Symposium Venue:
Sofitel Queenstown Hotel and
Spa
8 Duke Street PO Box 1797
9300 QUEENSTOWN
NEW ZEALAND

Organised by: OSCM Discipline Group and Q21 Research Group, University of
Canterbury, NZ and Department of Global Value Chains and Trade, Lincoln University, NZ
ISBN: 978‐0‐473‐40205‐1
Contents

Welcome from the Chairs ........................................................................................................... iv
Conference Chairs ........................................................................................................................ v
Advisory Committee Members .................................................................................................... v
Keynote speakers ........................................................................................................................ vi
Panel Discussion Members Wednesday June 13, 2017; 9:45‐11:00am.................................... vii
Conference Proceedings ............................................................................................................ vii
Program at a Glance .................................................................................................................. viii
Paper Streams ............................................................................................................................. xi
STREAM A – Tuesday June 13th, 2017; 10:30am‐12:00am ........................................................ xi
STREAM B – Tuesday June 13th, 2017; 1:00pm‐2:30pm .......................................................... xiv
STREAM C – Tuesday June 13th, 2017; 2:30pm – 4.00pm ....................................................... xvii
STREAM D – Wednesday June 14th, 2017; 11:30am – 1.00pm ……………..………………………….. xxi
Things to do in Queenstown ………………………………………………………………………………………… xxv

Extended abstracts
A001 ……………………………………………………………………………………………………………….. 3
A002 ……………………………………………………………………………………………………………….. 8
A003 ……………………………………………………………………………………………………………….. 9
A004 ……………………………………………………………………………………………………………….. 11
A005 ……………………………………………………………………………………………………………….. 17
A006 ……………………………………………………………………………………………………………….. 20
A007 ……………………………………………………………………………………………………………….. 23
A008 ……………………………………………………………………………………………………………….. 28
A009 ……………………………………………………………………………………………………………….. 34
A010 ……………………………………………………………………………………………………………….. 36
A011 ……………………………………………………………………………………………………………….. 40
A012 ……………………………………………………………………………………………………………….. 43
A013 ……………………………………………………………………………………………………………….. 50
A014 ……………………………………………………………………………………………………………….. 54
A015 ……………………………………………………………………………………………………………….. 57
A016 ……………………………………………………………………………………………………………….. 61
A017 ……………………………………………………………………………………………………………….. 65
A018 ……………………………………………………………………………………………………………….. 70

Full Papers
P001 ……………………………………………………………………………………………………………….. 71
P002 ……………………………………………………………………………………………………………….. 91
P003 ……………………………………………………………………………………………………………….. 111
P004 ……………………………………………………………………………………………………………….. 130
ii

P005 ……………………………………………………………………………………………………………….. 165
P007 ……………………………………………………………………………………………………………….. 199
P008 ……………………………………………………………………………………………………………….. 220
P009 ……………………………………………………………………………………………………………….. 238
P010 ……………………………………………………………………………………………………………….. 269
P011 ……………………………………………………………………………………………………………….. 279
P012 ……………………………………………………………………………………………………………….. 305
P013 ……………………………………………………………………………………………………………….. 325
P014 ……………………………………………………………………………………………………………….. 348
P015 ……………………………………………………………………………………………………………….. 369
P016 ……………………………………………………………………………………………………………….. 388
P017 ……………………………………………………………………………………………………………….. 399
P018 ……………………………………………………………………………………………………………….. 428
P019 ……………………………………………………………………………………………………………….. 453
P020 ……………………………………………………………………………………………………………….. 468
P021 ……………………………………………………………………………………………………………….. 485

Cover image sourced from: https://www.theurbanlist.com/auckland/a‐list/48‐hours‐in‐queenstown
iii

Welcome from the Chairs

15th ANZAM Operations, Supply Chain and
Dear Delegates, Services Management Symposium
It is our great pleasure to welcome you in Queenstown for the 15th The 15th ANZAM Operations, Supply Chain and
Services Management (OSCSM) Symposium will
ANZAM Operations, Supply Chain and Services Management focus at the value adding role of operations and
Symposium. We have chosen this venue as an ideal place to reflect on supply chain management for firms and the
the main theme of the conference ‐ the value adding role of operations society – globally as well as for the ANZAM
and supply chain management for firms and the society. region. We seek contributions from academics
and practitioners on the issues in the operations,
We would like to welcome back the ‘usual suspects’ but also new supply chain, and services management
participants – especially PhD students. This year, we had accepted discipline and especially on the themes below as
well as other:
papers and extended abstracts from over 20 PhD students. It is exciting

to see the growing presence of emerging scholars. To accommodate  OSCSM and value adding: who/what
this group, we have added a special panel for doctoral students and determines value, how is value created,
asked a group of leading academics from the field to share their communicated, captured and delivered in
experience with research, teaching and with job hunting challenges. We supply chains? How does OSCSM
operationalise the concept of value? How
hope that this session will assist doctoral students with their personal
is value measured?
growth and position our discipline group for future challenges.  Societal understating of OSCSM as a
discipline: how general public views
The themes of this year’s conference reflect some of the emerging OSCSM and its role within/contribution for
trends in global supply chains that will be important for researchers and national economies? How can we enhance
practitioners to embrace. These themes are not separate nor distinct, general public’s awareness about the
rather, they are all interrelated as part of the same system with much importance of OSCSM?
conceptual overlap in the complex adaptive system environment that  OSCSM and sustainability: how can OSCSM
add value to the pursuit of sustainability?
are supply chains and operations. To summarise these themes, we ask
What is the impact of OSCSM practices on
the question “what is value” and “how is value created and sustained global sustainability? What is the
in an economy”? Within this domain there is much interest in aspects role/impact of voluntary certifications on
of resilience, sustainability, the circular economy, supply chain design sustainability? Can supply chains
and innovation for value creation. We hope to explore some of these effectively regulate themselves to achieve
sustainability?
key themes in our presentations and discussions.
 OSCSM and circular economy: what is the
As with past conferences, this years’ event will combine keynotes with role of OSCSM in the circular economy?
What supply chain designs/ models can
“post keynote” panel discussions. Our aim is to build on past success of enhance the concept of product take
this format and allow for reflection and discussion of the main topics. back? Who and how should govern the
principles of circular economy in general
Finally, we are grateful for the continued support from ANZAM and the and specifically for in terms of supply
assistance of Prof Amrik Sohal. We also hope you enjoy some of the chain management?
stunning scenery of one of the jewels of New Zealand, the alpine resort  OSCSM and innovation: what skills and
town of Queenstown. competence in OSCSM are critical for
innovation and New Product
We wish you a successful conference! Development?

Pavel Castka, Mark Wilson and Mesbahuddin Chowdhury
https://conferences.lincoln.ac.nz/15th‐anzam‐
Conference Chairs operations‐supply‐chain‐services‐management‐
symposium/

iv

Conference Chairs

Associate Professor Pavel Castka
Pavel Castka is Associate Professor in Operations Management in the Department
of Management, Marketing and Entrepreneurship, at University of Canterbury, NZ.
He formerly served as Research Director of the College and MBA Director. He has
been actively involved with international standardization within committees at
the International Organization for Standardization (ISO) and with International
Union for Conservation of Nature (IUCN).
Dr Mark M.J. Wilson
Dr Mark Wilson is a Senior Lecturer in supply chain management in the Department
of Global Value Chains and Trade, Lincoln University. With over 37 years industry
experience in integrated supply chain systems at managerial and strategic levels,
Mark is one of two Directors of the Centre for Lean Education and Research
(CLEAR). He teaches logistics, supply chain management and supply chain theory
as well as supervising too many masters and Ph.D students. Mark’s current
research agenda focuses on; supply chain management theory, inter‐
organisational governance, complex adaptive networks, agribusiness supply chain
systems as well as disaster response and humanitarian logistics.
Dr Mesbahuddin Chowdhury
Dr Mesbahuddin Chowdhury is Lecturer in Operations and Supply Chain
Management in the Department of Management, Marketing and
Entrepreneurship, University of Canterbury, NZ. He formerly served as Research
Fellow in the Department of Accounting, Monash University, Australia. He also
served as a Lecturer at North South University (NSU) and Independent University
Bangladesh (IUB), Dhaka and was actively involved in teaching Operations
Management, Business Statistics and Business Mathematics courses at
undergraduate level.
Advisory Committee Members

We are enormously grateful for the support and insights from our sage like Advisory Committee
members:
Prof Amrik Sohal ‐ Monash University, AU
Prof Paul Childerhouse ‐ Massey University, NZ
Prof Prakash Singh ‐ University of Melbourne, AU
Prof Peter Tatham ‐ Griffith University, AU
Assoc Prof Daniel Prajogo ‐ Monash University, AU
Dr Lincoln Wood ‐ University of Otago, NZ
v

Keynote speakers

Prof Crawford Falconer – Keynote Academic Speaker on Day 1
Crawford is currently Sir Graeme Harrison Professorial Chair in Global Value Chains and
Trade at Lincoln University, New Zealand. After leaving the New Zealand Government
in 2012, he led an OECD project on Services Trade (The Services Trade Restrictiveness
Index‐STRI) and Trade in Value Added (TIVA). From 2009‐12, as Deputy Secretary of
New Zealand's Ministry of Foreign Affairs and Trade, he was New Zealand's senior
official for International Trade and Economic Affairs responsible for managing all of
New Zealand’s international trade negotiations. Prior to that he was New Zealand’s
Ambassador to the WTO in Geneva from 2005‐2008. During that time he chaired the
Doha Round Agriculture negotiating Group and the Doha Cotton negotiations in a personal capacity. Over the
previous 20 years he held various positions in Wellington and Geneva for the New Zealand Government, as well
as working independently at the OECD and the Victoria University Institute for Policy Studies. He is also a past
Chair of the OECD Trade Committee, the WTO Subsidies Committee and, in a personal capacity, he has been a
judge on over 15 WTO international trade disputes.
Mr. Michael Aldwell – Keynote Industry Speaker on Day 1
Michael Aldwell, Managing Director of Kuehne + Nagel New Zealand, is responsible for
the overall direction and strategy of the organization in New Zealand business. Michael
has 10 years’ experience in the Global Supply Chain environment in a variety of roles
including general management, operations and supply chain, sales and account
management. Prior to his appointments in Australasia, Michael headed Seafreight
business units on the North East and West Coasts of the United States; driving several
large scale change and growth initiatives. Michael’s extensive experience in Global
Corporate Account Management includes consultation for major Fortune 500
Companies; establishing global supply chain infrastructure across broad geographies. Michael is considered an
authority in logistics and supply chain management and is an Alumni from Lincoln University’s Supply Chain
Management Programme.
Mr. Ian Walsh – Key Note Industry Speaker on Day 2
For more than 25 years, Ian (Director, INTENT Group Limited) has been rolling up his
sleeves and helping businesses all around the world to drive improvement. He has
worked with a wide range of organisations, and understands deeply what is required to
deliver and sustain improvement.
Ian has worked in many World Class manufacturing and supply chain environments, in
industries such as beverage (including brewing), food (FMCG and ingredients), plastics,
paper, cosmetics, pharmaceuticals, transport (airports / airlines) and more. A qualified
master black belt, Ian is passionate about Lean manufacturing, and the many benefits
that businesses reap from adopting this approach.
Mr. Gordon McGowan ‐ Key Note Industry Speaker on Day 2
A Quality Management professional Gordon has extensive experience across multiple
industry groups; including public sector, small local and large international businesses.
During 15 years with Fisher & Paykel Appliances he led the drive for excellent systems
throughout the company’s business units globally and spent significant time working
with suppliers to achieve improved systems and reduce costs of non‐conformance in
the supply chain. His recent experience covers the entire supply chain, from the start
of the design process right through to internal and external production of parts and
products to the design specifications, including the application of technology to achieve real‐time visibility and
accountability. Gordon recently resigned from Fisher & Paykel to pursue his dream of assisting other businesses
in identifying and reducing non‐added value cost, and has just started his advisory service “Lean Business
Advantage”.
vi

Panel Discussion Members
Wednesday June 13, 2017; 9:45‐11:00am

Prof Paul Childerhouse – Massey University, NZ
Prof Danny Samson ‐ The University of Melbourne, AU
Mr. Ian Walsh ‐ Intent Group Limited, NZ
Mr. Gordon McGowan ‐ former Global Quality Systems Leader, Fisher & Paykel Appliances, Lean
Business Advantage, NZ
Facilitators:
Assoc Prof Pavel Castka ‐ University of Canterbury, NZ
Dr Mark Wilson ‐ Lincoln University, NZ

Conference Proceedings

This year the conference proceedings will be hosted on the conference website for future reference
and authentication. These conference proceedings have been double‐blind peer reviewed and are
quality assured, and will be available from:
https://conferences.lincoln.ac.nz/15th‐anzam‐operations‐supply‐chain‐services‐management‐
symposium/
ISBN: 978‐0‐473‐40205‐1
Please use the following APA format for citing any of the work presented at this conference.
Surname1, Initials., & Surname2., Initials. (2017). Paper title. In Castka, P. Wilson, M.M.J. &
Chowdhury, M. (Eds.), Value adding role of operations and supply chain management for firms
and the society; Proceedings of the 15th ANZAM Operations, Supply Chain and Services
Management Symposium, (pp. XX‐XX). Retrieved from https://conferences.lincoln.ac.nz/15th‐
anzam‐operations‐supply‐chain‐services‐management‐symposium/ (accessed day, month,
year).
Increasingly, proceedings are being made available on CD to reduce publishing costs. If that’s the
case with your source, just add [CD] after the title. If the proceedings are published online,
substitute “Retrieved from URL” for the publisher and location.
vii

Program at a Glance
Symposium Venue: Sofitel Queenstown Hotel and Spa. 8 Duke Street, 9300, Queenstown, New
Zealand. http://www.sofitel‐queenstown.com/
Welcome Reception – Monday June 12th, 2017
6.00pm‐ Welcome drink ‐ Meet and Greet “Pub on
8.00pm Venue: “Pub on Wharf” http://pubonwharf.co.nz/ Wharf”
(that’s an actual name, not some vague directions)
88 Beach St, Queenstown.

Format: Casual bar and dinning available – drinks and meal are an
individual responsibility.
Booking: There is no formal booking, so there will be other guest in
the venue.

Day 1 – Tuesday June 13th 2017
8:30am‐ Registration Sofitel
9:00am
9:00am‐ Plenary ‐ Welcome, introduction and overview Le Galerie
9:15am Room
A/Prof Pavel Castka (University of Canterbury, NZ) and
Dr. Mark Wilson (Lincoln University, NZ)

Co‐chairs of the 15th ANZAM Operations, Supply Chain and Services
Management Symposium
9:15am‐ Plenary ‐ Keynote speaker with Q&A (Session Chair: Dr Mark Wilson)
10:00am
Prof Crawford Falconer, Lincoln University, New Zealand
10:00am‐ Morning Tea
10:30am
10:30am‐ STREAM A Various
12:00am A1 Sustainability in Operations and SC Management (Session Chair:
Dr. Lincoln Wood)
A2 Supply Chain Relationships (Session Chair: Prof. Paul Childerhouse)
A3 Health Care (Session Chair: Prof. Amrik Sohal)
12:00am‐ Lunch Sofitel
1:00pm
1:00pm‐ STREAM B Various
2:30pm B1 Social Responsibility and SC Management (Session Chair: A/Prof.
Pavel Castka)
B2 Supply Chain Management (Session Chair: Dr. Mesbahuddin
Chowdhury)
B3 Humanitarian/Policy Issues and SCM (Session Chair: Prof. Peter
Tatham)
2:30pm‐ STREAM C Various
4:00pm C1 Standards for SCM (Session Chair: A/Prof. Pavel Castka)
C2 Agility in Supply Chain Management (Session Chair: Prof
Mohammed A. Quaddus)
viii

C3 Role of organisational/national culture in SCM (Session Chair: Dr
Mark Wilson)
4:00pm‐ Afternoon Tea
4:30pm
4:30pm‐ Plenary ‐ Industry keynote (Session Chair: Dr Mesbahuddin Le Galerie
5:15pm Chowdhury) Room

Mr Michael Aldwell MD K+N (NZ)
5:15pm‐ Transfer to dinner (a 15 min walk to board the boat)
5:40pm
5:40pm‐ Conference Dinner ‐ Lake Cruise and Walter Peak Station Dinner. Lake Cruise
late Timing: and Walter
5:40pm meet at the TSS Earnslaw wharf Peak High
6.00pm: Depart Queenstown on Fiordlander Vessel Country
6.45pm: Arrive Walter Peak for BBQ dinner Station
8.45pm: Guests invited to attend farm demonstration
9.15pm: Depart Walter Peak on Fiordlander Vessel
10.00pm: Arrive Queenstown

Format: Buffet gourmet BBQ dinner, held in the MacKenzie Room
Ticketing: Will be distributed to paid Delegates on the Tuesday
https://www.realjourneys.co.nz/en/experiences/dining/walter‐peak‐
gourmet‐bbq‐dinner/

Day 2 – Wednesday June 14th, 2017
8:30am‐ Registration Sofitel
9:00am
9:00am‐ Welcome and housekeeping matters Le Galerie
9:05am Room
Dr. Mark Wilson (Lincoln University, NZ)
9:05am‐ Plenary ‐ Industry keynotes (Session Chair: A/Prof Pavel Castka) Le Galerie
9:45am Room
“Emerging topics and challenges in operations and supply chain
management”
Mr. Ian Walsh – Director, INTENT Group
Mr. Gordon McGowan, Ex Global Quality Leader, Fisher & Paykel, Lean
Business Advantage

9:45am‐ Plenary ‐ Panel Discussion “Emerging topics and challenges in Le Galerie
11:00am operations and supply chain management” Room

Panellists:
Mr. Ian Walsh ‐ Intent Group, NZ
Mr. Gordon McGowan ‐ Lean Business Advantage, NZ

Facilitators:
ix

11:00am‐ Morning Tea
11:30am
11:30am‐ STREAM D Various
1:00pm D1 Supply Chain Design (Session Chair: Prof. Danny Samson)
D2 Supply Chain Resilience (Session Chair: Dr. Mark Wilson)
D3 SCM/Productivity (Session Chair: Prof. David J. Robb)

1:00pm‐ Lunch
2:00pm
2:00pm‐ Doctoral Panel – Assisting New and Emerging Scholars to succeed Le Galerie
3:00pm Room
Panellists:
Prof Amrik Sohal – Monash University, AU
Dr. Mesbahuddin Chowdhury, University of Canterbury, NZ
Dr. Alka Nand, Monash University, AU
Dr. Quan Spring Zhou, Massey University, NZ

Facilitators:

NOTE: Two smaller rooms will be available for networking and
meetings for non‐doctoral participants. Please let us know if you
would like to serve a room.

3:00pm‐ Conference Wrap‐up
3:30pm Closing remarks – Prof Amrik Sohal
Best student paper award – Co‐chairs
16th ANZAM Operations, Supply Chain and Services Management
Symposium ‐ tbc

x

Paper Streams
STREAM A – Tuesday June 13th, 2017; 10:30am-12:00am
A1 Sustainability in Operations and Supply A2 Supply Chain Relationships A3 Health Care
Chain Management
Session Chair: Dr. Lincoln Wood Session Chair: Prof. Paul Childerhouse Session Chair: Prof. Amrik Sohal
Room: Le Galerie Room: The Board Room Room: The Ambassador Room
A1.1. Supply chain management for the A2.1 Interaction of Inter-personal and Inter- A3.1 Modelling the Ethics of Donating Dated
circular economy: a review and a classification organizational Relationships in Supply Chain Medical Supplies
of terms Integration: Case Studies in New Zealand Quan Spring Zhou, Tava Lennon Olsen
Muhammad Farooq, Abraham Zhang Bill Wang, Paul Childerhouse, Yuanfei Kang
Abstract Abstract Abstract
(Paper ID: 15ANZAM-2017-A003) (Paper ID: 15ANZAM-2017-A009) (Paper ID: 15ANZAM-2017-A011)
The circular economy concept has great potential to The research employs an exploratory multiple case To prepare for public emergencies, governments
guide organizations to achieve a breakthrough in study to analyse the interaction mechanisms between maintain large quantities of medical supplies known as
environmental sustainability performance. There has inter-personal relationships (IPRs) and inter- “the reserve”. Yet the reserve has serious expiration
been a growing interest in supply chain management organizational relationships (IORs) in supply chain due to its limited shelf life. One possible remedy is to
for the circular economy. We review the extant integration (SCI). In the formative stage of integration, donate large batches of dated supplies to
literature to understand the current state of supply IPRs are seen as antecedents to building IORs. During underdeveloped areas suffering from shortages.
chain research for the circular economy, and discuss the operational stage, the two levels of relationships However, the international community is cautious
the implications of circular economy for supply chain continuously interact with one other, potentially re- about it. As medical studies suggest efficacy should
management theories and practices. We also provide a enforcing or at times undermining the integration not be the primary concern, most concerns relate to the
classification of relevant terms to clarify the meanings objective. Throughout the entire life-cycle of the dyad, ethics, i.e., corruption. In this work, we take efficacy
of interrelated concepts. We then recommend future IPRs facilitate the formation and development of IORs as given, and carefully model the incentives and
research directions in this very promising research while the latter often leverages these ties for resource provide insights into the likely effects of corruption.
domain. acquisition. This research contributes to resource
orchestration theory (ROT) in SCI.
xi

Chain Management
A1.2. Integrating Lean and Green and A2.2. The Interactive Effect of Task Business A3.2. Extending SERVQUAL for Dentistry: A
examining its impact on the Triple Bottom Environment and Supply Chain Relationship New Zealand Case
Line: A Systematic Literature Review on Manufacturing Plant’s Operational Sophia Ling, Arun A. Elias
Ananya Bhattacharya Sustainability: Synergies or Anatagonies?
Buddhika Mannaperuma, Prakash J. Singh,
William Ho
(Paper ID: 15ANZAM-2017-P004) (Paper ID: 15ANZAM-2017-P007) (Paper ID: 15ANZAM-2017-A016)
The purpose of this paper is to perform a systematic The recent global “Great Recession” showed that This project aims at determining factors that affect
literature review of peer-reviewed journal articles on many manufacturing plants that appeared to be patient satisfaction with dental care services and to
the topic of lean and green integration and its impact operationally sustainable were not able to withstand develop strategies that could improve patient
on the triple bottom line (economic, social and the forces in their task environments and supply satisfaction at Lumino the Dentists Wellington. Data
environmental dimensions). After an extensive search, chains. In this study, we invoke the complex adaptive was gathered using a modified SERVQUAL survey.
60 articles from 2006 to 2016 were identified as system (CAS) theory to assess the interactive effects of The survey reported that the overall level of expected
relevant to this study. Our findings reveal that whilst these two constructs on operational sustainability. We service was marginally higher than the overall level of
there have been a handful of studies done on show that empirical data from 522 plants across 9 perceived service delivered, indicating a service
integrating the two concepts, not much has been done countries and 21 industries validates both the positive quality gap where improvements could be made. These
with respect to examining the impact of this on all and negative synergistic or antagonistic interactions results were brought to a focus group for discussion. A
three dimensions of the triple bottom line (TBL). among the features of task business environment group model building exercise was conducted and
Future research areas are highlighted. (dynamisms, munificence and complexity) and supply strategies that could improve patient satisfaction at
chain relationship (information exchange, supplier and these Lumino the Dentists Wellington practices were
customer leveraging and complexity). developed
xii

Chain Management
A1.3. Trust & Sustainability: Continuous A2.3. Smallholders and Agribusiness Supply A3.3. Using value stream mapping in the
Benchmarking for a beneficial relationship Chains: Participation and Implications procurement and logistics function of a
healthcare organisation
Nicolas van der Nest, Adil M. Hammadi, Torsten Gursharan Singh, Mark M.J. Wilson, David Dean
Reiners, Lincoln C. Wood Ram Roy; Layeequlla Baig

(Paper ID: 15ANZAM-2017-P019) (Paper ID: 15ANZAM-2017-P017) (Paper ID: 15ANZAM-2017-P010)
With the increase of globalisation and outsourcing, Linking smallholder farmers to markets is an important The main role of procurement and logistics department
supply chain management has grown significantly in issue under discussion in academia and economies. is to provide quality products to its users efficiently,
complexity. To protect from adverse impacts of The opportunity for smallholders to raise their incomes timely, and at the best prices from suppliers. This
globalisation and to gain a competitive advantage, increasingly depends on their ability to participate and paper focuses on a warehouse which plays a vital role
organisations are focusing on improving the compete in the various market structures. Previous in the working of a healthcare organisation in New
sustainability of their supply chains. In this paper, we studies predominantly emphasize exploring the Zealand. The value stream mapping of a judiciously
propose using trust as a vehicle to determine the transformation of food systems in developing countries selected item revealed lots of wastes in the processes
strength of buyer-supplier relationships (BSR) in and the impact of organised chains on farmer’s income of the warehouse, e.g., the delivery of item consists of
combination with existing strategies such as contract and poverty reduction. This paper reviews the about two hours in deconsolidating packages,
management and supplier performance monitoring. literature to formulate a framework to quantify receiving, and repacking in different sized boxes to
BSR and trust have previously been researched; we enablers and barriers for smallholder farmer various cost centres for delivery. This process was
propose the utilisation of trust as a shared performance participation in agribusiness supply chains. By using further analysed by ‘why-why-diagram’ which led to
indicator (numerically and linguistically) in the BSR transaction cost and collective action theories, this an EDI based solution for the organisation.
for improved decision making. paper provides a framework and research propositions
for further research on the topic.
xiii

STREAM B – Tuesday June 13th, 2017; 1:00pm-2:30pm
B1 Social Responsibility and Supply Chain B2 Supply Chain Management B3 Humanitarian/Policy Issues and SCM
Management
Session Chair: A/Prof. Pavel Castka Session Chair: Dr. Mesbahuddin Chowdhury Session Chair: Prof. Peter Tatham
B1.1. Responsibility centric isomorphism in B2.1. What is Value? Towards an integrated B3.1. The Use of Long Endurance Remotely
supply chains: A conceptual model Conceptualisation of Supply Chain Value Piloted Aircraft Systems to Transport
‘Medical Maggots’ to Provide Wound Care in
Jubin Jacob-John, Clare D’Souza Tiffany McIntyre, Mark M.J. Wilson, Jeff Heyl,
Remote Communities
Birgit Schulze-Ehlers
Peter Tatham

With increased complexity and length of global supply Despite the importance placed upon value within the Whilst there is a growing body of research which
chains, stakeholder pressures for responsible behaviour business literature, many academics still label it discusses the use of Remotely Piloted Aircraft
has reached its zenith. Consumers demand for ambiguous. Indeed, within supply chain management Systems (RPAS) (otherwise known as ‘drones’) to
responsible conduct of business in all tiers of there are many different views of value, complicated by transport medical supplies, almost all reported cases
international supply chain operations and this the misalignment of firm and industrial customer employ short range aircraft. This paper draws on
mandates a similarity of responsibility orientation perceptions; the firm view based upon utilitarian and interviews with individuals who either have
within all supply chain actors. Using dual theoretical financial views, and customer perceptions based upon experience and expertise in the use of Long
lenses - stakeholder theory and institutional theory, the the trade-off between benefits and sacrifices. However, Endurance RPAS or in the provision of healthcare to
paper illustrates a model that results in a homogenous as the firm and customer are closely inter-linked, there remote Aboriginal communities in Western Australia
perspective of responsibility within the entire supply is a need for more integrated conceptualisations. This to consider the advantages and challenges inherent in
chain. By exploring how institutional pressures for research paper moves in this direction through the their use to support the provision of medical supplies
sustainability and socially responsible behaviour development of a multidimensional, integrated supply to remote locations – specifically ‘medical maggots’
integrate within the supply chain, the paper contributes chain value model, based upon several operational that are used in maggot debridement therapy wound
to the academic domain. dimensions of value. care.
xiv

Management
B1.2. Social Life Cycle Impact Assessment B2.2. Eliciting and re-distributing information B3.2. Humanitarian Supply Chain
(SLCIA) of End of Life (EOL) ships: The case along the forestry value chain to promote more Collaboration
of shipbreaking industry in Bangladesh efficient and fair supply chain behaviour Samar Al Adem, Paul Childerhouse, Bill Wang
Moutushi Tanha, Pavel Castka, Mesbahuddin Bezuidenhout, Carel, N
Chowdhury
(Paper ID: 15ANZAM-2017-P020) (Paper ID: 15ANZAM-2017-A002) (Paper ID: 15ANZAM-2017-A002)
Shipbreaking is an important industry for many New Zealand’s log supply chains are fragmented How applicable is supply chain collaboration in
developing countries such as Bangladesh, India with internal competition, limited information the humanitarian sector? A Jordanian cross
and Pakistan. At one hand, shipbreaking might be exchange and price negotiations occurring behind sectional case study of international and local
considered as a green practice (most of the closed doors. NZ logs are relatively inexpensive NGOs is explored via semi-structured interviews.
materials from ships are reused in the developing and attract price sensitive customers. Prior to this Insights are synthesised into a conceptual model
world) yet the social impact of shipbreaking is project, no forecast of future log prices were of how NGOs can partner during humanitarian
less positive. In this paper, we map the social available and visibility across the supply chain response. Organisational, inter-organisational,
impact of the industry in Bangladesh and discuss was limited. This paper presents the development external, and donor-related challenges to
the major antecedents leading to a negative social of a log price forecasting tool and reflects on the collaboration were identified together with a set
impact. The paper is grounded in Social Life benefits that these outlooks have created. Scion of facilitators, key drivers and two clusters of
Cycle Impact Assessment (S-LCIA) Paradigm has conducted nine quarterly log price outlooks. technical and relational mechanism that are vital
and paves way for future studies on social impact The outlooks have helped to shape supply chain for maintaining relationships. Despite the
in the industry and beyond. research and build relationships between uniqueness of the humanitarian context, such as
researchers and industry practitioners. the secondary nature of cost and dynamic
demand, the core principles of collaboration still
hold.
xv

Management
B1.3. Institutionalization of CSR in Higher B2.3. A Systematic Literature Review on B3.3. Accident Rates: the impact of Daylight
Education Sector in Malaysia Operations/Manufacturing Strategy with a Saving Time and other Date-based variables
Aminah Rahman, Pavel Castka and Tyron Love Special Focus on Capabilities, Secondary data David Robb, Thomas Barnes
and Metrics
Alka Nand
(Paper ID: 15ANZAM-2017-A018) (Paper ID: 15ANZAM-2017-P009) (Paper ID: 15ANZAM-2017-A014)
The study investigates institutionalization processes A literature review within the operations We explore the impact of Daylight Savings Time
related to adoption of CSR in higher education. Six strategy/manufacturing strategy (OS/MS) discipline (DST) transitions on accident rates over a 12 year
Universities serve as case study organisations to with a special focus on operational capabilities, period in New Zealand. We find significant increases
determine the role of institutional driver in the secondary data and metrics is provided. The paper aims in road accident rates in the days following DST
adoption of CSR in the sector. The findings reveal the to discuss a classic sub-theme of OS/MS i.e., ‘how introduction, and significant impacts in the weekdays
strong role of leadership in the process as well as the organisations develop their operational capabilities’ and prior to DST start and end for falls and home &
ability to pursue the CSR in parallel to reach and highlights issues with data and measurement. Based on community accidents. There appear to be no
teaching activities. Even though research universities 25 articles, the relevant subtheme was identified and significant effects of DST on work accident rates. We
have advantage of more robust infrastructure, other analysed. Findings reveal that research in the area of also highlight a significant increase (decrease) in
university types could also adopt successfully through OS/MS has been in a decline specifically on the topic accident rates by day of week for road (work)
various process that are discussed in the paper. of how operational capabilities are organised. Various accidents.
research opportunities for future studies are presented.
xvi

STREAM C – Tuesday June 13th, 2017; 2:30pm – 4.00pm
C1 Standards in Supply Chain Management C2 Agility in Supply Chain Management C3 Role of organisational/national culture in
SCM
Session Chair: A/Prof. Pavel Castka Session Chair: Prof Mohammed A. Quaddus Session Chair: Dr Mark Wilson
C1.1. Validating the Theoretical C2.1. Revisiting the impact of Supply Chain C3.1. From Compliance to ownership:
Underpinnings of the ISO 9001:2015 Quality Agility on Financial Performance: An Towards a theory of cultural inflection point in
Management System Standard: a Cross Australian Perspective lean implementation
Cultural Perspective
Eias Al Humdan, Arash Najmaei, Masud Behnia Franz Wohlgezogen, Mohsin Malik
Nisansala M. Pallawala, Nihal P. Jayamaha, Nigel
P. Grigg

(Paper ID: 15ANZAM-2017-A007) (Paper ID: 15ANZAM-2017-P002) (Paper ID: 15ANZAM-2017-A010)
The ISO 9001 was revised in 2015 to address some Supply chain agility is a well-known enabler of a Despite a growing recognition that cultural factors are
shortcomings of ISO 9001:2008. Despite both firm’s financial performance. However, the link critical for the success of lean projects, understanding
standards being equipped with theoretical frameworks, between these two seems to be more complex than a of when and how culture influences the lean
prior studies have not directly examined these direct association. This paper attempts to investigate implementation process and how culture can be
frameworks—in isolation or comparatively—as this relationship. It proposes that supply chain agility is influenced during implementation remains
models that predict/explain customer satisfaction and an operational capability which first enhances a firm’s underdeveloped. Based on a case study of lean
product results, in implementing the standard. Not operational performance through which the financial implementation at an Australian public university, we
knowing how well the standard fits different cultures is performance is enhanced. Using data from 222 Small address both of these issues by inductively developing
another gap in the literature. The proposed study aims and Medium Enterprises (SMEs) in Australia with a a theory of cultural inflection points, i.e. critical times
to bridge these gaps by theorising and testing lagged financial performance, we found empirical during the implementation when managers can
theoretical models using data collected from several evidence for this relationship. The results suggest that facilitate cultural transition by fostering shared goals
countries. operational performance is in fact a mediator of supply and schemata. We discuss the conceptual and practical
chain agility and financial performance. contributions of the theory and point to opportunities
for future research.
xvii

SCM
C1.2. Comparing the Effect of Symbolic and C2.2. Predictors of SC Agility of Fast Fashion C3.2. How Diverse Multi-National, Multi-
Substantive Implementation of ISO 14001 Apparel Firms: The Supply Chain Functional Leaders Use ERP Systems to Gain
Certification on performance benefits Management Implementation, Practice and the Strategic Advantage
Mesbahuddin Chowdhury, Daniel Prajogo, Role of Organization Culture Terrence P Brookshaw, Amrik Sohal, Daniel
Jayanth Jayaram Mohammed A. Jahed, Mohammed A. Quaddus, Prajogo
Fazlul K. Rabbanee
Our study compares the effects of substantive This research tests a set of hypotheses relating Manufacturers faced with increasing global
implementation and symbolic implementation of culture, supply chain management competition and rising customer expectations
ISO 14001 standard on realised benefits with the (implementation and practice), relationship seek significant performance improvements to
certification. Specifically, we compare and quality, and supply chain agility. Data is collected enable timely, flawless transactions and decisions.
contrast firms’ benefits - in terms of from fast fashion apparel firms and analysed by This study examines how to accompany
environmental, economic, and marketing - partial least square based structural equation technology imperatives with process and
emanating from these two modes of modelling. Results indicate that while supporting organisational changes. Management will benefit
implementation of ISO 14001 certification. Our culture significantly impacts SCM practice, it from the study by understanding how to avoid
findings showed that substantive implementation does not influence the SCM implementation. On failure in ERP implementations in complex and
has wider and stronger effects on benefits of ISO the other hand innovative culture significantly multi-national, multi-functional operations,
14001 adoption than symbolic implementation. influences the SCM implementation, but it does increase the successful diffusion and adoption of
not influence the SCM practice. Both SCM the technology and gain strategic advantage.
practice and relationship quality are significant
predictors of supply chain agility of the fast
fashion apparel firms. Implications of the findings
are presented.
xviii

SCM
C1.3. Caught when failing to meet C2.3. Dimensions of Complexity in Supply C3.3. Examining the Effect of National Culture
environmental standards: The case of the Chains and their Related Risks: A Systematic on the Core Elements of the Toyota Way: An
automotive industry Literature Review Empirical Study on Toyota’s International
Rikki Smith, Lincoln C. Wood, Jason X. Wang Derek Friday, Ramaswami Shridharan, David Logistics, Sales and Marketing
Collins, Suzanne Ryan Nihal P. Jayamaha, Nigel P. Grigg, Nisansala M.
Pallawala
This research documents that automotive firms’ The purpose of this paper is to clarify supply We present a cross-cultural study designed to test
failures to meet environmental standards are chain complexity in relation to its dimensions, the effect of national culture on deployment of
associated with a statistically significant negative levels of analysis, and identify complexity risks. core values of Toyota—People Development
stock market reaction. The results are based on a A systematic literature review based on 76 peer (PD) and Continuous Improvement (CI)—as well
sample of 41 environmental standards failure reviewed articles from 29 supply chain as Operational Results (OR), using survey data (n
announcements from 1984 to 2016. On the management journals over a 25-year period. = 2196) collected from Toyota’s logistics, sales
announcement day, there is a mean stock market There are 46 varied terminologies describing and marketing divisions in 22 countries. The
reaction of -1.02%. There is no difference dimensions of complexity. Structural and study is important because the Toyota is taken as
between failures to meet voluntary or mandated behavioural dimensions of complexity are most a blueprint on customer value creation. Although
standards. The stock reaction is more negative common although dimensions relating to product, most of our hypotheses were supported by data,
when compensation is used as a remedy. Recent decision-making, and task complexity are the actual effect of national culture on OR as well
failures have resulted in a less negative reaction; emerging. Levels at which complexity is analysed as the enablers of OR (i.e. PD and CI) was found
however, there is a more negative reaction to vary from firm, supply chain, to systems and to be small.
announcements after the Volkswagen Dieselgate networks, in addition to functional levels.
event.
xix

SCM
Room: The Board Room
C2.4. How product centric manufacturers
pursue servitisation in order to achieve a
competitive edge.
Julie Donovan, Pavel Castka
Abstract
(Paper ID: 15ANZAM-2017-P021)
This paper investigates how product centric

manufacturers pursue servitisation in order to
differentiate their offerings to achieve a competitive
edge. Servitisation is a process where there is an
increased offering of customer focussed combinations
of product and services in order to add value to core
product offerings. Six New Zealand Manufacturing
(NZM) firms were interviewed as examples of
companies that were currently implementing
servitisation. Different industry types were chosen so
that the research questions could be examined in a
broad spectrum of settings. Findings suggest that there
are specific antecedents and capabilities needed at
different stages of servitisation and that certain
decisions are made both organisationally and
operationally when transitioning to include services.
xx

STREAM D – Wednesday June 14th, 2017; 11:30am – 1.00pm
D1 Supply Chain Design D2 Supply Chain Resilience D3 SCM/Productivity
Session Chair: Prof. Danny Samson Session Chair: Dr. Mark Wilson Session Chair: Prof. David J. Robb
D1.1. Optimising holistic supply chain designs D2.1. The Problem of Emergency Supply: Best D3.1. Real-time labour allocation in a retail
through decision analysis modelling Practice in the Preparation and Response store: an exploratory investigation
Phases
Danny Samson, Marianne Gloet Shandong Mou, David J. Robb
Mark M.J. Wilson, Peter Tatham, John Payne,
Cécile L'Hermitte

Supply chain design is a complex and relatively poorly This paper discuss the problems inherent in planning Aligning staff with changing customer demand is
structured process, involving many decisional and responding to disaster events in a multi-agency critical in retail store operations. Mismatches between
parameters and consideration of numerous sources of context where numerous actors and agencies are demand and service supply impair store profitability
uncertainty. Many conventional processes of supply involved in the planning and response phases. In and customer satisfaction. Despite extensive personnel
chain design involve a deterministic approach, using particular we examine a situation where a lead agency scheduling studies, research on real-time labour
point estimates, on important measures of supply chain has been delegated the responsibility for emergency allocation in a retail store is limited. We review
effectiveness such as cost, quality, delivery reliability supply and how it determines best practice. operations research on employee management in
and service levels. This paper describes an approach Exploratory in-depth interviews were conducted with retailing and analyse critical factors impacting real-
that combines the intellect and experience of the 12 CDEM organisations and key managers within time labour allocation decisions. The conceptual
supply chain designer with the power of evaluation Australasia. We discuss the problem of coordinated design of a simulation-based decision support system
provided by a Monte Carlo simulation model, which supply management in developed countries and best with financial and employee welfare concerns is
uses decision analysis techniques to explicitly practice. From this we then formulate a scenario based proposed. This research helps understand “execution
incorporate the full spectrum of uncertain quantities model for disaster planning that incorporates; desired level” retail workforce practice. The conceptual design
across the set of alternative supply chain designs being outcomes, scale, resources, constraints and agency forms the basis for developing a decision support
considered. integration to better manage the desired response. software in the future.
xxi

D1.2. Supply chain governance for D2.2. Supply Chain Resilience – Inherent D3.2. Suppliers’ Operational Sustainability
sustainability through improving relational Strategies for Unknown-Unknown Events within the Global Supply Network in
capital: The moderating effect of supply chain Rizwan Ahmed, Venkatesherlu Pulakanam, Automobile Industry: A Complex Adaptive
design Mesbahuddin Chowdhury, John Vargo System View
Md Maruf Hossan Chowdhury, Mohammed A. Buddhika Mannaperuma, Prakash J. Singh,
Quaddus William Ho
Despite the proliferation of supply chain sustainability A resilient supply chain withstands, resists, recovers The collapse of the Australian automobile
studies, empirical evidence for investigating and thrives under any uncertain event. Supply chain manufacturing industry shows that none of the global
conditional direct and indirect effect of supply chain resilience mostly has been discussed in the context of giants could escape from the coevolution of supply
governance on sustainability through relation capital is low probability and high impact disruptions, with a network features (connectivity and complexity) with
yet to be explored. Therefore, this study attempts to limited research on Unknown events. This research task business environmental elements (dynamism,
examine conditional indirect effect of supply chain adopts a case study approach to understand how munificence and complexity). Hence, we invoke the
governance on sustainability through relation capital at organisations deal with these “unknown” disruptions. complex adaptive system theory to explore how these
different level of supply chain design complexity by Our findings suggests that inherent strategies provide a interactions influence the suppliers’ operational
conducting a survey research. We use partial least firm ability to response to this “unknown” disruption. sustainability based on relationship value, cost and
square (PLS) based structural equation modelling This research categories inherent strategy into two revenue. Bloomberg data from Toyota’s 284
(SEM) to analyse the data. Our results find that components – one focuses on within the firm context immediate suppliers validates that the interactions
conditional indirect effect of supply chain governance and the other focuses on beyond the firm context i.e. involved with network and environmental complexities
on sustainability through relational capital at different supply chain context or broader network. reduce the operational sustainability while the other
level of supply chain design complexity is significant. interactions ensure the suppliers’ survival.
Our study has significant theoretical and managerial
contribution.
xxii

D1.3. Crowdsourcing: Toward innovation of D2.3. The Underlying Activities of Supply D3.3. A Service-dominant logic view of
project management and mass customization Chain Collaboration and Their Contribution Private-Public Partnerships
Kathleen Wilson, Daniel Samson, A/Prof Vikram Towards Achieving Resilience Ronald C Beckett
Bhakoo, Muhammand Umar, Mark M.J. Wilson, Jeff Heyl
This paper explores how mass customization process This paper highlights some of the activities involved in Public-Private-Partnerships (PPP) may be viewed as
and delivery is improved through crowdsourcing supply chain collaboration and discusses their complex service systems with potential tensions to be
firms’ innovative project practices and processes. Five contribution towards supply chain resilience. Multiple managed. Focussing on common goals and value co-
firm-based case studies were conducted in Australia case study method is selected for this study and the creation, a feature of successful partnerships is also a
and the USA, firms which operationalised emphasis is on food supply chain in two different theme in emerging Service-Dominant-Logic (SDL)
crowdsourcing projects. This included 31 firm regions. With the help of Nvivo, the analysis has concepts. In this exploratory study the potential utility
executive and crowd participant interviews. Findings revealed that effective communication, mutual of these concepts is considered drawing on four
suggest that crowdsourcing injects dynamism, huge dependence, information sharing, informal financial defence sector PPP case studies. It is suggested that the
crowd size, up-down scaling of resources, earlier support and building trust are some of the components eleven foundation premises behind SDL need to be
customer involvement and participation as well as of supply chain collaboration which enhance the interpreted in the particular context first, then used as a
improved delivery speed in project management (PM) overall resilience of supply chain towards natural basis for critical questioning related to individual
practices and mass customization processes. disasters. service events, service event context, and supporting
Crowdsourcing brings mass resources at low cost and service infrastructure and goals. Future research into
applies the crowd in a fluid manner for agile and consideration of risk in SDL concepts is suggested.
speedy delivery results in PM and mass customization.
This study challenges conventional processes and
practices concerning project management and mass
customization and provides a new and enhanced
understanding via crowdsourcing mechanisms.
Crowdsourcing firms and characteristics that are
important to PM practices and delivery of mass
customized outcomes are explored as a way to achieve
cost efficiency, scale, flexibility, and risk reduction.
xxiii

D1.4. Analyzing the Relationship between
Batch Sizing and Bullwhip Effect in Two-Tier
Supply Chain: A Case Study of Selected
Pakistani Rice Firms
Shoaib Yousaf, Matloub Hussain
Abstract
(Paper ID: 15ANZAM-2017-P016)
The purpose of this research is to investigate the

bullwhip effect in two tier supply chain in rice
industry of Pakistan. Two cases of the rice
industry have been chosen as a sample. It has
been found that the relationship between batch
size and demand amplification is non-linear. It
cannot be said that reducing the batch size will
minimize the bullwhip effect. Batch size larger
than average demand does not result in bullwhip
effect. In other words, variance of the order
quantity is smaller than the variance of demand,
which leads to anti-bullwhip or de-whips effect.
This study will help the practitioners and supply
chain managers to control the bullwhip produced
by batching effect across multi-echelon supply
chains.
xxiv

Things to do in Queenstown

Welcome to the adventure capital of New Zealand. Queenstown offers the perfect setting for
adventure, relaxation and fun all year round with two major season – summer holiday and winter ski
seasons. You could try these:
 Ride the Skyline Gondola for iconic views across Queenstown and Lake Wakatipu.
 Visit Glenorchy, set amongst ancient beech forests and on the doorstep of the Mount
Aspiring National Park, it's a great place to enjoy horse riding, kayaking, walking and
skydiving.
 Visit the historic gold mining village at Arrowtown and try your hand at gold panning.
 Take a scenic flight for a bird's eye view of the dramatic natural landscapes.
 Draw inspiration from the amazing alpine surroundings as you play a round of golf on one of
Queenstown's world‐renowned courses. For something a little different, check out the 18‐
object frisbee golf course at the Queenstown Gardens.
 Marvel at the spectacular scenery on a day trip from Queenstown to Milford Sound.
 Ride the famous Shotover River in an extreme jetboat ride, or even the Kawarau River gorge.
 Visit some of the amazing scenes from the mythical world of Middle‑earth where both The
Lord of the Rings and The Hobbit Trilogy where filmed.
 Sample some of the world renowned Central Otago Pinot Noir wine or visit the Wineries, like
Sam Neil’s Two Paddocks winery.
 Jump off a perfectly good bridge at AJ Hackett’s famous Kawarau Gorge bungie jump.
 Scoff down an innovative and extremely yummy Fergburger at 42 Shotover St, Queenstown.
Please note that there is usually a 40‐60 minute waiting time just to get in, it’s that popular,
so plan ahead.
 Or just visit some of the great retail shopping, eateries and bars in the CBD and waterfront.
Top 10 things to do in Queenstown:
https://www.tripadvisor.co.nz/Attractions‐g255122‐Activities‐
Queenstown_Otago_Region_South_Island.html
Or those with a limited budget:
http://www.backpackerguide.nz/10‐free‐or‐cheap‐things‐to‐do‐in‐queenstown/
If you are staying on, then don’t miss the very popular:
Queenstown Winter Festival 22 Jun 2017 - 25 Jun 2017
https://www.winterfestival.co.nz/

xxv

15th ANZAM Symposium, Queenstown
Eliciting and re-distributing information along the forestry value

chain to promote more efficient and fair supply chain behaviour
Bezuidenhout, Carel, N.
Science Leader, Value Chain Optimisation
carel.bezuidenhout@scionresearch.com
Value Chain Optimisation, Scion, Private Bag 300, Rotorua, 3046, New Zealand
Abstract
New Zealand’s log supply chains are fragmented with internal competition, limited
information exchange and price negotiations occurring behind closed doors. NZ logs
are relatively inexpensive and attract price sensitive customers. Prior to this project, no
forecast of future log prices were available and visibility across the supply chain was
limited. This paper presents the development of a log price forecasting tool and reflects
on the benefits that these outlooks have created. Scion has conducted nine quarterly log
price outlooks. The outlooks have helped to shape supply chain research and build
relationships between researchers and industry practitioners.
Supply 800 characters / 100 words same.
Keywords: markets, forecast, supply, demand, forestry
3
Introduction
Similar to many commodity supply chains (SC), the raw log forestry SC is fragmented
with internal competition, limited information exchange and price negotiations
occurring behind closed doors. Although there is room to modernise the industry’s SCs,
there is also a need to enhance the SC in its current state. Raw logs are sold by forestry
companies (and their agents) to domestic millers, local and foreign traders, international
wholesalers and saw mills abroad. New Zealand’s logs are relatively inexpensive and
attract customers who are price sensitive. Uncertainties can lead to perceived risks and
can make investments in the NZ forestry sector less attractive for venture capitalists,
which will lead to missed wealth improving opportunities.
Very little industry-wide information is shared within this lean and cost competitive
environment. One New Zealand based firm publishes monthly retrospective log prices
and the government publishes export statistics and forestry production forecasts
(AgriHQ, 2017). Traders and agents can often be hostile and generally do not exchange
information (Christians, 2017). Also, buyers could potentially play vendors off against
each other. At the start of this project, no forecast of future log prices were available
and every company held to its own sentiments with limited sharing and visibility across
the supply chain. During consultation, all the traders and agents agreed that some
information is better when shared, but none were willing to make the first move. This
paper briefly presents the introduction of an independent log price outlook and a
subsequent forestry industry outlook carried out by Scion. The objective is to put
forward the benefits that these outlooks have created from a SC perspective.
Methodology
Since February 2015, Scion has conducted nine quarterly log price outlooks (Scion,
2017). A short online questionnaire prompts local and international traders, agents,
forestry companies, consultants, port companies, shipping lines and millers to predict
the changes to log prices over the next three, six and twelve months. Participants enjoy
exposure to different parts of the SC, which enriches the outlook. Respondents can
insert narratives to explain their thinking and Scion often inserts one or two additional
ad hoc questions to elicit information on other issues, such as sustainability, SC power
and new markets. Because of negative connotations, academic terms associated with
surveys, such as “questionnaire”, “data” and “respondents” are avoided. Participation
is confidential and reciprocal. Scion removes all names, summarises the data and re-
distributes a short report to the participants. One month later this report is made publicly
available. Since February 2016 the log price outlook reports also include forklift
purchasing levels in the main international markets. This is a known lead indicator of
future economic activity (Bowen, 1993). In March 2017, a long-term industry outlook
survey was carried out for the first time along similar lines.
Results and Discussion
Figure 1 presents the number of participants in the nine quarterly outlooks (blue bars)
as well as the long-term industry outlook (orange bar). The pie chart presents the typical
representation along the SC. Although the number of participants has been as low as
31, most of the large companies in the forestry industry participate. The appendix
displays the first page of the February 2017 quarterly log price outlook.
4
Number of Respondents
Number of Respondentsper
perSurvey
servey
140
Forest
Log Markets Growing
120
14% 17%
100
80 Transport
and Shipping
60 15% Harvesting
17%
40
Ports
20 14% Solid wood
products
0
Pulp & paper 15%
8%
Figure 1. The number of respondents and their location within the supply chain.
The regular outlooks have made valuable contributions to different parties in the
forestry supply chain. Regular contact between industry players and Scion, the
industry’s research institute, gives the value chain optimisation (VCO) research group
transparency into this competitive, relationship-based and often undisclosed business
landscape. This has given researchers the opportunity to design research projects from
a messy-problem, bottom-up perspective. Although this type of research is more
difficult to carry out, it is better received by the industry and has helped the VCO group
to build a strong reputation while solving real-world problems. The high level of
participation in the long-term industry outlook survey in March 2017 supports this
claim.
In September 2015, the VCO team investigated the NZ-China log supply channel,
which is the largest international log trade channel in the world. While this is a
competitive business environment where SC power and negotiation is key
(Bezuidenhout and Pusztai, 2016), participants in both New Zealand and in China were
happy to disclose large amounts of sensitive information to the researchers. Scion’s
regular log price outlooks was the entry point for this research and even the team’s
Chinese translator was one of the regular survey participants.
Stakeholders have realised that the survey is often completed by both vendors and
buyers and claim to be using the information to forecast budgets and to better
understand the price negotiation landscape. The forecasted wharf gate log price is
known to correlate with other markets, such as the log price at domestic sawmills and
pulp mills. One forestry company mentioned that the outlook is escalated to the
company’s board level to unpack and understand the price drivers.
While the quarterly log price outlooks have made some impact in the forestry industry,
it has become the backbone for the VCO research team, who now uses these surveys to
maintain data and company profiles and to build relationships with individuals through-
out the forestry industry.
5
References
AgriHQ (2017). AgriHQ forestry market report. Available at

https://agrihq.co.nz/report/agrihq-forestry-market-report-july
Bezuidenhout, CN, Pusztai, C (2016). The New Zealand – China Log Export Market:
An Investigation of Supply Chain Integrity. Internal report, Scion, Rotorua, NZ
Bowen, D. (1993) Forklifts point to recovery: Unusual economic indicators are proving
popular as official figures falter. Sunday 12 December 1993, Independent
Newspaper, Independent Digital News & Media, London, UK.
Christians, V. A. (2017). Collaborating with competitors: Value through coopetition in

the New Zealand forest industry (Master's thesis). Massey University, Palmerston
North, New Zealand.
Scion (2017). Scion Log Price Outlook. Available at

https://www.scionresearch.com/research/forest-science/value-chain-
optimisation/log-price-outlook
6
APPENDIX
7
HUMANITARIAN SUPPLY CHAIN COLLABORATION
Samar Al Adem, Paul Childerhouse* and Bill Wang

School of Engineering and Advanced Technology, Massey University
*p.h.j.childerhouse@massey.ac.nz
Purpose
To investigate the applicability of supply chain collaboration in the humanitarian sector.
To explore the relationships between international non-governmental organisations and
local community based organisations during disaster relief. To discover if effective
partnerships contain a set of identifiable facilitators and drivers that promote relationships
local and international NGOs.
Design/methodology/approach
Literature from both the commercial and humanitarian sectors is discussed in the context
of horizontal partnerships. A Jordanian cross sectional case study spanning a network of
NGOs is explored via semi-structured interviews. Insights are synthesised into a
conceptual model of how NGOs can partner during a humanitarian response.
Findings
The research provides valuable insights on the challenges facing local and international
NGOs when developing partnerships. Four types of challenges are identified;
organisational, inter-organisational, external, and donor-related. The conceptual model
highlights the essential elements required for effective partnerships. A set of facilitators
and key drivers trigger the potential partnerships, while two clusters of technical and
relational mechanism are vital for maintaining sustainability.
Research limitations/implications
The research is built on a single case study from one country during an extended
humanitarian crisis. The majority of the empirical data is only from one actor’s perspective,
thus further research into dyadic and network relationships is required. The applicability
of a shared platform cooperatively managed by multiple NGOs has potential for further
exploration. Approaches to addressing the diverse cultural and decision making
perspectives of local and international NOGs requires significantly more investigation.
Practical implications
Recognising the challenges and major elements to horizontal partnerships between the
local and international NGOs will assist the managers, both at the strategic and operational
levels, to find solutions and evolve strategies to build effective partnerships. Compromise
and consideration for partner’s drivers and cultural views are essential for effective
humanitarian relief.
Originality/value
The challenges facing the collaborative efforts, alongside the facilitators, key drivers,
technical and relational mechanisms complement each other to achieve effective
partnerships. Despite the uniqueness of the humanitarian context, such as the secondary
nature of cost and dynamic demand, the core principles of collaboration still hold.
Keywords: Supply chain collaboration, partnerships, humanitarian, domestic NGOs,

international NGOs.
Article Classification: Research paper
8
Supply chain management for the circular economy: a
review and a classification of terms
Muhammad Farooq, Abraham Zhang (Email: Abraham.zhang@aut.ac.nz)
Auckland University of Technology (AUT) Business School, Private Bag 92006, Auckland
1142, New Zealand; Tel: 09 921 9999 ext 5327; E-mail: abraham.zhang@aut.ac.nz
Short abstract
The circular economy concept has great potential to guide organizations to achieve a
breakthrough in environmental sustainability performance. There has been a growing interest
in supply chain management for the circular economy. We review the extant literature to
understand the current state of supply chain research for the circular economy, and discuss
the implications of circular economy for supply chain management theories and practices.
We also provide a classification of relevant terms to clarify the meanings of interrelated
concepts. We then recommend future research directions in this very promising research
domain.
Keywords
Circular economy; supply chain management; sustainable supply chain; environmental
sustainability
Topics
Circular economy; Supply chain sustainability; Corporate Social Responsibility
Extended abstract
Development of green and sustainable supply chain practices in the last decades has led many
countries, including emerging economies, to substantially reduce the negative environmental
impacts of their production and consumption activities (Genovese et al., 2017). However,
overriding global patterns of production, consumption and trade remain dangerously
unsustainable (Preston, 2012). There is still a very long way to go to further improve the
environmental sustainability performance of the nations and organizations.
In recent years, the circular economy concept has started to be recognized as of great potential
to help organizations achieve a breakthrough in environmental sustainability performance. It
has quickly become an influential driving force behind sustainability, both in literature and
practice (Hobson, 2016). The circular economy concept aims to redesign global production
and consumption systems (Winkler, 2011) through eco-industrial initiatives, where wastes
produced at one point in a value chain are turned into inputs at another point (Mathews &
Tan, 2011). This results in the creation of self-sustaining production systems, where most
used products, scraps, residual materials, and other waste materials are collected,
conditioned, and reused or recycled to improve material efficiency and profitability (Winkler,
2011). The concept puts sustainability and closed-loop thinking at the heart of business
models and industrial organizations (Preston, 2012).
9
Supply chain research is still at a nascent stage to conceptualize how to advance supply chain
theories and practices to help realize the vision of the circular economy. However, there has
been great enthusiasm and a growing interest in supply chain management for the circular
economy. We review the extant literature to understand the current state of supply chain
research for the circular economy, and discuss the implications of circular economy for
supply chain management theories and practices. Our review shows there are many
confusions on the definitions of relevant terms and the relationships among them. These
terms include green supply chain, sustainable supply chain, corporate social responsibility,
closed-loop supply chain, circular supply chain, reuse/recycle, remanufacturing, green
manufacturing, reverse logistics, green logistics, etc. Therefore, we also provide a
classification of terms to clarify the meanings of interrelated concepts. We then recommend
future research directions in this very promising research domain.
References
Genovese, A., Acquaye, A. A., Figueroa, A., & Koh, S. L. (2017). Sustainable supply chain management and
the transition towards a circular economy: Evidence and some applications. Omega, 66, 344-357.
Hobson, K. (2016). Closing the loop or squaring the circle? Locating generative spaces for the circular
economy. Progress in Human Geography, 40(1), 88-104.
Mathews, J. A., & Tan, H. (2011). Progress toward a circular economy in China. Journal of industrial ecology,
15(3), 435-457.
Preston, F. (2012). A global redesign? Shaping the circular economy. Energy, Environment and Resource
Governance, 2, 1-20.
Winkler, H. (2011). Closed-loop production systems—A sustainable supply chain approach. CIRP Journal of
Manufacturing Science and Technology, 4(3), 243-246.
10
Examining the Effect of National Culture on the Core Elements of the Toyota Way: An
Empirical Study on Toyota’s International Logistics, Sales and Marketing
Authors:
Nihal P. Jayamaha (corresponding author)

Massey University, School of Engineering and Advanced Technology, Palmerston North
4474, New Zealand.
Email: N.P.Jayamaha@massey.ac.nz
Nigel P. Grigg
4474, New Zealand.
Email: N.Grigg@massey.ac.nz
Nisansala M. Pallawala Massey University, School of Engineering and Advanced

Technology, Palmerston North 4474, New Zealand.
Email: N.Pallawala@massey.ac.nz
11
Examining the Effect of National Culture on the Core Elements of the Toyota Way: An
Empirical Study on Toyota’s International Logistics, Sales and Marketing
Short Abstract: This abstract presents a cross-cultural empirical study designed to test the
effect of national culture on the core values of Toyota (Toyota Way) as well as Operational
Results, using survey data (2196 cases coming from 22 countries) collected from international
operations of Toyota’s logistics, sales and marketing divisions. The study is important because
the Toyota Way is taken as a blueprint on customer value creation (i.e. Lean management).
Most of the hypotheses were supported by the data but the actual effect of national culture
(based on Hofstede’s framework) on both Results as well as the enablers of Results — People
Development and Continuous Improvement — seems to be small.
Keywords: Toyota Way, Lean, Culture, Hofstede’s National Cultural Dimensions

Introduction and Background
In spite of some recent hiccups on product quality (recalls), Toyota’s sociotechnical system,
commonly generalised as Lean management [1, 2], has been identified as the blue print for
production and supply chain efficiency and effectiveness [1, 3]. As Toyota expanded its market
share across the globe, Toyota Motor Corporation (TMC) recognised the need to codify their
core values for the purpose of their international operations, especially logistics, sales and
marketing [4, 5]. These core values were first officially published in 2001as the Toyota Way
(TW) [5, 6]. According to TMC, the TW consists of two core values: Respect for People and
Continuous Improvement [4, 6-8]. The TW posits that Respect for People
Challenge (People Development, as argued in [3]) results
(LT Vision) in unprecedented levels of Continuous
Improvement, which results in significant
Kaizen Continuous outcomes for Toyota. Figure 1 depicts the five
Improvement
elements of the two core values of Toyota. The
Genchi
Genbutsu
TMC conducts both formal training and on-the-
TW Outcomes job training on Toyota’s core values (i.e. TW)
(Results) for its international logistics, sale and marketing
Respect staff around the world; this is to achieve the
Respect for corporate goals of the TMC. More importantly,
People (People the TW’s propositions have been supported in
Teamwork Development) the literature both conceptually (e.g. [9, 10]) and
empirically (e.g. [4]). The study reported in this
Figure 1: The TW framework (Source:[3]) abstract is an extension
of the TW validation study (validation of the theoretical model depicted in Figure 1) reported
in [3], which involved survey data collected from 2613 Toyota employees (in logistics, sales
and marketing) in 27 countries. What is not known is how international culture impacts Toyota’s
core values. Knowing this is important because people in different nations bring different values
to a workplace, which has its own set of values that are unique to the organisation and the
occupations of the key workers [11, 12]. Thus our research question (RQ) is: what is the
relationship between the national culture and Toyota’s core values?
Hypotheses
To answer the above RQ, we developed a series of causal predictive hypotheses linking
Hofstede’s national cultural dimensions (Power Distance, Individualism, Uncertainty
Avoidance, and Masculinity) ([13, 14]) as explanatory variables and the five elements of
Toyota’s core values (Long-term Orientation, Kaizen, Genchi Genbutsu, Respect, and
Teamwork) and Results as dependent variables. Four explanatory variables (Hofstede’s
12
dimensions) and six dependent variables (five TW elements plus Results) constituted 24
hypotheses (4*6). However, because the five TW elements resolve into two constructs as shown
in Figure 1, the complexity of hypotheses formulation was substantially reduced (only 12 base
hypotheses). Extant literature on Continuous Improvement, Teamwork and Results, in a cross-
cultural context (e.g. [15-18]) was used to formulate the hypotheses. The base hypotheses were:
H1: “There is higher acceptance for Continuous Improvement in high Power Distance
cultures”; H2: “There is lower acceptance for Continuous Improvement in Individualist
cultures”; H3: “There is lower acceptance for Continuous Improvement in high Uncertainty
Avoidance cultures”; H4: “There is lower acceptance for Continuous Improvement in
Masculine cultures”; H5: “There is higher acceptance for People Development in high Power
Distance cultures”; H6: “There is lower acceptance for People Development in Individualist
cultures”; H7: “There is higher acceptance for People Development in low Uncertainty
Avoidance cultures”; H8: “There is lower acceptance for People Development in Masculine
cultures”. H9: “There is higher acceptance for Results in high Power Distance cultures”; H10:
“There is higher acceptance for Results in Individualist cultures”; H11: “There is higher
acceptance for Results in high Uncertainty Avoidance cultures”; H12: “There is higher
acceptance for Results in highly Masculine cultures”.
Methodology
The dataset used for the study reported in [3] were used to test the hypotheses. These data came
from a recent climate survey conducted by Toyota to gauge to what extent the logistics, sales
and marketing divisions approach and deploy the TW in different countries. The survey
questionnaire, which contains 24 statements reflecting the six elements of the two core values
of Toyota (Figure 1) and 3 statements on Toyota’s achievements in achieving Results in
logistics, sales and marketing, seeks acceptance to the statements using a five-point Likert
scale (1= strongly disagree and 5 = strongly agree). The survey instrument is reported in [3].
Five countries out of the 27 countries that were covered in [3], were excluded in the present
study either due to small sample sizes (some countries had less than 15 cases) or non-
availability of country scores on Hofstede’s cultural dimensions; the country scores on
Hofstede’s cultural dimensions were obtained from the URL reported in [19]. Appendix-1
depicts the 22 countries involved in the present study (2196 respondents), Hofstede’s scores
for these countries and the cutoff values that were used for categorisation (Low, Medium and
High countries in each dimension). One way analysis of variance (ANOVA) was used to test
the hypotheses using Minitab 17 software. The Hofstede’s dimensions were treated as factors
having three levels (Low/Med/High) rather than covariates. This is to generate easily
interpretable graphical plots (e.g. 95% CI for group averages) and to account for any
imperfections in Hofstede’s cultural dimension scales (0-100). Tukey’s test ([20]) was
performed to compare the averages of each paired group (e.g. Low vs Med) for each Hofstede’s
dimension (explanatory variable) and each TW element (dependent variable).
Results
In general, the data supported the hypotheses, although there were confounding/ disconfirming
results. For example, the interval plot showed that both highly individualistic and highly
collectivist cultures tend to achieve higher Results relative to cultures that are on the middle-
of-the-road in individualism. Also, the interval plot and Tukey’s test implied the exact opposite
of H11. In addition, the relationship between Hofstede’s dimensions and TW (Lean) elements
were found to be nonlinear — effect (change in the level of acceptance) occurring (p < 0.05)
either between low to medium or medium to high level (not across the full range). While large
sample size enabled the researchers to obtain statistically significant results, the true
(population) effect of national culture on Lean outcomes (Results) seemed to be relatively
small, as found in other studies (e.g. [15, 16]). For example, the average acceptance score only
13
increased only from 3.5 to 3.8 (in the 5 point Likert scale) when Power Distance changed from
Low to High.
Contribution and Limitations
The study contributes to the operations management literature on cross-cultural studies on Lean
management. The effects situational key situational variables — the organisational culture and
occupational culture — have been controlled in this study by choice (the study related to
Toyota’s international operations in logistics, sales and marketing) to enable the estimation of
true effects of national culture (large sample also helped). This study does not cover issues in
implementing Lean (TW) by a multinational company across diverse cultures.
14
References
1. Womack, J.P. and D.T. Jones, Lean thinking: banish waste and create wealth in your
corporation. 2003, New York: Free.
2. Holweg, M., The genealogy of lean production. Journal of Operations Management
2007. 25(2): p. 420–437.
3. Wisner, J.D., K.C. Tan, and G.K. Leong, Principles of supply chain management: a
balanced approach. 2014, Boston, MA: Cengage Learning.
4. Jayamaha, N.P., et al., Testing a theoretical model underlying the ‘Toyota Way’–an
empirical study involving a large global sample of Toyota facilities. International Journal
of Production Research, 2014. 52(14): p. 4332-4350.
5. TMC. Sharing the Toyota Way values. 2001 [cited 2017 20 March]; Available from:
http://www.toyota-global.com/company/history_of_toyota/75 years/data/conditions/
philosophy/toyotaway2001.html.
6. TMC, The Toyota Way in sales and marketing. 2001, Tokyo: Toyota Motor Corporation.
7. Emiliani, M.L., Origins of lean management in America: the role of Connecticut
businesses. Journal of Management History 2006. 12(2): p. 167–184.
8. Rother, M., Toyota Kata: managing people for improvement, adaptiveness, and superior
results. 2010, New York: McGraw-Hill.
9. Liker, J.K. and M. Hoseus, Toyota culture: the heart and soul of the Toyota way. 2008,
New York: McGraw-Hill.
10. Lander, E. and J.K. Liker, The Toyota production system and art: Making highly
customized and creative products the Toyota way. International Journal of Production
Research 2007. 45(16): p. 3681–3698.
11. Schein, E.H., Organizational culture and leadership. 2010, San Francisco, CA: Jossey-
Bass.
12. Gelfand, M.J., M. Erez, and Z. Aycan, Cross-cultural organizational behavior. Annu.
Rev. Psychol., 2007. 58: p. 479-514.
13. Hofstede, G., National cultures in four dimensions. International Studies of Management
& Organization, 1983. 13(1/2): p. 46-74.
14. Hofstede, G.H., G.J. Hofstede, and M. Minkov, Cultures and organizations: software of
the mind. 2010, London: McGraw-Hill.
15. Flynn, B.B. and B. Saladin, Relevance of Baldrige constructs in an international context:
A study of national culture. Journal of Operations Management, 2006. 24: p. 583-603.
16. Lagrosen, S., Exploring the impact of culture on quality management. International
Journal of Quality & Reliability Management, 2003. 20(4): p. 473-487.
17. Pagell, M., J.P. Katz, and C. Sheu, The importance of national culture in operations
management research. International Journal of Operations & Production Management,
2005. 25(4): p. 371-394.
18. Kull, T.J. and J.G. Wacker, Quality management effectiveness in Asia: The influence of
culture. Journal of Operations Management, 2010. 28(3): p. 223-239.
19. Hofstede, G.H., Country comparison. 2017, ITIM International: Helsinki, Finland.
20. Tukey, J., Comparing individual means in the Analysis of Variance. Biometrics, 1949.
5(2): p. 99–114.
15
Appendix-1: The Countries Included in the Study, Their Scores on Hofstede’s Cultural
Dimensions and Cut-off Scores for Categorising as Low, Medium and High Countries
Table 1: Countries Included in the Study and their Scores on Hofstede’s Dimensions in the
Ascending Order of Power Distance (PDI)
Power Individualism Masculinity Uncertainty

Country Distance Index (IDV) (MAS) Avoidance Index
(PDI) (UAI)
Denmark 18 74 16 23
Iceland 18 75 70 26
New Zealand 22 79 58 49
United Kingdom 35 89 66 35
Australia 36 90 61 51
Canada 39 80 52 48
USA 40 91 62 46
Argentina 49 46 56 86
Greece 60 35 57 112
Egypt 63 22 44 69
Jordan 63 28 44 55
Thailand 64 20 34 64
El Salvador 66 19 40 94
Turkey 66 37 45 85
Colombia 67 13 64 80
France 68 71 43 86
Brazil 69 38 49 76
Nigeria 74 28 61 45
Saudi Arabia 90 22 61 69
Philippines 94 32 64 44
Belize 95 6 37 101
Panama 95 11 44 86
Note: The Scores on Hofstede’s dimensions for each country were obtained from:
https://geert-hofstede.com/countries.html
Table 2: Sample Sizes and Countries for Each Cultural Dimension at Each Level
Cultural LOW MEDIUM HIGH Total

Dimension Cut- Cases Coun- Cut- Cases Coun- Cut- Cases Coun- Cases Coun-
off tries off tries off tries tries
value value value
PDI <52 1181 8 <70 519 9 > 70 496 5 2196 22
IDV <40 915 13 <76 199 4 > 76 1082 5 2196 22
MAS <48 607 9 <60 661 5 > 60 928 8 2196 22
UAI <54 1321 9 <78 253 4 > 78 622 9 2196 22
16
Suppliers’ Operational Sustainability within the Global Supply Network in
Automobile Industry: A Complex Adaptive System View
Extended Abstract
Buddhika Mannaperuma
Department of Management and Marketing | University of Melbourne | Level 10, 198
Berkeley Street, Vic, 3010 AUSTRALIA
P: +613 8344 1479 | Email: bmannaperuma@student.unimelb.edu.au
Professor Prakash J. Singh

P: +613 8344 4713 | Email: pjsingh@unimelb.edu.au
Doctor William Ho
T: +61 3 9035 7560 | Email: william.ho@unimelb.edu.au
17
ABSTRACT
The collapse of the Australian automobile manufacturing industry shows that even the
global giants such as Toyota, Ford and General Motors could not escape from the
interactive effects of the global supply network with its task business environment.
Hence, we invoke the complex adaptive system theory (CAS) to explore how these
interactions influence the suppliers’ operational sustainability within the global supply
network. Bloomberg data from Toyota’s 284 immediate suppliers validates that the
interactive effects are either synergistic or antagonistic on their operational sustainability.
Key Words:
Supply network, task business environment, operational sustainability and CAS
INTRODUCTION
The corporate continuously seeks the optimal ground between the supply network and the
dynamic environment to enhance its operational sustainability which sometimes may lead
to the disappearance of existing suppliers from the global network. Although the existing
literature mostly discusses the firms’ adaptation to the task business environment and the
supply network separately, understanding how their interplay affects the suppliers’
operational sustainability within the network hitherto being largely neglected. Hence, we
invoke the CAS theory to explore how the suppliers’ operational sustainability within the
supply network is influenced by the interactive effects between the task business
environment and network characteristics. Empirical validations from the Toyota’s supply
network confirms that the interactive effects on the operational sustainability are either
synergistic or antagonistic.
LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
In CAS view, a supply network emerges overtime into a coherent form and adapts the
environment and organises itself without any singular entity deliberately managing or
controlling it (Choi et al., 2001). Though the ultimate goal of this interplay between
supply network and task business environment is to ensure the network’s survival,
understanding how much this interplay would impact the suppliers’ operational
sustainability within the network is poorly understood. We inform the operational
sustainability by the value, revenue and cost involved in their relationship with focal
business. We characterise the task business environment through munificence, dynamism
and complexity (Heeley et al., 2006) and supply network by connectivity and complexity
(Kim et al., 2011). A corporate properly absorbs the dynamic rigour that represents the
unpredictable changes within the environment in a highly interdependent and a complex
supply network as it can share the risks and pressure with other suppliers. Hence, The
interaction between dynamism and (H1) connectivity (H2) supply network complexity
improves any of the relationship’s value, revenue and cost.
Munificence that reflects the degree to which the environmental resources are
supportive of sustained growth encourages the corporates to keep direct connections with
suppliers as it gets many alternatives. In contrast, complexity based supply network
solutions entail higher coordination costs and delivery times. Therefore, The interaction
between munificence and (H3) connectivity improves (H4) supply network complexity
reduces any of the relationship’s value, revenue and cost.
Business environmental complexity refers to the breadth and variety of the corporate’s
geographic markets and product segments. The corporates prefer to have the groups of
parts suppliers closer to each manufacturing facility in a diverse geographic setting with
a limited connectivity within the supply network. Similarly, they follow the strategies
such as modularisation and coopetition to reduce the network complexity. Hence, The
interaction between business environmental complexity and (H5) connectivity (H6)
supply chain complexity reduces any of the relationship’s value, revenue and cost.
18
METHODOLOGY AND DISCUSSION
We collect data on 284 immediate suppliers and customers of Toyota’s corporate level
supply network from the Bloomberg database. Unit of analysis is the corporate. We
measure the environmental dimensions such as munificence by averaging the regression
coefficients of the corporate’s sales revenue and operating income over five years (2011-
2016), dynamism by averaging the standard errors of those two regression slopes and
complexity by the geographic and product segments (Heeley et al.,2006). We measure
the network characteristics such as connectivity by the corporate’s maximum direct
connections in the upstream of Toyota’s supply network and complexity by the number
of extended suppliers up to the third tier of supply network in the upstream. The
dependant variable; corporate’s operational sustainability within the global supply
network is characterised by the monetary value of the relationship with Toyota and the
percentages of revenue and cost involved in that. We control for market capitalisation,
the number of employees and operational performances such as the cost of revenue, total
waste, inventory turnover and days of sales outstanding.
We use the hierarchical regression analysis to test the hypotheses. The first model that
shows the effects of control variables on relationship’s value, revenue and cost account
for a variance of 38.8%, 16.4% and 5.9% at p<.01 respectively. The inclusion of the
variables of task environment and supply network in the second model account for an
incremental variance of 6.8% at p<.01 on value and 3.6% at p<.05 on revenue while it is
not significant for the cost. The inclusion of the interaction effects in the third model
explains an incremental variance of 2.8% and 5.3% with an overall effect of 48.4% and
11.2% on value and cost in sequence at p<.05 while the interactive effects are
insignificant on the supplier’s revenue percentage. All the hypotheses are supported by
the results. If the absolute value of the interaction effect is greater than the absolute value
of the cumulative of the respective dimensions’ distinctive effects, it is synergistic
otherwise antagonistic. The interaction between dynamism and connectivity produces
both negative and positive synergy on value and revenue in turn by supporting H1. The
interaction between munificence and connectivity produces a positive synergy on
relationship value by supporting H3. However, the interaction between munificence and
network complexity produces both negative antagony and synergy on relationship value
and cost in turn by supporting H4. The interactions of business environmental complexity
produce negative synergies with connectivity on relationship cost and with network
complexity on value by supporting H5 and H6.
CONCLUSION
We extend the CAS theory by theoretically proposing how the interactive effects between
the internal mechanisms (connectivity and complexity) of a CAS and the environmental
dimensions impact the nonadditively interacting agents’ operational sustainability within
the CAS. We empirically validate these interactive effects are either synergistic or
antagonistic in the context of Toyota’s global supply network. Also, this study theorises
the supplier’s operational sustainability within a supply network by the value and
percentages of revenue and cost involved in the relationship with the focal company. The
findings inform the managers how to leverage the network characteristics in continuously
evolving task environments to improve their survival within the global supply networks.
REFERENCES
CHOI, T. Y., DOOLEY, K. J. & RUNGTUSANATHAM, M. 2001. Supply networks and complex adaptive
systems: control versus emergence. Journal of Operations Management 19 351–366.
HEELEY, M. B., KING, D. R. & COVIN, J. G. 2006. Effects of firm R&D investment and environment
on acquisition likelihood. Journal of Management Studies, 43, 1513-1535.
KIM, Y., CHOI, T. Y., YAN, T. & DOOLEY, K. 2011. Structural investigation of supply networks: A
social network analysis approach. Journal of Operations Management, 29, 194-211.
19
Real-time labour allocation in a retail
store: an exploratory investigation
Shandong Mou
Doctoral Candidate in Operations and Supply Chain Management
Graduate School of Management, University of Auckland Business School
+64 21 185 9350
s.mou@auckland.ac.nz
David J. Robb
Professor of Operations and Supply Chain Management
Graduate School of Management, University of Auckland Business School
+64 9 923 2812
d.robb@auckland.ac.nz
Extended Abstract
20
Real-time labour allocation in a retail store: an exploratory
investigation
Short abstract
Aligning staff with changing customer demand is of great importance in retail store
operations. Mismatches between customer demand and service supply impair store
profitability and customer satisfaction. Despite extensive studies on personnel scheduling,
research on real-time labour allocation in a retail store is limited. We first review
operations research on workforce management in retailing and analyse critical factors
impacting real-time labour allocation decisions. The conceptual design of a simulation-
based decision support system with both financial and employee welfare concerns is
proposed. This research helps understand “execution level” retail workforce practice. The
conceptual design forms the basis for developing a decision support software in the future.
Keywords: Real-time labour allocation, schedule recovery, retail execution
Purpose
While staffing and personnel scheduling have been widely studied in the operations
management community, the “fine granularity” decision dealing with mismatches
between realised demand and employee supply in short time intervals has received little
attention. This research reviews operations research on workforce management in
retailing, analyses critical decision-making factors, and exhibits the conceptual design of
a simulation-based decision support system (DSS) to help store managers make such
dynamic decisions.
Research background/literature review

Staffing and personnel scheduling decisions are critical to the quality of service and retail
store profitability. Retailers usually generate workforce plans and schedules weeks ahead
of time. Despite significant efforts to develop “good” demand forecasts and “robust”
staffing and personnel scheduling systems, imbalances between planned and required
labour capacity occur frequently, owing to factors such as demand forecast inaccuracy
and employee absenteeism. Overstaffing is costly, while labour shortages directly
undermine service levels. Mani et al. (2015) analyse historical data from 41 retail stores
in the United States and find all stores were systematically understaffed during peak
periods.
One effective response may be to make adjustments to the original schedules, using
overtime, call in, and break cancellation, etc. Campbell and Diaby (2002) propose an
assignment heuristic to reallocate available cross-trained employees to multiple
departments at the beginning of a shift. Kim and Mehrotra (2015) propose a two-stage
stochastic integer programming model for integrated nurse plans and adjustments
problems. A here-and-now decision is made to determine the initial staffing levels and
nurse schedules several months in advance, while the proposed model makes a wait-and-
see decision to reschedule nurses at a time closer to the demand being realised.
Besides workforce flexibility, the experiences of store managers also significantly
impact the effectiveness of real-time schedule adjustments (Hur et al., 2004a). In a case
study in McDonald’s franchised restaurants, Hur et al. (2004b) propose two different
heuristics – efficiency- and convenience-first goals – for making scheduling adjustment
decisions. Experiments show computer-based heuristics can improve profitability and
reduce the burden on managerial time and decision-making inconsistency among junior
21
and senior managers, while experienced managers’ decisions are more effective than
computer-based heuristics.
In fact, real-time labour allocation is not a novel concept in the retail sector. Almost
all of us have experienced such situations. When the length of customer queues at the
checkouts becomes too long, an employee working on another task may come and open
a new checkout counter. This decision would effectively reduce the average waiting time
in checkout lanes and increase customer satisfaction. However, according to discussions
with a worldwide leading retail software provider and New Zealand retail executives,
there is currently no DSS available to facilitate real-time labour allocation. Decision
effectiveness is currently dependent on store managers’ experience and employee
discretion.
The research is conducted in three stages. First, we review recent operations research on
workforce management in the retail sector. Second, we, based on the literature review,
analyse critical factors that may impact real-time labour allocation decisions. Third, we
present the conceptual design of a simulation-based DSS, with both financial and
employee welfare considerations. Compared with mathematical models with strict
assumptions, simulation provides a natural platform and is deemed to be more appropriate
in practice. The balanced scorecard is applied to link strategic concerns to the conceptual
design of an operational simulation-based DSS.
Findings
In spite of the need in practice, this real-time labour allocation decision procedure has
received limited research attention. There is a paucity of execution-level “fine granularity”
studies that relieve front-line managers’ administrative workload. Several critical
decision-making factors are analysed, based on literature review. Concerns of multiple
stakeholders need to be integrated and coordinated when designing a DSS to help improve
retail execution.
Relevance/contribution
The potential contributions are three-fold. First, the analysis of the literature helps
understand real-time labour allocation decisions in a retail store, and identify critical
decision-making factors. Second, the study is expected to expand knowledge of the
“execution level” retail workforce management. Lastly, the conceptual design forms the
basis for developing a decision support software in the future research.
References
CAMPBELL, G. M. & DIABY, M. 2002. Development and evaluation of an assignment heuristic for
allocating cross-trained workers. European Journal of Operational Research, 138, 9-20.
HUR, D., MABERT, V. A. & BRETTHAUER, K. M. 2004a. Real-time schedule adjustment decisions: a
case study. Omega-International Journal of Management Science, 32, 333-344.
HUR, D., MABERT, V. A. & BRETTHAUER, K. M. 2004b. Real-time work schedule adjustment
decisions: An investigation and evaluation. Production and Operations Management, 13, 322-339.
KIM, K. & MEHROTRA, S. 2015. A two-stage stochastic integer programming approach to integrated
staffing and scheduling with application to nurse management. Operations Research, 63, 1431-1451.
MANI, V., KESAVAN, S. & SWAMINATHAN, J. M. 2015. Estimating the impact of understaffing on
sales and profitability in retail stores. Production and Operations Management, 24, 201-218.
22
Validating the Theoretical Underpinnings of the ISO 9001:2015 Quality Management
System Standard: a Cross Cultural Perspective
Authors:
Nisansala M. Pallawala (corresponding author)

4474, New Zealand.
Email: N.Pallawala@massey.ac.nz
Nihal P. Jayamaha
4474, New Zealand.
Email: N.P.Jayamaha@massey.ac.nz
Nigel P. Grigg
4474, New Zealand.
Email: N.Grigg@massey.ac.nz
.
23
Validating the Theoretical Underpinnings of the ISO 9001:2015 Quality Management
System Standard: a Cross Cultural Perspective
Short abstract: The ISO 9001 quality management system standard was revised in 2015 to
address some of the shortcomings of its predecessor, ISO 9001:2008. Although numerous
studies have been conducted on the effectiveness of ISO 9001, despite both ISO 9001:2008
and ISO 9001:2015 having been equipped with a theoretical framework (the so-called process
model) none of the studies have directly examined the implied causal relationships between
the key clauses of the standard, as a mechanism that predicts and explains how customer
satisfaction and product results are caused, in implementing the standard. Another gap in the
literature is how the standard fits different cultures. Here we propose a study aimed at bridging
these gaps by theorising and empirically testing a series of theoretical models using data
collected from several countries.
Keywords: Quality Management System Standards, ISO 9001:2015, Critical Success Factors,
National Culture
Paper Type: A conceptual paper (a doctoral research outline)
Purpose: To empirically test the validity of the ISO 9001:2015 standard as a framework for
continual improvement in diverse manufacturing settings.
Research background/literature review: The ISO 9001 quality management system (QMS)
standard is being used across the globe as a vender certification standard to improve the
efficiency and effectiveness of supply chains by promoting global competition (Heras‐
Saizarbitoria & Boiral, 2013; Terziovski, Power, & Sohal, 2003). The key clauses of the
standard examine specific elements of the QMS of the vender organisation for compliance. The
standard is based on the premise that meeting the requirements stipulated in the key clauses of
the standard results in two key direct outcomes for the vendor: customer satisfaction and
product/service quality (ISO, 2015b). In Australia alone, there are 13636 organisations that
have been issued with ISO 9001 certificates (ISO, 2015a). Often, the standard comes under
criticism for lack of empirical evidence on the outcomes the standard is supposed to deliver for
the vendor (Sampaio, Saraiva, & Rodrigues, 2009). The custodian of the standard, the
international organisation for standards (ISO) revises the standard from time to time to address
the shortcomings of the standard — the latest being the 2015 revision (ISO 9001:2015), which
replaced the 2008 standard (ISO 9001:2008).
One frequent method that has been used to examine the validity of ISO 9001 (or the lack of it)
is systematic review of published empirical studies. Examples include Boiral (2012); Heras-
Saizarbitoria and Boiral (2013); Kim, Kumar, and Kumar (2011); Psomas and Fotopoulos
(2009); Sampaio et al. (2009); Tarí, Molina-Azorín, and Heras (2012). These studies conclude
that in general, implementing ISO 9001 creates a positive impact of varying degree on vendor
organisation. The empirical studies typically examine whether or not adoption of the standard
results in achieving either operational outcomes (Feng, Terziovski, & Samson, 2008;
Kafetzopoulos, Psomas, & Gotzamani, 2015; Marín & Ruiz‐Olalla, 2011) and/or higher-level
outcomes for the vendors such as the financial outcomes (e.g. Chatzoglou, Chatzoudes, &
Kipraios, 2015; Sharma, 2005) or business outcomes (Kafetzopoulos, Psomas, & Gotzamani,
2015; Marín & Ruiz‐Olalla, 2011; Gotzamani, 2010; and Psomas, Kafetzopoulos, &
Fotopoulos, 2015). Another well-researched area on ISO 9001 is on the critical success factors
for ISO 9001 implementation success (e.g. Kafetzopoulos & Gotzamani, 2014; Kim et al.,
24
2011; Psomas & Antony, 2015; Psomas, Fotopoulos, & Kafetzopoulos, 2010). These studies
are based on the premise that ISO 9001 is valid but there exists critical factors that govern
implementation success (the success can be defined at operational or business level). One gap
in the literature is the absence of direct empirical examination of the hypothesised relationships
between the key clauses of the standard as a means of predicting and explaining
implementation outcomes. The second area that is lacking in the literature is the absence of a
study that determines whether or not appropriate adaptations to the theoretical framework of
ISO have been made by the ISO in their successive revisions. The third area that is lacking is
lack of empirical research on how the standard fits to diverse cultures.
Research questions/hypotheses: We now pose the following research questions to bridge the
above knowledge gaps.
RQ1: How does meeting the requirements stipulated in the key clauses of ISO 9001:2015
(clauses 5 through to 10) predict and explain the expected outcomes of ISO 9001
implementation, namely customer satisfaction and product results?
RQ2: Is the process model of ISO 9001:2015 a better representation of continual improvement
than the process model of its predecessor, namely ISO 9001:2008?
RQ3: How does national culture affect ISO 9001 implementation effectiveness?
We resolve RQ3 into the following sub-questions: what factors represent ISO 9001
implementation effectiveness?; what are the theoretical relationships between these factors
and national cultural dimensions?; do data support these theoretical relationships?
Design/Methodology: The theoretical models to address RQ1 and RQ2 have been developed
based on ISO 9001:2015 and ISO 9001:2008 process models and the corresponding literature.
A measurement instrument that operationalises the constructs of our models is currently being
developed (using inputs from a focus group) to collect the data through an online survey. The
survey will be administered to a sample of ISO 9001:2008 registered manufacturing
organisations. Apart from testing the goodness of fit of the models to data, RQ2 will also be
answered using case studies involving eight to ten companies that switched from ISO
9001:2008 to ISO 9001:2015. Our study covers manufacturers belonging to countries such as
Australia, New Zealand, India, Sri Lanka, Greece and Portugal. These countries provide
adequate contrast in the cultural dimensions Power Distance, Collectivism, and Uncertainty
Avoidance (Hofstede, 1980), to address RQ3; RQ3 will be addressed by developing and testing
a series of predictor-response relationships — the predictors being national cultural dimensions
and response being constructs representing the key clauses of ISO 9001:2015.
Relevance/contribution: Our study will be the first of its kind that directly examines the
validity of the theory underlying ISO 9001:2015. The cross-cultural perspective adds richness
to our study. We believe that the proposed study will also result in a practical outcome for both
ISO 9001 certified organisations as well as ISO 9001 certification seeking organisations, as we
attempt to explain how results are caused by implementing the standard.
Research limitations/challenges: Study will be limited to manufacturing organisations. The

effect of potential situational variables such as the size of the organisation, organisational
culture, the maturity of the quality system, and technology will be treated as uncontrollable
variables in our study.
25
References
Babatunde, Y., David Muturi, P. S. H. a. D., & Sui Pheng, L. (2015). TQM implementation
through ISO 9001: findings from Chinese construction firms in Nigeria. The TQM
Journal, 27(6), 671-682. doi:10.1108/tqm-06-2015-0076.
Boiral, O. (2012). ISO 9000 and organizational effectiveness: A systematic review. The Quality
Management Journal, 19(3), 16.
Chatzoglou, P., Chatzoudes, D., & Kipraios, N. (2015). The impact of ISO 9000 certification
on firms’ financial performance. International Journal of Operations & Production
Management, 35(1), 145-174. doi:10.1108/ijopm-07-2012-0387.
Feng, M., Terziovski, M., & Samson, D. (2008). Relationship of ISO 9001:2000 quality system
certification with operational and business performance: A survey in Australia and New
Zealand-based manufacturing and service companies. Journal of Manufacturing
Technology Management, 19(1), 22-37. doi:10.1108/17410380810843435.
Flynn, B. B., & Saladin, B. (2006). Relevance of Baldrige constructs in an international
context: A study of national culture. Journal of Operations Management, 24(5), 583-
603.
Franceschini, F., Galetto, M., Maisano, D., & Mastrogiacomo, L. (2010). Clustering of
European countries based on ISO 9000 certification diffusion. International Journal of
Quality & Reliability Management, 27(5), 558-575. doi:10.1108/02656711011043535.
Gotzamani, K. (2010). Results of an empirical investigation on the anticipated improvement
areas of the ISO 9001:2000 standard. Total Quality Management & Business
Excellence, 21(6), 687-704. doi:10.1080/14783363.2010.483101.
Heras-Saizarbitoria, I., & Boiral, O. (2013). ISO 9001 and ISO 14001: Towards a Research
Agenda on Management System Standards*. International Journal of Management
Reviews, 15(1), 47-65. doi:10.1111/j.1468-2370.2012.00334.x.
Hofstede, G. (1980). Culture's consequences: international differences in work-related
values. Beverly Hill: Sage Publications.
ISO (2015a). ISO Survey of certifications to management system standards - Full results.
Retrieved from
http://isotc.iso.org/livelink/livelink?func=ll&objId=18808772&objAction=browse&vie
wType=1
ISO (2015b). Quality management systems - Requirements
Kafetzopoulos, D. P., & Gotzamani, K. D. (2014). Critical factors, food quality management
and organizational performance. Food Control, 40(1), 1-11.
doi:10.1016/j.foodcont.2013.11.029.
Kafetzopoulos, D. P., Psomas, E. L., & Gotzamani, K. D. (2015). The impact of quality
management systems on the performance of manufacturing firms. International
Journal of Quality & Reliability Management, 32(4), 381-399. doi:10.1108/ijqrm-11-
2013-0186.
Kanagaretnam, K., Lim, C. Y., & Lobo, G. J. (2011). Effects of national culture on earnings
quality of banks. Journal of International Business Studies, 42(6), 853-874.
Kim, D. Y., Kumar, V., & Kumar, U. (2011). A performance realization framework for
implementing ISO 9000. International Journal of Quality & Reliability Management,
28(4), 383-404. doi:10.1108/02656711111121807.
Lagrosen, S. (2003). Exploring the impact of culture on quality management. International
Journal of Quality & Reliability Management, 20(4), 473-487.
Manders, B. (2015). Implementation and Impact of ISO 9001.
26
María Marín, L., & Carmen Ruiz‐Olalla, M. (2011). ISO 9000:2000 certification and business
results. International Journal of Quality & Reliability Management, 28(6), 649-661.
doi:10.1108/02656711111141201.
Pagell, M., Katz, J. P., & Sheu, C. (2005). The importance of national culture in operations
management research. International Journal of Operations & Production Management,
25(4), 371-394. doi:10.1108/01443570510585552.
Psomas, E. L., & Antony, J. (2015). The effectiveness of the ISO 9001 quality management
system and its influential critical factors in Greek manufacturing companies.
International Journal of Production Research, 53(7), 2089-2099.
Psomas, E. L., & Fotopoulos, C. V. (2009). A meta analysis of ISO 9001:2000 research –
findings and future research proposals. International Journal of Quality and Service
Sciences, 1(2), 128-144. doi:10.1108/17566690910971418.
Psomas, E. L., Fotopoulos, C. V., & Kafetzopoulos, D. P. (2010). Critical factors for effective
implementation of ISO 9001 in SME service companies. Managing Service Quality,
20(5), 440-457. doi:10.1108/09604521011073731.
Psomas, E. L., Kafetzopoulos, D. P., & Fotopoulos, C. V. (2012). Developing and validating a
measurement instrument of ISO 9001 effectiveness in food manufacturing SMEs.
Journal of Manufacturing Technology Management, 24(1), 52-77.
Sampaio, P., Saraiva, P., & Guimarães Rodrigues, A. (2009). ISO 9001 certification research:
questions, answers and approaches. International Journal of Quality & Reliability
Management, 26(1), 38-58. doi:10.1108/02656710910924161.
Sharma, D. S. (2005). The association between ISO 9000 certification and financial
performance. The International Journal of Accounting, 40(2), 151-172.
doi:10.1016/j.intacc.2005.01.011.
Tarí, J. J., Molina-Azorín, J. F., & Heras, I. (2012). Benefits of the ISO 9001 and ISO 14001
standards: A literature review. Journal of Industrial Engineering and Management,
5(2), 297-322. doi:10.3926/jiem.488.
Terziovski, M., Power, D., & Sohal, A. S. (2003). The longitudinal effects of the ISO 9000
certification process on business performance. European Journal of Operational
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perspective based on the GLOBE framework. International Journal of Operations &
Production Management, 31(5), 527-553. doi:10.1108/01443571111126319.
27
How Diverse Multi-National, Multi-Functional Leaders Use ERP
Systems to Gain Strategic Advantage
Terrence P Brookshaw, Amrik Sohal and Daniel Prajogo (Monash University)
Abstract
Manufacturers faced with increasing global competition and rising customer expectations
seek significant performance improvements to enable timely, flawless transactions and
decisions. Frequently they look to innovate with the latest version of enterprise resource
planning (ERP) systems to achieve technical harmonisation and operations management
efficacy to realise competitive advantage in the global marketplace. Many large enterprise
organisations are part of parent-subsidiary multi-functions having close relationships in a
multi-functional network. Large enterprises, however, increase the possibilities of unique and
dissimilar setups and versions of ERP systems across the operations of the organisation. A
consequence of this for cross-functional operations is a lack of "organisational fit"
(Meissonier, Houze, & Bessiere, 2013) which is observed as the main cause of ERP
implementation failure.
The challenge of innovation is to realise the transactional efficiencies and collaborative
outcomes through institutionalisation of complex ERP systems implementation. Measuring
the benefits of ERP implementation and factors in multi-functional operations for success are
limited and only recently being explored (Huang & Handfield, 2015)
The results of this study have implications especially important to multinational organisations
with multi-functional operations that instigate standardised information systems in diverse
country operations. The potential significance of this study is to examine how to accompany
technology imperatives with process and organisational changes. Management will benefit
from the study by understanding how to avoid failure in ERP implementations in complex
and multi-national, multi-functional operations, increase the successful diffusion and
adoption of the technology and gain strategic advantage.
Keywords
Enterprise Resource Planning (ERP), Innovation, Strategic Advantage, Socio-Technical
Systems, Multi-Function, Multi-Country, Operations Management
Topics
Enterprise Resource Planning (ERP), Diffusion of Innovation (DOI), Socio-Technical
Systems (STS), Multi-Country Operations, Multi-Functional Operations, Strategic
Advantage.
Purpose
To present a summary of current research and findings to the 15th ANZAM symposium in
New Zealand, June 2017.
28
Research Background/Literature Review
Grover & Kettinger (2000) states “it is important to accompany technology imperatives with
process and organisational changes.” They further propose that, as process reengineering and
management becomes institutionalised, the next big challenge is to develop a multidisciplinary
approach so that managers can be prepared to meet challenges of the information age. The
technology that manufacturers are progressively turning to is Enterprise Resource Planning
(ERP) systems. Although the benefits of ERP are considerable, traditional ERP systems that
streamline and integrate internal processes have limitations and improve efficiency only
within the boundaries of an enterprise (Akkermans, Bogerd, Yücesan, & van Wassenhove,
2003).
The challenge of innovation is to realise the transactional efficiencies and collaborative
outcomes through institutionalisation of complex ERP systems implementation. Social
Technical Systems (STS) literature defines this as technical socialisation (Trist, Murray, &
Emery, 1990). This needs critical research as proposed by Klein & Sorra (1996), particularly
in highly competitive global multi-functional operations with complex offerings by
understanding the complex social phenomena and real life events through case study research
(Yin, 2009). Applying ERP solutions to the organisations’ multi-functions is an attempt to
increase the efficiency of coordination and resource integration among partners and therefore the
multi-functions’ effectiveness depends on whether it can overcome the problems that disrupt the
integration of the multi-functions (Davenport, 1998). Early concentration in the multi-functional
area was created by the specialist community. The last two decades have seen an exponential
growth in themed studies in the academic press (Kinra, 2015; Kinra & Kotzab, 2008). However,
measuring the benefits of ERP implementation and factors in the multi-functions for success are
limited and only recently being explored (Huang & Handfield, 2015)
The bulk of academic knowledge about ERP systems has reached some maturity and diverse
research disciplines have contributed to the field from different viewpoints using different
methods (Schlichter & Kraemmergaard, 2010). However, there is a lack of cogent case study
research on the integration and performance of multi-functional operations in multi-national
organisations. Various research topics of interest are identified and used in developing a
conceptual framework for "areas of concern" regarding ERP systems. The usefulness of the
framework is confirmed by analysing two specific aspects of ERP research namely Diffusion
of Innovation (DOI) (Rogers, 1976) and STS (Cherns & Sinclair, 1976; Trist & Susman,
1977), to establish which theories different authors and journals have used in their efforts to
explore DOI and STS in relation to ERP implementations with multi-national, multi-
functional operations. The flow of information, integration and harmonisation across the
multi-national and multi-functions are critical to the efficiency and effectiveness of
coordination and resource integration among partners in operations in a multi-national
organisation.
29
The multi-functions, according to Mentzer, Stank, & Esper (2008), consists of many actors
whose processes are interlinked in a global environment. Just like other authors, Lambert,
García-Dastugue & Croxton (2005) and Mentzer et al. (2008) also concentrate on the
development of inter-organisational business processes. The Global Supply Chain Forum
defines multi-functions management as “the integration of key business processes from end
user through original suppliers that provides products, services, and information that add
value for customers and other stakeholders” (Lambert et al., 2005). The identification of the
best business practices needed to support the objective state of the processes becomes the
roadmap for implementation (Omar, Davis-Sramek, Fugate, & Mentzer, 2012). An
alternative global multi-functions framework, introduced by Closs, Mollenkopf, & Keller,
(2005), differs between three types of processes and four flows, which connect a resource
base with end customers. Their model however does not consider an external global
environment.
Research Questions
The fundamental research objective of this study is to understand ERP implementation
behaviour within manufacturing multi-functional, multi-national operations analysing two
specific aspects of ERP research; Diffusion of Innovation (DOI) (Rogers, 1976) and Socio-
Technical Systems (STS) (Cherns & Sinclair, 1976; Trist & Susman, 1977).
RQ1: What are the factors in successful ERP systems implementation?
RQ1a; How do multinational operations achieve ERP diffusion?
RQ1b: How do multiple cultural environments impact ERP implementation?
RQ1c: What are the organisational and managerial challenges?
RQ2: What are the factors in ERP systems implemented in multi-functional operations?
RQ2a: How are multi-functional processes impacted by ERP implementation?
RQ2b: Do ERP systems optimise multi-functional operations?
RQ2c: What are the strategies in ERP multi-functional implementation?
Research Methodology
This research study adopts a multiple case study approach (Yin, 2009) subscribing to the
interpretive model (Denzin, 1974; Keutel, Michalik, & Richter, 2014; Sarker & Lee,
2003). The key advantage of case study based research is that it provides the opportunity for
a holistic view of the process as opposed to a fragmented or reductionist view which
is particularly important in an multi-functions context where perspectives of the various
entities need to be taken into account (Clegg & Wan, 2013; Hwang & Min, 2013).
Further, Clegg et al (2013) argues that case studies are ideal tools for investigating a
complex phenomenon and generating new theoretical insights. Since this study takes a
holistic view of the multi-functions with the objective of building theory, using a case
study approach is the most appropriate for these objectives.
30
The fieldwork for this study has been designed in three phases. Phase 1 was a pilot phase
where two focus groups were conducted with experts within the chemicals and plastics
industry sector. This was followed by a comprehensive qualitative phase in which 15 case
studies including interviews with 34 informants were conducted with organisations
across the chemicals and plastics multi-functions in Asia Pacific. This included entities
such as manufacturing (8 cases), distribution (5 cases), functional (purchasing and
materials management departments) (5 cases), logistics (5 case), government regulatory
(4 cases) and technology specialist (7 cases). The cases for this study were selected so
that there were similarities amongst the cases for theoretical replication purposes (Yin,
2009) along with differences and diversity in the cases to seek to apply theoretical
concepts into a practical context (Slack, Lewis, & Bates, 2004; Yin, 2009). The final phase
is a focus group with the objective to present the findings of this study to the
practitioner community outlining the theoretical and practical contribution of this
research and incorporate any feedback obtained.
This study used diverse data sources such as interviews (with 34 implementation leaders),
focus groups, participant observation, document analysis and site visits. It is important to
highlight that this study used a multiple unit of analysis conducted at the
organisational level and at the entity level. Conducting the analysis at these levels
enabled highlighting of significant issues for the entire multi-functions.
Findings
Results propose that to achieve strategic advantage from ERP implementation and avoiding
lack of organisational fit, that harmonisation is critical in multi-national, multi-functional
operations. The term harmonisation refers to the integration and alignment of
information, processes, relationships and products across the multi-functions (Pan,
Newell, Huang, & Galliers, 2007) and the socio-technical institutionalisation (Lyytinen,
Newman, & Al-Muharfi, 2009). The measures of performance and the construct to realise
harmonisation and therefore strategic advantage resulting from this study are distinct
management strategies defined as Functional Efficiency (FE), Hierarchy Effectiveness (HE),
Sub-Function Cooperation (SFC) and Autonomous Collaboration (AC).
The significant finding contributing to theory in a organisational context of multi-national,
multi-function operation, is that STS aspects determine and drive success in DOI and is
essential as a primary overall project management strategy focus and concentration with
performance evaluatation of the harmonisation constructs FE, HE, SFC and AC. Many
failures and problems associated with information systems implementation related to
behavioural, cultural and structural organisational elements can be avoided by incorporating
the harmonisation construct.
Contribution
The findings of the research and contribution to theory and practice are believed to be firstly
beneficial for other researchers to guide their effort in the ERP research field and in
positioning their own research. They are secondly beneficial for manufacturing management
teams to design, plan and execute their implementation strategies and plans for ERP
applications in multi-national, multi-functional environments.
31
References
Akkermans, H. A., Bogerd, P., Yücesan, E., & van Wassenhove, L. N. (2003). The impact of
ERP on supply chain management: Exploratory findings from a European Delphi
study. European Journal of Operational Research, 146(2), 284.
Cherns, A., & Sinclair, R. (1976). Sociotechnics. London: Malaby Press.
Clegg, B., & Wan, Y. (2013). Managing enterprises and ERP systems: a contingency model
for the enterprization of operations. International Journal of Operations &
Production Management, 33(11/12), 1458-1489.
Closs, D., J., Mollenkopf, D., A., & Keller, S., B. (2005). Improving chemical industry
performance through enhanced railcar utilization. Supply Chain Management, 10(3),
206-213.
Davenport, T. H. (1998). Putting the Enterprise into the Enterprise System. Harvard Business
Review, 76(4), 121-131.
Denzin, N. K. (1974). QUALITATIVE ANALYSIS: HISTORICAL AND CRITICAL
ESSAYS (Book). Social Forces, 53(2), 341-341.
Grover, V., & Kettinger, W. J. (2000). Business process change in the 21st century (Vol. 46,
pp. 14): Business & Economic Review. Jan-Mar2000, Vol. 46 Issue 2, p14. 5p.
Huang, Y.-Y., & Handfield, R. B. (2015). Measuring the benefits of ERP on supply
management maturity model: a "big data" method. International Journal of
Operations & Production Management, 35(1), 2-25. doi:10.1108/IJOPM-07-2013-
0341
Hwang, W., & Min, H. (2013). Assessing the impact of ERP on supplier performance.
Industrial Management & Data Systems, 113(7), 1025-1047. doi:10.1108/IMDS-01-
2013-0035
Keutel, M., Michalik, B., & Richter, J. (2014). Towards mindful case study research in IS: a
critical analysis of the past ten years. European Journal of Information Systems,
23(3), 256-272. doi:http://dx.doi.org/10.1057/ejis.2013.26
Kinra, A. (2015). Environmental complexity related information for the assessment of
country logistics environments: Implications for spatial transaction costs and foreign
location attractiveness. Journal of Transport Geography, 43, 36-47.
doi:10.1016/j.jtrangeo.2014.12.005
Kinra, A., & Kotzab, H. (2008). UNDERSTANDING AND MEASURING MACRO-
INSTITUTIONAL COMPLEXITY OF LOGISTICS SYSTEMS ENVIRONMENT.
Journal of Business Logistics, 29(1), 327-346.
Klein, K. J., & Sorra, J. S. (1996). THE CHALLENGE OF INNOVATION
IMPLEMENTATION. Academy of Management Review, 21(4), 1055-1080.
doi:10.5465/amr.1996.9704071863
Lambert, D. M., García-Dastugue, S. J., & Croxton, K. L. (2005). AN EVALUATION OF
PROCESS-ORIENTED SUPPLY CHAIN MANAGEMENT FRAMEWORKS.
Journal of Business Logistics, 26(1), 25-51.
Lyytinen, K., Newman, M., & Al-Muharfi, A.-R., A. (2009). Institutionalizing enterprise
resource planning in the Saudi steel industry: A punctuated socio-technical analysis.
Journal of Information Technology (Palgrave Macmillan), 24(4), 286-304.
Meissonier, R., Houze, E., & Bessiere, V. (2013). Cross-cultural Frictions in Information
System Management: Research Perspectives on ERP Implementation Misfits in
Thailand. International Business Research, 6(2), 150-159.
Mentzer, J. T., Stank, T. P., & Esper, T. L. (2008). SUPPLY CHAIN MANAGEMENT AND
ITS RELATIONSHIP TO LOGISTICS, MARKETING, PRODUCTION, AND
OPERATIONS MANAGEMENT. Journal of Business Logistics, 29(1), 31-46.
32
Omar, A., Davis-Sramek, B., Fugate, B. S., & Mentzer, J. T. (2012). Exploring the Complex
Social Processes of Organizational Change: Supply Chain Orientation From a
Manager's Perspective. Journal of Business Logistics, 33(1), 4-19.
doi:10.1111/j.0000-0000.2011.01034.x
Pan, S. L., Newell, S., Huang, J., & Galliers, R. D. (2007). Overcoming knowledge
management challenges during ERP implementation: The need to integrate and share
different types of knowledge. Journal of the American Society for Information
Science & Technology, 58(3), 404-419. doi:10.1002/asi.20523
Rogers, E. M. (1976). New Product Adoption and Diffusion. Journal of Consumer Research,
2(4), 290-301.
Sarker, S., & Lee, A. S. (2003). Using a case study to test the role of three key social enablers
in ERP implementation. Information & Management, 40(8), 813. doi:10.1016/s0378-
7206(02)00103-9
Schlichter, B. R., & Kraemmergaard, P. (2010). A comprehensive literature review of the
ERP research field over a decade. Journal of Enterprise Information Management,
23(4), 486-520.
Slack, N., Lewis, M., & Bates, H. (2004). The two worlds of operations managemet research
and practice: Can they meet, should they meet? International Journal of Operations
& Production Management, 24(3/4), 372-387.
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Yin, R. K. (2009). Case Study Research. Design and Methods (Vol. 26): Rainer Hampp
Verlag.
33
Inter-personal and Inter-organizational Relationships in Supply
Chain Integration: Case Studies in New Zealand

Bill Wang, Department of Logistics and Supply Chain Management, School of Engineering and
Advanced Technology, Massey University, Auckland, New Zealand (phone: 0064-9-2136570; e-mail:
b.wang1@ massey.ac.nz).
Paul Childerhouse, Department of Logistics and Supply Chain Management, School of Engineering
and Advanced Technology, Massey University, Palmerston North, New Zealand (phone: 0064-9-
4140800 extn 83757; e-mail: p.h.j.childerhouse@ massey.ac.nz).
Yuanfei Kang, Department of International Business, College of Business, Massey University,

Auckland, New Zealand (phone: 0064-9-4140800 extn 43409; e-mail: y.kang@ massey.ac.nz).
Submission type: Extended Abstract
Abstract
Our research is to analyze the interaction mechanisms between inter-personal relationships (IPRs)
and inter-organizational relationships (IORs) in supply chain integration (SCI). Most extant SCI
literatures focus on IORs but ignoring IPRs. An exploratory multiple case study approach in New
Zealand is applied. We find that in the formative stage of SCI, IPRs are seen as antecedents to
building IORs. During the operational stage, the two levels of relationships continuously interact
with one other; Throughout the entire life-cycle of the dyad, IPRs facilitate the formation and
development of IORs while the latter often leverages these ties for resource acquisition.
Keywords: Case study, Inter-organizational relationships, Inter-personal relationships, Resource
orchestration, Supply chain integration.
1. Introduction
SCI is widely regarded as one significant strategy to enhance efficiency and effectiveness of supply
chain management (Croxton et al., 2001; Cao et al., 2015). Most extant SCI literatures focus on the
organizational level relationship management but ignore the individual level relationships (Gligor
and Holcomb, 2013). Our research tries to fill in the gap and to analyse the interaction mechanisms
between inter-personal relationships and inter-organizational during the formative and operational
stages of supply chain integration. According to Barnes et al (2015), IPR has three dimensions:
personal affection, personal credibility, and personal communication. Based on the content-based
viewpoint, SCI mainly concern strategic alliance, information integration, and process integration
(Liu et al., 2016; Mentzer et al., 2001; Tsanos et al., 2014). As both IPRs and IORs can be regarded
as resources, we explore resource orchestration theory (ROT) in supply chain management via an
investigation of dyadic relationships in supply chain integration at the both individual and
organizational levels. The two main research questions lead our research.
RQ1. How do IPRs and IORs interact in the formative stage of SCI?
34
RQ2. How do IPRs and IORs interact in the operational stage of SCI?
2. Methodology/approach
The research employs an exploratory multiple case study approach in New Zealand. The data was
collected via semi-structured interviews of managers with a range of supply chain responsibilities
from both suppliers and customers. The qualitative date is triangulated with company archival
information.
3. Findings
The research highlights the important role of both inter-personal and inter-organizational
relationships during supply chain integration. Both are valuable, inimitable resources, where the
IOR is formal and exterior and while the IPR is informal and subordinated. In the formative stage
of integration, IPRs are seen as antecedents to building the IORs. Three core dimensions of IPRs
work co-currently: personal credibility acts as an opener that builds inter-organizational
confidence, personal affection acts as a gatekeeper, whilst personal communication expedites the
process. During the operational stage, the two levels of relationships continuously interact with one
other, potentially re-enforcing or at times undermining the integration objective. Throughout the
entire life-cycle of the dyad, IPRs facilitate the formation and development of IORs while the later
often leverages these ties for resource acquisition.
4. Conclusion
4.1 Originality/value
This research contributes to resource orchestration theory in supply chain management by
highlighting the interaction of inter-personal and inter-organizational relationships. The intangible
resources and capabilities of three inter-personal dimensions need to be orchestrated and nurtured
to enhance their effects on inter-organizational relationships. Also, inter-personal and inter-
organizational relationships need to be orchestrated in terms of breadth, depth and stage of life-
cycle of throughout the supply chain integration process.
4.2 Managerial implications

Our research provides senior decision makers with further evidence of the significance role of IPRs
across a range of managerial levels when working with trading partners. This highlights the need
to actively manage and develop these soft IPRs skills as an intangible competitive resource.
Further, the research identifies when staff with specific skills and connections should be utilized
during the different stages of building and maintaining inter-organizational ties.
35
FROM COMPLIANCE TO OWNERSHIP:
TOWARDS A THEORY OF CULTURAL INFLECTION POINTS IN LEAN IMPLEMENTATION
Franz Wohlgezogen
Mohsin Malik
Faculty of Business and Economics

University of Melbourne
198 Berkeley Street
Carlton VIC 3053
Abstract:
Despite a growing recognition in the operations literature that cultural factors are
critical for lean implementation outcomes, understanding of 1) when and how culture
influences the lean implementation process, and 2) how culture can be influenced during
implementation, remains underdeveloped. In this paper, we address both of these issues.
Based on a case study of lean implementation at an Australian public university, we inductively
develop a theory of cultural inflection points, critical times during the implementation process
when managers need to facilitate cultural transition by fostering shared goals and schemata.
We discuss the conceptual and practical contributions of the theory, and point to opportunities
for future research.
36
36
INTRODUCTION
A frequently cited reason for poor performance of lean implementation is the

disproportionally high emphasis on technical tools for productivity gains rather than cultural
aspects of the lean philosophy as originally envisaged in the Toyota Production System
(Bhasin and Burcher 2006, Tortorella and Fogliatto 2014). While there is growing recognition
amongst practitioners and academics that cultural factors are important antecedents for
positive lean implementation outcomes, and not simply an automatic consequence of lean
implementation, we are still lacking a precise understanding of when and how these factors
matter. Similarly, we are lacking a systematic understanding of the relative effectiveness of
alternative cultural interventions for lean implementations. For example, there is some
consensus that cultural values and norms related to empowerment, collaboration and
learning are central to the lean management conception (Arnheiter and Maleyeff 2005,
Marksberry 2012, R. Jadhav, S. Mantha et al. 2014). But it remains unclear when during the
implementation process these values and norms should be cultivated (e.g. early or late in the
implementation process), how exactly they influence lean management (e.g. by providing
aspirational goals, or by providing schemata for cognition and action), and through which
interventions they can be cultivated.
Based on a case study of a lean implementation project in a large Australian public

university, we examine these cultural issues more closely. Specifically, we investigate when
managers paid particular attention to cultural issues during the implementation process, and
how they addressed these issues. Based on the case findings, we develop a theory of cultural
inflection points, i.e. critical times during the implementation process when cultural issues
exert particular influence over implementation success or failure. We propose that during
cultural inflection points, a firm’s employees experience cognitive dissonance between
existing beliefs and values, and lean management principles. During this period, managers
need to facilitate a cultural transition that helps resolve the cognitive dissonance. Crucially,
the cultural transition needs to provide shared goals and schemata for cognition and action.
EMPIRICAL CONTEXT AND METHOD
In 2013, facing decreasing external research funding, the Australian public university
we studied decided to adopt lean management as a methodology to restructure and improve
the operations of its support services. The goal of this restructuring was to free financial
resources for investment in research - the key pillar of the organization’s value proposition to
customers. The university was assisted by a management consulting firm, which supported
the structural and process redesign and provided lean management training to university
personnel. The University represented an organizational context that was culturally mostly
unprepared for lean management. That is to say, the lean methodology constituted a break
with existing practices and values.
We interviewed university personnel involved in the implementation process,
reviewed documents generated during implementation, and collected online communication
from Wikis and forums established for the project. We subjected this data to an inductive-
deductive thematic coding (Fereday and Muir-Cochrane 2006).
37
37
KEY FINDINGS AND INTERPRETATION
The University approached the lean transformation in two phases. During the first
phase the concept for a shared services architecture was developed and implemented. During
the second phase, a number of process improvement projects were initiated. The first phase
represented a significant disruption, a shock to the organization. Previously, the University
provided its major organizational units, the disciplinary faculties, with substantial autonomy
for how to organize and operate. The centralization of services was a clear departure from
this principle of autonomy, and required a reorientation of how the faculties related to each
other, and to the University’s central units. This structural change, while involving some
consultation with faculties, was implemented with a “top-down” approach against some
resistance from the faculties and other stakeholder groups. The second phase of the lean
implementation, however, relied on a “bottom-up” identification and pursuit of process
improvement opportunities. It constituted the beginning of the continuous improvement in
the lean implementation process (Åhlström 1998), and thus required organizational
members’ engagement and initiative. The project managers, recognized that organizational
members needed a shared understanding of their new roles, the organization’s overarching
goals, and the professional norms for the new organizational setup. The project managers
fostered this shared understanding through a series of collaborative workshops.
Based on these empirical findings, we theorize that organizations are particularly
receptive to cultural reconfiguration during specific times of the lean implementation
process. During these times, which we call cultural inflection points, organizational members
experience dissonance and disorientation, and are therefore open to stimuli that help them
regain orientation and reduce dissonance. Since lean management requires engagement and
initiative from organizational members, the cultural interventions needs to foster a sense of
self efficacy, and therefore have to provide not just aspirational goals, but also schemata that
allow organizational members to ideate and implement initiatives to reach those goals.
We propose that, conceptually, the recognition of cultural inflection points during the
lean implementation process provides an advancement of our understanding of when and
how culture influences lean implementation success. It also has practical utility, since it
provides managers with an orientation for when to concentrate attention and effort on
cultural issues during lean implementation.
REFERENCES
Åhlström, P. (1998). "Sequences in the implementation of lean production."

European Management Journal 16(3): 327-334.
Arnheiter, E. D. and J. Maleyeff (2005). "The integration of lean management and Six
Sigma." The TQM magazine 17(1): 5-18.
Bhasin, S. and P. Burcher (2006). "Lean viewed as a philosophy." Journal of

manufacturing technology management 17(1): 56-72.
Fereday, J. and E. Muir-Cochrane (2006). "Demonstrating rigor using thematic

analysis: A hybrid approach of inductive and deductive coding and theme development."
International journal of qualitative methods 5(1): 80-92.
38
38
Marksberry, P. (2012). The Modern Theory of the Toyota Production System: A
Systems Inquiry of the World’s Most Emulated and Profitable Management System, CRC
Press.
R. Jadhav, J., et al. (2014). "Exploring barriers in lean implementation." International

Journal of Lean Six Sigma 5(2): 122-148.
Tortorella, G. L. and F. S. Fogliatto (2014). "Method for assessing human resources

management practices and organisational learning factors in a company under lean
manufacturing implementation." International journal of production research 52(15): 4623-
4645.
39
39
Modelling the Ethics of Donating Dated Medical
Supplies
Quan Spring Zhou
Affiliation: Department of Industrial Management and Innovation, School of

Engineering and Advanced Technology, Massey University, New Zealand
Email: q.zhou@massey.ac.nz
Address: Room 106.9, Building 106, Massey University Auckland Campus (Oteha
Rohe), Albany Highway, Auckland 0632, New Zealand
Telephone: (64) 9 213 6581
Tava Lennon Olsen
Affiliation: Department of Information Systems and Operations Management, Business

School, University of Auckland, New Zealand
Email: t.olsen@auckland.ac.nz
Submission type: extended abstract
40
Modelling the Ethics of Donating Dated Medical
Supplies
Short abstract
To prepare for public emergencies, governments maintain large quantities of medical
supplies known as “the reserve”. Yet the reserve has serious expiration due to its limited
shelf life and highly uncertain demand. One possible remedy is to donate large batches of
dated supplies to underdeveloped areas which suffer from shortages. However, the
international community is cautious about such donations. As recent medical studies
suggest efficacy should not be the primary concern, most concerns relate to the ethics of
donations, i.e., corrupt officials may take advantage of the donations. In this work, we
take efficacy as given, and carefully model the incentives in the medical supplies donation
supply chain, and provide insights into the likely effects of corruption.
Keywords: ethics, donation, supply chain incentives
Topics: supply chain management
This work is motivated by the expiration problem lying in the “national reserve supply”
or “the reserve,” which is a stockpile of medical supplies encouraged by the World Health
Organization (WHO) to prepare for public health emergencies. Proposed ways to deal
with expiration include rotating to daily use and extending the shelf life, e.g., the Shelf
Life Extension Program (SLEP) in the United States. But these two ways are not always
economic or feasible (Public Health Agency of Canada, 2009). A seemingly sensible
alternative is to donate items in the reserve shortly before they expire (and replace with a
new stockpile) to countries where people suffer from scarce medical resources. Research
shows that about 70% of injections in developing countries are given with reused needles
and syringes (Khamassi, 2012). Yet needle and syringe stockpiles need to be replaced
after a number of years sitting in a reserve because eventually the seals are considered
non-sterile.
However, due to ethical concerns, donating dated medical supplies is not encouraged
(WHO, 2011). The concerns mainly lie in whether it is appropriate to use dated products
and whether donation would encourage corruption. However, there is strong evidence
(e.g., from SLEP) supporting the effectiveness of dated products from reliable sources
and therefore, if done well, such donations could provide huge social benefits for the
population who receive them. Certainly, replacing a reused needle with one with a small
chance of loss of sterility is likely to significantly improve patient welfare.
Therefore, taking effectiveness as given, this work focuses on corruption and evaluates
the impact of potential corruption on donation. We look at “donation-related corruption,”
which emerges only when donation stocks are made available. This refers to the behavior
that bureaus might divert the donation for sale, or that by using donations they might
pocket the money initially put aside for purchasing new items. We construct models to
41
examine whether donating dated reserve could benefit the recipient country, considering
possible corruption.
Model Description
Our model is as follows. Reserve products that have been well stored for years are donated
to an overall impoverished country. There is a local supplier who sells the same product
and decides the market price. The central administration is in charge of the donation, and
there are several regional hospitals in need of the product. Hospitals have different levels
of budget, which may come from various sources, for procurement. This budget level
differentiates the purchasing power and thus makes the product affordable for some
hospitals but not for others.
A hospital manager decides whether to get the product or not, and, when buying, how
many to get from each source: donation (when available) and the supplier. The total
obtained should not exceed its demand. A non-corrupt manager makes decisions based
on the social welfare, while a corrupt manager looks at personal gains. The social welfare
comes from two parts: utility from disposable money after (or not) purchasing (to use on
other healthcare), and the health-related improvement associated with using the product.
The health improvement from using the product is based on the quality and the quantity
of the product. We assume that the quality of donated products is no higher than that of
the products sold by the supplier (and is likely lower).
We investigate different scenarios using a game theoretical approach. We first consider
the base case when there is no donation. We then consider three scenarios when donation
is available. Scenario 1 assumes everyone is ethical, which provides the best-case result.
Scenario 2 considers the case that the central manager is corrupt and sells the donation in
the black market. Scenario 3 examines the case when regional managers are corrupt and
pocket the money saved from donations.
Results and Contributions
We investigate how the managers at different levels and the local supplier make decisions,
and how donation would impact the social welfare of a recipient country, considering
possible corruption. We found that donation will typically improve social welfare
compared to the base case, even with the presence of corruption, and that quality of
donations could be a lever to limit the negative impact of corruption. The results hold no
matter whether the donation quantity is constrained or not. These results suggest that
WHO should perhaps change its stand on such donation.
References
Khamassi, S. (2012). Ensuring rational and safe use of injections worldwide: Achievements and way
forward. Technical report, WHO Injection Safety and Related Infection Control.
WHO (2011). Guidelines for Medicine Donations. World Health Organization, 3rd edition.
Public Health Agency of Canada (2009). The management of the national antiviral stockpile: Options
report. Technical report.
42
Comparing the Effect of Symbolic and Substantive Implementation of ISO
14001 Certification on performance benefits
(Extended Abstract)
Mesbahuddin Chowdhury*
Department of Management, Marketing and Entrepreneurship
College of Business and Law, University of Canterbury
New Zealand
Email: mesbahuddin.chowdhury@canterbury.ac.nz
Phone: +64 3 369 3711
Daniel Prajogo
Department of Management,
Monash Business School, Monash University
Australia
Email: Daniel.Prajogo@monash.edu
Phone: +61 3 990 32030
Jayanth Jayaram
Department of Management Science
Darla Moore School of Business
University of South Carolina
USA
Email: jayaram@moore.sc.edu
*Corresponding author
43
Abstract
Our study compares the effects of substantive implementation and symbolic

implementation of ISO 14001 standard on realised benefits with the certification.
Specifically, we compare and contrast firms’ benefits - in terms of environmental,
economic, and marketing - emanating from these two modes of implementation of
ISO 14001 certification. Our findings showed that substantive implementation has
wider and stronger effects on benefits of ISO 14001 adoption than symbolic
implementation.
Key words: Symbolic implementation, Substantive implementation, Benefits
Introduction
In recent years, there has been a major growth in the number of firms who have
received ISO 14001 certifications around the world. This massive growth in
environmental certification explicates a certain degree of firm’s commitment in
terms of investing time and resources to obtain ISO 14000 certification (Del Brío
and Junquera, 2003). Although firm’s commitment is needed when firms consider
adopting environmental certification, it does not always ensure the same level of
implementation in firms (Iatridis and Kesidou, 2016). There has been some
evidence that points to the fact that, despite third party auditing, some firms often
implement environmental standards without continuously conforming with the
requirements of standards and incorporating the prescribed practices fully (Aravind
and Christmann, 2011, Iatridis and Kesidou, 2016, Christmann and Taylor, 2006).
At the other end of the spectrum is firms that incorporate the requirements
surrounding ISO 14000 certifications fully into their environmental management
systems (EMS), with an intention of continuous improvement. Therefore, the
variation in the quality of implementation of ISO 14001 could range from token
efforts, i.e., symbolic, merely to show compliance, to substantive, where firms
consistently use recommended ISO 14001 practices and embed them into their
EMS to constitute their daily routines (Aravind and Christmann, 2007).
Discussing certification without understanding implementation modes raises

concerns about the effectiveness of certifiable management standards as
governance mechanisms, because a low quality of standards implementation (i.e.
symbolic) may compromise performance benefits that ensue by pursuing these
standards (Aravind and Christmann, 2011, Christmann and Taylor, 2006). While
most of the extant literature on ISO 14001, assumes that certification is indicative
of implementation benefits that are uniform (Aravind and Christmann, 2011), some
empirical studies have shown that the relationship between ISO 14001
environmental certification and firm performance (i.e. benefits) is inconclusive
(Yin and Schmeidler, 2009), as some have reported positive effects (Potoski and
Prakash, 2005, Melnyk et al., 2003), others have reported marginal to no effects
(Jiang and Bansal, 2003, Tung et al., 2014), and still others even reporting negative
effects (Montabon et al., 2000). Such an imbalance in reported performance
benefits (i.e., outcomes) could indicate that implementation of ISO 14001 is not
uniform.
44
Our study aims to fill the aforementioned research gap in the literature. We
recognize that past research has shown mixed results on the relationship between
ISO 14001 certification and performance benefits (Yin and Schmeidler, 2009).
However, to the best of our knowledge, no prior research has linked these two
different types of ISO 14001 implementation modes, i.e., symbolic versus
substantive to different performance benefits (e.g. environmental, economic and
market benefits). We expect these two modes of ISO 14001 implementation could
result in different performance benefits. Given the widespread attention given to
self-regulatory environmental standards such as ISO 14001, our research has
important implications to academics and practitioners in this area.
Hypotheses
Managers favouring symbolic implementation believe that ISO 14001

certification adds more bureaucracy and constraints to their firms’ activities (Boiral,
2003, Boiral and Sala, 1998). This reflects a firm’s understanding of certification
in the form of extra burden on their daily activities. From this perspective, firms
also have incentives to symbolically implement the standard and pursue only the
baseline (bare essentials) requirements of ISO 14001. Such a firm’s symbolic
behaviour could lead to restrictions in managing a narrower array of environmental
practices as a consequence could result in limited improvements in their
environmental performance (Ferrón-Vílchez, 2016, Yin and Schmeidler, 2009). In
a symbolic implementation, managers may prefer to accrue benefits that are
external in nature, for example, in terms of building better corporate image and
investor confidence in their firms (Kirkpatrick and Pouliot, 1996). Based on the
above discussion, we state that:
Hypothesis 1: There is a positive relationship between symbolic implementation
of ISO 14001 and (a) environmental benefits, (b) economic
benefits, and (c) market benefits
On the other hand, a firm’s adherence to formal requirements of ISO 14001, with
an intention to use the resultant changes to update the EMS that not only can
improve environmental performance (Aravind and Christmann, 2011) but also
economic and market performance has been referred to as the substantive mode of
implementation. Following the spirit of ISO 14001 guidelines can transform
attitudinal, managerial and operational changes thereby providing environmental
performance benefits through waste reduction and pollution prevention programs
(Rondinelli and Vastag, 2000). Several empirical studies have indeed shown a
positive relationship between ISO 14001 certification and firms’ environmental
performance (Melnyk et al., 2003, Potoski and Prakash, 2005, Russo, 2001). As the
ISO 14001 standard is based on a continuous improvement model aimed towards
developing high-quality processes (Bansal and Hunter, 2003), pursuing this
standard could also improve internal efficiency, routinization of processes and
reduce overall cost (Ferrón-Vílchez, 2016). Aligning the environment system as
part of a firm’s strategic posture, signals a strong environmental commitment which
can help build a strong image among the customer base. Based on the above
discussion, we state that:
Hypothesis 2: There is a positive relationship between substantive
implementation of ISO 14001 and (a) environmental benefits, (b)
economic benefits, and (c) market benefits.
45
The extant literature reports mixed results in explaining the relationship between
implementation of ISO 14001 and firm’s environmental performance, ranging from
positive impact, little or no impact, and negative impact (Albertini, 2013, Yin and
Schmeidler, 2009). In particular, Yin & Schmeidler (2009) suggest that such
variance in the influence on environmental performance outcomes can be attributed
to heterogeneous implementation modes of ISO 14001. In this study, we argue that
failure to integrate environmental systems with a firm’s strategy could help explain
the difference in accruing benefits between the symbolic and substantive modes of
implementation. Few studies (Barla, 2007, Yin and Schmeidler, 2009) also point to
our speculation that environmental performance outcomes differ widely among ISO
14001 certified firms due to variation in the quality of ISO 14000 standards
implementation. High quality in the standards implementation can accrue better
environmental benefits compared to a low quality in standards implementation.
Moreover, we argue that for firms pursuing substantive implementation of ISO
14001, the accrued benefits also include economic and market share benefits, which
are considerably higher compared to firms pursuing symbolic implementation of
ISO 14001. Taken together, we offer the following hypothesis:
Hypothesis 3: The effect of substantive implementation of ISO 14001 on
environmental, economic, and market benefits is stronger than
the effect of symbolic implementation of ISO 14001 on
environmental, economic, and market benefits
Methodology
This study utilized database of Joint Accreditation Systems of Australia and New
Zealand (JAS-ANZ), which lists all enterprises in Australia and New Zealand that
are ISO 14001 certified. We randomly selected 1,000, out of the 1,573 Australian
companies who were certified, and also included all the 219 New Zealand
companies that were certified in ISO 14001 at the time of survey administration.
We received 328 usable responses (286 Australian firms and 42 New Zealand
firms) which constituted a 27% response rate.
Measures
The measures for symbolic implementation, and substantive implementation are

adapted from the works by Prajogo et al. (2012) on ISO 9001 implementation. The
measures for environmental benefits, economic benefits, and market benefits are
derived from the works by Hood and Nicholl (2002) and Vachon and Klassen
(2008).
Results
Scale Validity and Reliability
We conducted a confirmatory factor analysis (CFA) to simultaneously validate

the measures used in this study. The items loaded significantly on their respective
theoretical constructs (> 0.50 at p<0.01) and the overall model fit results suggest an
acceptable level for unidimensionality and convergent validity for the construct
measures. The reliability analysis shows that the Cronbach’s alpha measures for the
46
five theoretical constructs surpassed the threshold point of 0.70; thus, supporting
their reliability.
Structural Equation Modelling
The structural equation model (SEM) underlying our theoretical framework is

presented in Figure 2. We tested all hypotheses simultaneously, and also included
two control variables in our structural model. The control variables used in this
study were: organizational size and years of certification.
Implementation of ISO
14001 Benefits of ISO 14001 implementation
Environmental
0.16* benefits
Symbolic
Implementation 0.46**
0.16
Economic benefits
0.30**
Substantive 0.11
Implementation
0.25** Market benefits
χ2 = 394.03 df = 151 RMSEA = 0.07 NFI = 0.93 NNFI = 0.94 CFI = 0.95 GFI = 0.89
Figure 2. Structural Model
Symbolic implementation shows a positive effect on environmental benefits
(0.16 at p<0.05), but not on economic benefits (0.16 at p>0.05) and market benefits
(0.11 at p>0.05). Therefore, H1a is supported, but H1b and H1c are not supported.
Substantive implementation on the other hand show positive effects on the three
benefits: environmental benefits (0.46 at p<0.01), economic benefits (0.30 at
p<0.01) and market benefits (0.25 at p<0.01). Therefore, H2a, H2b, and H2c are
supported. Comparing the effects between substantive implementation and
symbolic implementation on the three benefits based on the path coefficients and
statistical significance levels, it is clear that the effect of substantive implementation
is stronger than symbolic implementation across the three benefits. Therefore, H3
is supported.
Discussion of the findings and theoretical contribution
A number of insights can be drawn from this empirical study. The findings from
our study demonstrates the unique effects of the two different approaches to ISO
14001 implementation (symbolic and substantive) on the ensuing three sources of
performance benefits – environmental, economic and market. Specifically, we
found that firms that adopt symbolic implementation are able to gain only on
47
environmental benefits but not on economic and market benefits. Symbolic
implementation of ISO 14001 may not focus on ‘real’ improvement emanating from
environmental management practices. Rather, they are pursued more as a reaction
by conforming to pressures from external parties such as government and regulatory
agencies. As a result, firms are able to show improvement only on the
environmental aspect of overall performance but completely fail to accrue market
and economic benefits which are vital for their survival. On the other hand, firms
that adopted the substantive mode of ISO 14001 implementation realized benefits
in all performance areas: environmental, economic and market benefits. This result
highlights the real value of implementing ISO 14001. Even for environmental
benefit, substantive implementation has a stronger effect than symbolic
implementation. These findings demonstrate the failure of symbolic approach and
the value of substantive approach in the implementation of ISO 14001 which are
consistent with the results reported in other studies (Aravind and Christmann, 2011,
Boiral, 2007).
This study contributes to the literature on implementation of ISO 14001. Our

study differentiates the unique effects of symbolic and substantive implementation
of ISO 14001 on three performance benefits (environmental, economic and
market). While previous studies have shown that variation in the quality of ISO
14001 implementation could affect environmental performance (Aravind and
Christmann, 2011, Boiral, 2007), this study shows that this effect extends to market
and economic performance as well.
References
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from certification: Does quality of ISO 14001 implementation affect facilities’
environmental performance? Business Ethics Quarterly, 21, 73-102.
BANSAL, P. & HUNTER, T. 2003. Strategic explanations for the early adoption of ISO
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ISO 14001? Business Horizons, 41, 57-64.
CHRISTMANN, P. & TAYLOR, G. 2006. Firm self-regulation through international
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DEL BRÍO, J. Á. & JUNQUERA, B. 2003. Influence of the perception of the external
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industrial companies. International Journal of Production Research, 41, 337-348.
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performance in the adoption of ISO 14001? Journal of Environmental
Management, 183, 882-894.
HOOD, J. & NICHOLL, S. 2002. The role of environmental risk management and
reporting: an empirical analysis. Journal of Environmental Assessment Policy and
IATRIDIS, K. & KESIDOU, E. 2016. What Drives Substantive Versus Symbolic
Implementation of ISO 14001 in a Time of Economic Crisis? Insights from Greek
Manufacturing Companies. Journal of Business Ethics, 1-19.
JIANG, R. J. & BANSAL, P. 2003. Seeing the need for ISO 14001. Journal of
Management Studies, 40, 1047-1067.
KIRKPATRICK, D. & POULIOT, C. 1996. Environmental management, ISO 14000
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MELNYK, S. A., SROUFE, R. P. & CALANTONE, R. 2003. Assessing the impact of
environmental management systems on corporate and environmental
performance. Journal of Operations Management, 21, 329-351.
MONTABON, F., MELNYK, S. A., SROUFE, R. & CALANTONE, R. J. 2000. ISO
14000: assessing its perceived impact on corporate performance. Journal of
Supply Chain Management, 36, 4-16.
POTOSKI, M. & PRAKASH, A. 2005. Covenants with weak swords: ISO 14001 and
facilities' environmental performance. Journal of Policy Analysis and
PRAJOGO, D., HUO, B. & HAN, Z. 2012. The effects of different aspects of ISO 9000
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49
Supply chain governance for sustainability through improving relational
capital: The moderating effect of supply chain design
Md Maruf Hossan Chowdhury* (maruf.chowdhury@uts.edu.au)
Mohammed A. Quaddus** (m.quaddus@curtin.edu.au)
* Lecturer, UTS Business School, University of Technology Sydney, Australia.
** Research Professor, School of Marketing, Curtin University, Australia.
Corresponding Author: Md Maruf Hossan Chowdhury* (maruf.chowdhury@uts.edu.au)
Extended abstract
Introduction
With the rapid economic globalization, trade has integrated while production has
disaggregated. As a result boundary of supply chain network of organizations is spanning over
diverse geographic regions and organizations are increasingly engaged in outsourcing from the
low-cost countries. Consequently, countries such as Bangladesh, India, Vietnam and China
have become the epicentre of global apparel production. As a corollary to the supply chain
redesign initiatives supply chain sustainability has become challenging for the organizations.
On the other hand stakeholders are demanding for more responsible and sustainable business
operation in the entire supply chain. To meet the stakeholders’ expectations companies are
focusing on the sustainability issues of the low cost country supply chain members in the
upstream. However, still it is challenging to motivate and control the sustainability efforts of
all supply chain members.
Interest and initiatives of focal companies have moved away from simply the implemented
sustainability-related actions toward further exploration of the sustainability governance
approaches (Maignan et al. 2002). Along with the managerial governance, there is a growing
attention among the academia and practitioners with regard to the adoption of collaborative
approaches. Specifically, collaboration and performance based incentives among supply chain
members are considered as the more effective way to achieve sustainability in the supply chain
(Vurro et al. 2009). Aligned with relational view studies (Bhattacharya et al. 2009; Tencati and
Zsolnai 2008), it is apparent that the top-down approach of sustainability governance, imposing
sustainability codes to supply chain members, is rather dangerous while, buyer-supplier
50
relational approach is more effective. Taxonomies of supply chain governance approaches
suggest that high level of cooperation and integration among the supply chain accelerates the
pace of sustainability through increased trust and commitment among the supply chain partners
(Jiang 2009). Therefore, along with supply chain governance relational practices with the
supply chain members are vital for achieving supply chain sustainability.
Further, the initiatives of supply chain governance and the relational practices for sustainability
depend on the network structure of the supply chain. For example, sustainability practices are
likely to be difficult to manage and control sustainability in a complex supply chain and vice
versa. Therefore, it is crucial to investigate the moderating effect of supply chain design on the
relationship between supply chain governance, supply chain social capital and supply chain
sustainability. Despite the emergence, research on investigating the mediating effect of
relational capital and the moderating effect of supply chain design in the relationship between
supply chain governance and sustainability is quite rare. Therefore, our research addresses this
gap in the literature.
Methodology
This study adopts a mixed methods research which is a combination of qualitative and
quantitative research approach (Creswell and Clark 2007). Qualitative approach adopts the
field study method which is conducted through semi-structured interview with fifteen (15)
decision makers from RMG manufacturing companies, their buyers and the accessory
producing companies (suppliers) in Bangladesh. Content analysis technique is used to analyse
the findings of the study. The findings of the qualitative research are compared with the
findings of literature to contextualise and to develop a comprehensive research model (fig 1).
Based on the comprehensive model, relevant hypotheses are developed. Then the measurement
items for different constructs of the comprehensive model are selected and finalised through a
pre-test procedure conducted on nine (9) experts.
In quantitative approach a broad based survey is conducted on 330 respondents from Apparel
industry in Bangladesh comprised of Apparel manufacturer, their supplier and buyers. Finally,
296 completed responses are received. Collected data are analysed by using structural equation
modelling (SEM) approach and regression analysis applying Hays PROCESS model. Common
method bias and the non-response bias assessment are conducted to ensure the reliability of the
data. Psychometric property of the constructs and respective items are tested as well as
following hypothesises are tested.
51
H1: Supply chain governance positively influences on supply chain sustainability.
H2: Supply chain relational capital mediates the relationship between supply chain governance
and sustainability.
H3: Supply chain design moderates the relationship between supply chain governance,
relational capital and supply chain sustainability
SC Relational
Capital
SC Design
SC Governance SC Sustainability
Figure1: Research model
Results and discussion
The results show that all item loadings corresponding to the constructs are greater than 0.7 and
significant at p < 0.01. All average variance extracted (AVE) and composite reliabilities (CRs)
exceeded the minimum thresholds of 0.5 and 0.7, respectively (Fornell and Larcker 1981;
Henseler, Ringle, and Sinkovics 2009; Hair, Ringle, and Sarstedt 2011). In addition, loading
of the items with corresponding construct are higher than the loading with any other constructs.
It is also evident that the square root of AVE is greater than the off-diagonal elements across
the row and down the column which refers that discriminant validity of the measurement model
is established. Therefore, the measurement model is considered satisfactory with evidence of
adequate reliability, convergent validity and discriminant validity.
As mentioned earlier that to test the conditional effects we use regression analysis using
PROCESS macro (Hayes 2013) model number 59. The latent variable scores of the constructs,
derived from partial least square based (PLS) structural equation Modeling (SEM), are used in
running the regression models. Nonparametric bootstrapping (Efron and Tibshirani 1994;
Wetzels et al. 2009) is used to obtain the standard errors of the estimates. The models are
evaluated by analysing the explanatory power of the models, the t-value of each path coefficient
and the bootstrap results of conditional effect at 95% confidence intervals (Hayes 2013). t-
value of each path coefficient is calculated to assess the relationships among the constructs as
hypothesized in this research. Along with these, the explanatory power of the proposed model
was assessed by estimating the percentage of variance explained or R square (R²) value of
52
endogenous construct (Hair, Ringle and Sarstedt 2011) supply chain sustainability. Our study
results supports the hypothesised relationships.
This study has significant theoretical and managerial value. Based on the findings of this
research the supply chain managers will be able to develop strategies to improve the
governance mechanism to accelerate the supply chain sustainability initiatives. They will also
be benefitted to set strategies on supply chain design issues as well as buyer-supplier relational
issues for implementing sustainability practices.
References
Creswell, J. W., and V. L. P. Clark. 2007. Designing and conducting mixed methods
research. Thousand Oaks, CA: Sage publications.
Maignan, I., B. Hillebrand and D. McAlister: 2002, “Managing Socially Responsible Buying:
How to Integrate Non-Economic Criteria into the Purchasing Process”, European
Management Journal 20(6), 641–648.
Vurro, C., M. T. Dacin and F. Perrini: 2009 “Institutional Antecedents of Partnering for
Social Change: How Institutional Logics Shape Cross-Sector Social Partnerships”,
Journal of Business Ethics.
Tencati, A. and L. Zsolnai: 2008, “The Collaborative Enterprise”, Journal of Business Ethics
85(3): 367–376.
Bhattacharya, C. B., D. Korschun and S. Sen: 2009, “Strengthening Stakeholder–Company
Relationships Through Mutually Beneficial Corporate Social Responsibility
Initiatives”, Journal of Business Ethics 85(2): 257–272.
Creswell, John W, & Clark, Vicki L Plano. (2007). Designing and conducting mixed methods
research.
Efron, Bradley, & Tibshirani, Robert J. (1994). An introduction to the bootstrap: CRC press.
Fornell, C., &, and D. F. Larcker. 1981. "Evaluating Structural Equations Models with
Unobservable Variables and Measurement Error." Journal of Marketing Research, 18
(1):39-50.
Hair, Joe F, Christian M Ringle, and Marko Sarstedt. 2011. "PLS-SEM: Indeed a silver bullet."
The Journal of Marketing Theory and Practice 19 (2):139-152.
Hayes, Andrew F. (2013). Introduction to mediation, moderation, and conditional process
analysis: A regression-based approach: Guilford Press.
Henseler, Jörg, Christian M Ringle, and Rudolf Sinkovics. 2009. "The use of partial least
squares path modeling in international marketing." Advances in International
Marketing (AIM) 20:277-320.
53
Accident Rates: the impact of Daylight Saving Time and other Date-based
variables
David Robb
Graduate School of Management
The University of Auckland Business School
Private Bag 92019
Auckland 1142
NEW ZEALAND
d.robb@auckland.ac.nz
+64-9-923-2812
Thomas Barnes
Apt 317 Railway Station Apartments
Te Taou Crescent
Auckland 1010
NEW ZEALAND
tbar110@aucklanduni.ac.nz
Extended Abstract
54
The impact of Daylight Saving Time and other date-based variables on Accidents
Abstract
We explore the impact of Daylight Savings Time (DST) transitions on accident rates
over a 12 year period in New Zealand. We find significant increases in road accident
rates in the days following DST introduction, and significant impacts in the weekdays
prior to DST start and end for falls and home & community accidents. There appears no
significant effects of DST on work accident rates. We also highlight a significant
increase (decrease) in accident rates by day of week for road (work) accidents.
Keywords
Road Accidents, Work Accidents, Anticipatory Effects, Day of Week Effects
Purpose
Transitions to and from DST been found to have an impact on road accidents in various
jurisdictions countries (DST is applied in about a third of countries). We extend these
studies to New Zealand, including other types of accidents, and controlling for effects of
holidays, day of week effects, and seasonality.
Research background
Research suggests two mechanisms by which DST affects accident rates, the first
relating to sleep changes/deprivation, and the second relating to changes in ambient
light during peak hour traffic. Research results are mixed but many find an increase in
road accidents or fatalities of 0-10% for the week following DST introduction. Results
for the end of DST are generally not as significant.
Research questions
We are principally interested in whether there is any impact on accident rates in the
days within one week of the Sunday transitions to and from DST.
Research design/methodology/approach
We utilise daily accident claims data from the Accident Compensation Corporation of
New Zealand as a surrogate for accident rates. The claims, between January 2005-April
2016, are categorised into Road (average daily number: 102), Work (average: 626), and
Falls and Home & Community (average: 3068).
We perform a log-linear regression for each of the three accident categories, with
categorical explanatory variables coded as dummy variables. The model is:
6 6 10 2 7 5 12 2016
log( APCt )    
m 7
m Smt  
n 7
n Ant    f Pft   g Lgt  
f 1 g 1 k 1

h 1
 kh Dkht   i X it 
i 1
 Y
l  2005
l lt  et
when k=1:h 1, i 11 l  2005
where APCt is the Accidents Per 100,000 residents on day t.

 is a constant
Smt is the Spring Daylight Saving Period 0-1 dummy variable (DST start m=0, day before m=-1,
day after m=+1, etc.)
Ant is the Autumn Daylight Saving Period 0-1 dummy variable (DST end n=0, day before n=-1,
day after n=+1, etc.)
Pft is the Observed Public Holiday 0-1 dummy variable (New Years Day f=1, ...., Boxing Day f=10)
55
Lgt is the Weekend day of Long Weekend 0-1 dummy variable (Saturday g=1, Sunday g=2)
X it is the Month of Year variable (January i=1,..., December i=12)
Dkht is the (Day of Week) x (Term/Holiday Period) 0-1 dummy variable
((Monday h=1, Tuesday h=2, , Sunday h=7)x(In School Term k=1, Between School Terms k=2,
Low Summer Holiday k=3, Middle Summer Holiday k=4, Peak Summer Holiday k=4)
Ylt is the Year 0-1 dummy variable (l=year)
et is the error term for day t
Findings
Figure 1 highlights the impact of DST Start on two accident categories. The increase
following DST start for road, and the lower mid-week values prior to DST start for Falls
and Home & Community, are apparent. We speculate the former relates to lack of
alertness and/or rushing to work, and the latter relates to people delaying activities until
DST. Impacts around DST end are less pronounced.
Figure 1. DST Start (Spring) Accident Rates. The vertical axis is the exponentiated daily

coefficients  m  10 m with 95% confidence intervals. D0 indicates the Sunday DST Starts.
Some control variables show very strong effects. In particular, Road accident rates
increase 19% from Monday to Friday, and Work accidents decrease by 19% in that
period. Seasonality coefficients show Road, and Falls and Home & Community
accidents peaking in February, but Work claims peaking in January. This may be
indicative of less supervision and/or learning effects of new and existing staff.
In the period 2007-2012 there was a marked decrease in accident rates with average
year on year reductions in claims per 100,000 resident of 7.4% for road and 4.2% for
work. However, from 2012 to 2016 rates have risen slightly. Falls and Home &
Community claims have also not declined since 2010, in part related to an aging
population (older people are over-represented in Falls).
Contribution
This is the first study of the impact of DST on multiple accident categories. For periods
of high accident rates (e.g., after DST introduction and at the end of the work week for
Road, and at the start of the work week, and in January for Work accidents), benefit
may accrue investigating the causes (e.g., physiological, behavioural, and sleep-related)
and providing advice (e.g., about adjusting sleep times earlier, and injury prevention).
56
Predictors of SC Agility of Fast Fashion Apparel Firms: The Supply Chain Management
Implementation, Practice and the Role of Organization Culture
Mohammed A. Jahed1
Mohammed A. Quaddus2*
Fazlul K. Rabbanee2
1
Department of Business and Economics, Elizabeth City State University, North Carolina, USA
2
School of Marketing, Curtin University, Australia
*Corresponding author
ABSTRACT
Fast fashion industry is faced with growing complexity, fierce competition and a dynamic
environment. Hence, supply chain (SC) of the fast fashion firms need to be extremely agile, which in
turn is likely to depend on effective implementation and practice of supply chain management
principles and the role of organization culture. However, the effects of these SC issues on the fast
fashion firms’ agility have received relatively less attention from the scholars. Based on the extant
literature, a set of hypotheses are presented relating culture, supply chain management
(implementation and practice), relationship quality, and supply chain agility. Using a mixed method
research approach, data is collected from fast fashion apparel firms in Bangladesh. Partial least
square (PLS) based structural equation model (SEM) is used for data analysis. Results indicate that
while supporting culture significantly impacts SCM practice, it does not influence the SCM
implementation. On the other hand innovative culture significantly influences the SCM
implementation, but it does not influence the SCM practice. Both SCM practice and relationship
quality are significant predictors of supply chain agility of the fast fashion apparel firms. Implications
of the findings are presented.
Key words: Fast fashion, Supply chain, Agility, Culture
INTRODUCTION
Existing literature identifies three types of luxury: accessible luxury, intermediate luxury and
inaccessible luxury, which are constituted by how the respective luxury brand is marketed (Alleres
1991; Barnier et al. 2012). Based on this luxury typology, Brun and Moretto (2012) categorised
luxury brands into (a) accessible luxury brands (accessible with strong fashion approach and brand
image; e.g. Montblanc, Zara, etc.), (b) aspirational luxury brands (strong brand reputation with
recognizable design and high level of product quality; e.g. Tiffany, Giorgio Visconti, etc.) and (c)
high luxury brands (precious and high level of exclusivity with brand heritage and very selective
distribution; e.g. Cartier, Rolex, etc.).
Firms in the fashion apparel industry such as Zara, H & M and Benetton, fall within the accessible
luxury category due to their strong fashion approach, brand image and being accessible to a large
number of customers. These fashion apparel firms have increasingly embraced the philosophy of
‘fast fashion’ retailing (Cachon and Swinney 2011; Passariello 2008). Fast fashion firms are not
‘haute couture’ or trend setters rather such firms are fashion followers and offer fashionable clothes
at affordable prices (Caro and Martinez-de-Albeniz 2015). A fast fashion firm usually combines two
critical production and supply chain related issues: (a) quick response focusing on the short
production and distribution lead times enabling a close matching of supply with uncertain demand;
and (b) enhanced design technique focusing on highly fashionable (i.e. trendy) product design
(Cachon and Swinney 2011). Short lead times in fast fashion products are enabled through a number
of critical factors such as localized production, supportive organizational culture, supply chain (SC)
57
agility (in terms of quick response and being flexible) and effective SC management and practice that
facilitate frequent inventory monitoring and replenishment and expedited distribution methods. While
lead time and quick response system are well studied (e.g. Fisher and Rahman 1996; Caro and
Martinez-de-Albeniz 2010), research focusing on the effects of organizational culture and effective
SC management practice on SC agility of fast fashion firms have received relatively less attention
from scholars. As fashion industry encompass growing complexity and fierce competition within a
dynamic context (Castelli and Brun 2010), it is likely that the SC agility of the fast fashion firms are
contingent upon optimum management of the diverse SC issues mentioned above. In this backdrop,
this research examines the effects of innovative and supportive organizational culture, SC
management practice on SC agility in the context of the fast fashion firms.
BRIEF LITERATURE REVIEW AND HYPOTHESES
“Fast fashion” is a business model of fashion products where the products are produced and marketed
quickly in order to get the new design rapidly to the ultimate consumers (Caro and Martinez-de-
Albéniz, 2015). Supply chain and its management (implementation and practice) within the fast
fashion firms hence play a significant role (Barnes and Lea-Greenwood, 2006). Literature on the
supply chain management is plentiful. However there is a dearth of literature on the supply chain
management of fast fashion products. Based on the extant literature on fast fashion (Abernathy et al.
2006; Caro et al., 2010; Caro and Martinez-de-Albeniz 2010), we surmise that fast fashion supply
chain needs to be ‘agile’. That is, fast fashion supply chain must have flexible and exceptional
capabilities “to meet the rapidly changing needs of the market place with speed and flexibility” (Yusuf
et al. 2014). We thus view SC agility as a dynamic capability and hence use dynamic capability view
(DCV) as the theoretical framework to propose our hypotheses (Teece 2007). In extending the DCV
concept we propose that organization culture influences SCM implementation and practice which in
turn, along with relationship quality, act as significant predictors of supply chain agility of fast fashion
producing firms. We also explicitly separate SCM implementation from SCM practice and predict
that there is a significant divide between these two SCM phenomena.
Based on the above and other extant literature (Fisher et al. 2001; Castelli and Brun 2010; Castelli
and Sianesi 2015; Chowdhury and Quaddus 2015), we present the following hypotheses.
H1: Organization culture of fast fashion firms influences both supply chain management
implementation and practice within the firms.
H2: An effective SCM practice by the fast fashion firms depends on the effective implementation of
SCM.
H3: Supply chain management practice influences both SC relationship quality and supply chain
agility of the fast fashion firms.
H4: SC relationship quality mediates the relationship between SCM practice and SC agility.
METHODOLOGY
The research adopted a two-phase sequential mixed method, consisting of qualitative and quantitative
approaches. An initial research model was first developed based on an extensive literature review. A
qualitative field study was then carried out by interviewing ten supply chain executives from fast
fashion apparel manufacturing firms in Bangladesh. A semi‐structured interview protocol was used
to collect data for the field study, then analysed using the content analysis technique. The qualitative
phase was intended to contextualize and fine-tune the initial research model. Findings from the
qualitative study were also used to develop measures and instruments for the quantitative method. A
survey was carried out with a sample of fast fashion apparel manufacturing firms, and a total of 296
58
usable responses were obtained. The collected data was analysed using partial least squares (PLS)
based structural equation modelling (SEM).
MAJOR FINDINGS
The findings of this research confirm that the practice of SCM in fast fashion industry depends on
how well it is implemented in the first place. We split the organization culture into innovative and
supportive culture. Results indicate that while supporting culture significantly impacts SCM practice,
it does not influence the SCM implementation. On the other hand innovative culture significantly
influences the SCM implementation, but it does not influence the SCM practice. This interesting
result is explained by the “fit” theory of innovation diffusion and culture (Lee et al. 2007, Leidner
and Kayworth 2006). It is revealed that both SCM practice and relationship quality are significant
predictors of supply chain agility of the fast fashion apparel firms. The SC relationship quality
partially mediates the relations between SC practice and SC agility. This research also confirms the
influence of culture, environmental uncertainty, customer focus, inter-firm trust and commitment,
and networking as the major antecedents of SCM implementation and practice in fast fashion firms.
CONCLUDING REMARKS
This research extends our understanding of the different factors that could influence SCM
implementation and practice in fast fashion firms. It empirically confirms a set of integrative
dimensions of SCM and supply chain agility and provides their validated and reliable measurements.
Grounded on dynamic capability view, this study confirms the mediating effect of supply chain
relationship quality on the relationship between SCM practice and SC agility. The research also
confirms the significant roles of innovative and supportive culture of the fast fashion firms in the
implementation and practice of supply chain management in fast fashion firms, which is elaborated
by the culture-technology diffusion “fit” theory. For supply chain practitioners, this research provides
valuable insights into the way SCM implementation and practice should be planned in the fast fashion
apparel manufacturing organizations of Bangladesh and elsewhere.
REFERENCES
Alleres, D. (1991). Spécifictés et stratégies marketing des différents univers du luxe. Revue française
du marketing, 132, 71-96.
Barnes, L. and Lea-Greenwood, G. 2006. Fast fashioning the supply chain: shaping the research
agenda. Journal of Fashion Marketing and Management: An International Journal, 10(3), 259-
271.
Barnier, V. D., Falcy, S., and Valette-Florence, P. (2012). Do consumers perceive three levels of
luxury? A comparison of accessible, intermediate and inaccessible luxury brands. Journal of
Brand Management, 19(7), 623-636.
Brun, A., and Moretto, A. (2012). Contract design and supply chain management in the luxury
jewellery industry. International Journal of Retail & Distribution Management, 40(8), 607-628.
Cachon, G. P., and Swinney, R. (2011). The value of fast fashion: Quick response, enhanced design,
and strategic consumer behavior. Management Science, 57(4), 778-795.
Caro, F. and Martinez-de-Albéniz, V., 2015. Fast fashion: business model overview and research
opportunities. In Retail Supply Chain Management (pp. 237-264). Springer US.
Caro, F., and Martinez-de-Albéniz, V. 2010. The impact of quick response in inventory-based
competition. Manufacturing Service Operation Management, 12 (3) 409–429.
Castelli, C. M. and Brun, A. (2010). Alignment of retail channels in the fashion supply chain: An
empirical study of Italian fashion retailers. International Journal of Retail & Distribution
Management, 38(1), 24-44.
59
Castelli, C. M. and Sianesi, A. (2015). Supply chain strategy for companies in the luxury-fashion
market: aligning the supply chain towards the critical success factors. International Journal of
Retail & Distribution Management, 43(10/11), 940-966.
Chowdhury, M. M. H. and Quaddus, M. A. (2015). A multiple objective optimization based QFD
approach for efficient resilient strategies to mitigate supply chain vulnerabilities: The case of
garment industry of Bangladesh. Omega, 57, 5-21.
Fisher, M., A. Raman. 1996. Reducing the cost of demand uncertainty through accurate response to
early sales. Oper. Res. 44(1) 87–99.
Fisher, M., K. Rajaram, A. Raman. 2001. Optimizing inventory replenishment of retail fashion
products. Manufacturing Service Operation Management, 3(3) 230–241.
Lee, I., Choi, B., Kim, J. and Hong, S.J., 2007. Culture-technology fit: Effects of cultural
characteristics on the post-adoption beliefs of mobile Internet users. International Journal of
Electronic Commerce, 11(4), pp.11-51.
Leidner, D.E. and Kayworth, T., 2006. Review: a review of culture in information systems research:
toward a theory of information technology culture conflict. MIS quarterly, 30(2), pp.357-399.
Passariello, C. 2008. Logistics are in vogue with designers - As slump threatens luxury goods, systems
to track consumer tastes and tweak offerings win converts. Wall Street Journal (June 27) B1.
Teece, D.J., 2007. Explicating dynamic capabilities: the nature and micro foundations of (sustainable)
enterprise performance. Strategic management journal, 28(13), 1319-1350.
Yusuf, Y.Y., Gunasekaran, A., Musa, A., Dauda, M., El-Berishy, N.M. and Cang, S., 2014. A
relational study of supply chain agility, competitiveness and business performance in the oil and
gas industry. International Journal of Production Economics, 147, 531-543.
60
2017
15th ANZAM Operations, Supply Chain and Services Management
Symposium
Title:
Extending SERVQUAL for Dentistry:
A New Zealand Case
Authors:
Sophia Ling1 and Arun A. Elias2
1
MBA Graduate, Victoria Business School, Victoria University of Wellington,
2
Associate Dean, Victoria Business School, Victoria University of Wellington,
Wellington, New Zealand
Email address:
arun.elias@vuw.ac.nz
Telephone number:
+64-4-4635736
61
Short Abstract:
The objective of this project was to determine factors that affect patient satisfaction with
dental care services and to develop strategies that could improve patient satisfaction at
Lumino The Dentists Wellington practices. Data was gathered using a modified
SERVQUAL survey. The survey reported that the overall level of expected service was
marginally higher than the overall level of perceived service delivered, indicating a
service quality gap where improvements could be made. These results were brought to a
focus group for discussion. A group model building exercise was conducted and strategies
that could improve patient satisfaction at these Lumino The Dentists Wellington practices
were developed.
Keywords: SERVQUAL, Stakeholders, Dentistry
Topics: Service quality in dental care, Stakeholders in dental care
Purpose:
The purpose of this paper is to identify and discuss factors that affect patient satisfaction
with dental care services provided by Lumino The Dentists Wellington practices and
using this information to develop strategies that could improve patient satisfaction at
Lumino The Dentists Wellington practices.
Research Background/Literature Review:

Healthcare organisations are increasingly confronted with unprecedented levels of
change, such as increasing customer expectations and steeper competition (Chow-Chua
& Goh, 2002). Dental care being a subset of healthcare faces the same challenges. But
despite considerable interest in quality management within the dental care sector, little
consensus has been made in relation to dental care quality management (Palihawadana &
Barnes, 2004).
There are several different ideologies on how service quality should be measured in
healthcare. This ranges from physicians’ interactions with patients (Brown & Swartz,
1989), a pleasant physical environment (Andrus & Buchheister, 1985), paying reasonable
fees and having thorough examinations (Sussman, 1967; Fisher, 1971).
The appropriateness of using the SERVQUAL framework (Parasuraman et al., 1988)
was tested by researchers (e.g. Baldwin & Sohal, 2003; Palihawadana & Barnes, 2004)
to manage and measure service quality in dental health care. However, a critical review
of literature found that SERVQUAL only measures patient satisfaction based on the
expectations and perceptions of one stakeholder – the patient (customer). Meanwhile
there are other existing stakeholders that also affect patient satisfaction, such as the dental
team (dentists, hygienists, dental assistants, reception etc.). It has been reported that
clinicians, administrators and patient-contact employees have a different understanding
of patient expectations (O’Connor et al., 2000). Therefore, although it is important to
measure expectations and perceptions of dental patients, the gaps in expectations and
perceptions between the dental team and dental patients cannot be ignored.
In this context, the investigation of patient satisfaction at Lumino The Dentists
Wellington practices makes an interesting case study.
Research Questions:
62
The research questions for this project were:
1. Who are the stakeholders that affect patient satisfaction at Lumino The Dentists
Wellington practices?
2. What are the current levels of patient satisfaction and what are the factors that
affect these levels at Lumino The Dentists Wellington practices?
3. What are some of the possible strategies to improve patient satisfaction at Lumino
The Dentists Wellington practices?
Research Design/Methodology:
For this paper, the SERVQUAL instrument was used to quantitatively measure patient
satisfaction of dental services provided in Lumino The Dentists practices in Wellington.
These results were taken to a focus group as part of a group-model-building exercise.
Participants consisted of dental care providers including a dentist, dental assistant,
hygienist and practice managers. The purpose of the focus group was to combine
SERVQUAL with a stakeholder approach in order to establish qualitatively the issues
that affected patient satisfaction at Lumino The Dentists practices in Wellington and to
brainstorm strategies to improve patient satisfaction at the said practices.
Findings:
Expectation scores were fairly high with an average for all statements being 6.4 (out of
7). Average for all perception statements was 6.3 (out of 7) indicating that current levels
of services at Lumino The Dentists Wellington practices are above average and patient
satisfaction is high. However expectation scores are still marginally higher than
perception scores suggesting a service quality gap where improvements could be made.
These results were brought to a focus group for discussion, where a group model
building exercise was conducted. Patient Mindset, Economic Factors, Corporate
Negativity, Cost, Customer Service and Communication were identified as factors that
affected patient satisfaction at Lumino The Dentists Wellington practices. Therefore
suggested strategies were focused around these factors.
Relevance/Contribution:
The findings of this research project will contribute to the existing literature on
SERVQUAL in dental care and patient satisfaction in New Zealand, which currently
appears to be scarce. Additionally, this project extended the use of SERVQUAL in dental
care in combination with other existing stakeholders, namely dentists, hygienists, dental
assistants, receptionists and practice managers. This project has closed a literature gap in
terms of considering more than one side of the equation of patient satisfaction. It has also
contributed a methodological approach using the systems thinking and modelling
methodology to facilitate discussion around these issues.
In terms of managerial implications, The SERVQUAL tool used in conjunction with
stakeholder concepts will enable managers to identify specific areas where patients’
expectations are not met and to facilitate meaningful discussions with the dental team in
providing quality care. This will help managers develop strategies and allocate limited
resources to areas that need the most improvement.
References:
63
Andrus, D. and Buchheister, J. (1985). Major factors affecting dental consumer satisfaction. Health
Marketing Quarterly, 3(1), 57-68.
Baldwin, A. and Sohal, A. (2003). Service quality factors and outcomes in dental care. Managing
Service Quality, Vol. 13(3), 207.
Brown, S.W. and Swartz T.A. (1989). A Gap Analysis of Professional Service Quality. Journal of
Marketing, 53, 92-98.
Chow-Chua, C. and Goh, M. (2002). Framework for evaluating performance and quality improvement
in hospitals. Managing Service Quality: An International Journal, 12(1), 54-66.
Fisher, A. W. (1971). Patients' evaluation of outpatient medical care. Academic Medicine, 46(3), 238-
44.
O'Connor, S. J., Trinh, H. Q. and Shewchuk, R. M. (2000). Perceptual gaps in understanding patient
expectations for health care service quality. Health care management review, 25(2), 7-23.
Palihawadana, D. and Barnes, B.R. (2004). The measurement and management of service quality in
dental healthcare. Health Service Manage Research, 17(4), 229-36.
Parasuraman, A., Zeithaml, V. and Berry, L. (1988). SERVQUAL: A Multiple-Item Scale for
Measuring Consumer Perceptions of Service Quality. Journal of Retailing, Vol.64 (1), 12-40.
Sussman, M. B. (1967). The walking patient: A study in outpatient care. Press of Western Reserve
University.
64
Supply Chain Resilience – Inherent Strategies for
Unknown-Unknown Events
Rizwan Ahmad
University of Canterbury, New Zealand
Email: rizwan.ahmad@pg.canterbury.ac.nz
Dr. Venkateswarlu Pulakanam

E-mail: venkat.pulakanam@canterbury.ac.nz
Dr. Mesbahuddin Chowdhury

E-mail: mesbahuddin.chowdhury@canterbury.ac.nz
Dr. John Vargo

Email: john.vargo@canterbury.ac.nz
Submission type: Extended Abstract
65
Supply Chain Resilience – Inherent Strategies for
Unknown-Unknown Events
Purpose
To combat with the increased number of supply chain disruptions, many researchers have
started exploring the concept of supply chain resilience. Researchers argue that a resilient
supply chain withstands, resist, recover and thrive under any uncertain event (Hohenstein,
Feisel, Hartmann, & Giunipero, 2015; Ponomarov & Holcomb, 2009; Scholten, Sharkey Scott,
& Fynes, 2014; Sheffi, 2005). Over the last five years, numerous studies have focused on to
refine the understanding of supply chain resilience and stressed reservations and limitations
regarding existing definitions, theoretical approaches and conceptual models in the field
(Hohenstein et al., 2015; Kamalahmadi & Parast, 2016; Kim, Chen, & Linderman, 2015;
Mandal, 2014).
While, supply chain resilience mostly has been discussed in the context of low probability
and high impact disruptions (Howard, 2006; Jüttner & Maklan, 2011; Sheffi & Rice Jr, 2005),
a limited research has been conducted to study about disruptions that have never been occurred
before. In this study, we define it as “unknown disruption” whose probability of occurrence
and impact is unknown. As a result, it is always a challenging task for firms and its supply
chain partners to develop capabilities to overcome the impact of such disruptions. Our study
aims to identify the factors that prepare firms and their supply chain partners to overcome such
unknown disruptive events.
In this study, we adopt case study approach to probe a real-life phenomenon (Yin, 2013). A
case study method is considered most suitable while investigating ‘how’ and ‘why’ research
questions (Yin, 2013). Our study uses a multiple-case embedded design to explore supply chain
resilience factor under each phase of disaster lifecycle framework. In this design, the primary
unit of analysis is supply chain of a focal organisation, whereas, individual organisations within
the supply chain has been identified as subunits.
We collected data from dairy industry, as dairy or agricultural supply chain, is considered
unique as compared to other manufacturing supply chains due to its distinguished features such
as perishable nature of the products, food safety concerns, high fluctuation in demand and
supply, and impact of climate changes (Green, 2010; Salin, 1998; Shukla & Jharkharia, 2013;
Van der Vorst & Beulens, 2002). Therefore, this research provides a comparison of alike and
distinct supply chain vulnerabilities and strategies in case of a dairy supply chain.
We collected 42 semi-structured interviews with two selected dairy supply chains. Within
each case, a focal organisation was selected and then based on the selected supply chain
disruption, various supply chain partners were selected to take the network view. Furthermore,
internal triangulation (Voss, Tsikriktsis, & Frohlich, 2002) is achieved by gathering
information from various news archives, company documents and ministry reports. All
secondary sources and information endorsed the story collected from the interviews and
facilitated in contextualising and filling the gaps.
66
Key Findings
Risk assessment tool categorises various risks (causes) or effects based on their probability
and impact to the organisation. Probability, either low or high, can only be associated with
events that are foreseeable. In contrast, an organisation can encounter an event that cannot be
predicted or simply “out of box”, and for which impact cannot be determined. These unknown-
unknown events create significant challenges as no pre-established or contingency plan could
provide guidance to resolve the situation. In this study, we extend risk assessment matrix
(please see figure 1) used by Manuele, (2005) and Pettit et al., (2010) by highlighting an
‘Unknown Zone”. The “Unknown Zone” is referred to those events with unknown probability,
hence consequence value remains unpredictable, could range from low to high consequence or
impact. In this study, we identify events like “supply chain disruption (for a focal organisation)
as of a small glitch in a competitor’s plant” as an ‘unknown’ disruption because the selected
focal firm had no previous idea or data about this type of disruption. They mentioned that it is
difficult for them to predict this type of disruption. As noted by one of the informants, “I think
it is almost impossible to predict, that such kind of failures in a competitors plant could also
lead to so much trouble [for us]. Certainly, we had not perceived this before [D2]” (Quality
Manager – FO1). Therefore, such events totally miss a risk manager radar and categorise under
Unknown-Unknown Zone.
High
Impact
Unknown – Unknown Zone
High
Vulnerability
Moderate
Vulnerability
Low
Vulnerability
Low
Impact
Unknown Low High
Probability Probability Probability
Unknown Zone Known Zone
Figure 1 - Risk Assessment Tool – Adopted from (Manuele, 2005; Pettit, Fiksel, & Croxton, 2010)
Our findings suggest that firm’s inherent strategies provide a firm to response to this
“unknown” disruption. The inherent strategy is referred as “a company’s day-to-day
operational activities, irrespective to any disaster and disruption”. This also corresponds to
Home and Orr (1997) idea about developing inbuilt capability “to develop a whole systems
response”. Our analysis shows that being inherent to an organisation or supply chain, these
strategies often determine the trajectory and performance of the organisation or supply chain
during a disruption. Our findings reveal that such inherent strategy has two components – one
focuses on within the firm context and the other focuses on beyond the firm context i.e. supply
chain context or broader network. Within the firm context, factors that are identified as critical
to deal with “unknown” disruption are organisational culture and quick decision-making
process. The firm’s inbuilt capacity to learn from day-to-day activities, cross-functional
67
training, empowerment, top management support and willingness to share information built a
cohesive organisation, which ultimately reflect in dealing with a disruption. Similarly,
supportive culture nurtures quick decision-making process, an essential element in quickly
responding to a disruption.
Beyond the firm context i.e. from supply chain context, our analysis identifies that supplier
development program and relationship building activities play the most important role in
dealing with “unknown” disruptions. As important as working cohesively within the
organisation, cohesive relationship with supply chain partners bring collective strength to deal
with a disruption. Our data analysis showed that cross-organisational teams, investing in SC
partners, educating suppliers, and compatible systems are key to such cohesiveness among
supply chain partners.
Conclusion and relevance

Our research extends the understanding of how to deal with “unknown” disruption. We
show that inherent strategy plays a vital role in dealing with such “unknown” disruptions. Pre-
defined strategies such as developing extra resources or contingency plans are more aligned
with the disruptions that a firm can foresee, which can be categorised as anticipatory
approaches. However, our research highlights that the most destructive disruptions are those
for which a company cannot foresee, thus requiring more inherent ability to deal with the
disruption rather than anticipatory approaches.
68
Reference
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Hohenstein, N.-O., Feisel, E., Hartmann, E., & Giunipero, L. (2015). Research on the
phenomenon of supply chain resilience: A systematic review and paths for further
investigation. International Journal of Physical Distribution & Logistics Management,
45(1/2), 90-117.
Home, J. F., & Orr, J. E. (1997). Assessing behaviors that create resilient organizations.
Employment Relations Today, 24(4), 29-39.
Howard, K. (2006). Risk and Reaction. Harvard International Review, 28(3), 38.
Jüttner, U., & Maklan, S. (2011). Supply chain resilience in the global financial crisis: an
empirical study. Supply Chain Management: An International Journal, 16(4), 246-259.
Kamalahmadi, M., & Parast, M. M. (2016). A review of the literature on the principles of
enterprise and supply chain resilience: Major findings and directions for future
research. International Journal of Production Economics, 171, 116-133.
Kim, Y., Chen, Y.-S., & Linderman, K. (2015). Supply network disruption and resilience: A
network structural perspective. Journal of operations Management, 33, 43-59.
Mandal, S. (2014). Supply chain resilience: a state-of-the-art review and research directions.
International Journal of Disaster Resilience in the Built Environment, 5(4), 427-453.
Manuele, F. A. (2005). Risk assessment & hierarchies of control. Professional Safety, 50(5),
33.
Pettit, T. J., Fiksel, J., & Croxton, K. L. (2010). Ensuring supply chain resilience: development
of a conceptual framework. Journal of Business Logistics, 31(1), 1-21.
Ponomarov, S., & Holcomb, M. C. (2009). Understanding the concept of supply chain
resilience. The International Journal of Logistics Management, 20(1), 124-143. doi:
10.1108/09574090910954873
Salin, V. (1998). Information technology in agri-food supply chains. The International Food
and Agribusiness Management Review, 1(3), 329-334.
Scholten, K., Sharkey Scott, P., & Fynes, B. (2014). Mitigation processes–antecedents for
building supply chain resilience. Supply Chain Management: An International Journal,
19(2), 211-228.
Sheffi, Y. (2005). The resilient enterprise: overcoming vulnerability for competitive advantage.
MIT Press Books, 1.
Sheffi, Y., & Rice Jr, J. B. (2005). A supply chain view of the resilient enterprise. MIT Sloan
Management Review, 47(1), 41-48.
Shukla, M., & Jharkharia, S. (2013). Agri-fresh produce supply chain management: a state-of-
the-art literature review. International Journal of Operations & Production
Management, 33(2), 114-158.
Van der Vorst, J. G., & Beulens, A. J. (2002). Identifying sources of uncertainty to generate
supply chain redesign strategies. International Journal of Physical Distribution &
Logistics Management, 32(6), 409-430.
69
15th ANZAM Operations, Supply Chain and Services Management Symposium
Institutionalization of CSR in Higher Education Sector in

Malaysia
Aminah Abdul Rahman
PhD Candidate, University of Canterbury, NZ
aminah.abdulrahman@pg.canterbury.ac.nz,

A/Prof in Operations Management, University of Canterbury, NZ
pavel.castka@canterbury.ac.nz, Phone: 03 369 3761
Dr Tyron Love
Senior Lecturer in Management
Associate Dean Māori, University of Canterbury, NZ
Email: tyron.love@canterbury.ac.nz; Phone: +64 3 369 4069
Submission type Extended Abstract
Abstract
This research examines institutionalization processes related to adoption of CSR the context of higher
education in Malaysia. CSR is described as the organisation’s obligation to balance and improve
environmental and social impacts without affecting profit. The concept of CSR has become an
important business strategy for organisations and has been practiced all over the world. With the
growing interest in issues relating to CSR, it is crucial to understand the key aspect of the
institutionalization process.
Much of the discussion on CSR decision-making focuses on organisational behaviour and decision-
making in the context of corporations, whereas it is rather limited in the context of universities. In
Malaysia, many universities are showing a positive commitment to promoting CSR practices and
adoption of CSR is pushed by the Ministry of Education. However, the academic research is limited. In
addition, previous research has primarily focussed on developed countries - less so, developing
countries such as Malaysia.
This research employs a qualitative case study method. Six Universities serve as case study
organisations to determine the role of institutional driver in the adoption of CSR in the sector. The
institutionalization is investigated thorough a conceptual framework. The framework addresses key
aspects of the institutionalization as drivers for adoption, context of the adopting organisations,
decision making processes and outcomes. Data for this research were collected from interviews with
top and middle-level managers, CSR reports, University documents and five years of CSR reports
(2010-2015). The findings reveal the strong role of leadership in the process as well as the ability to
pursue the CSR in parallel to research and teaching activities. Even though research universities have
advantage of more robust infrastructure, other university types could also adopt successfully through
various process that are discussed in the paper. The research is expected to contribute to the body of
knowledge on understanding CSR decision-making and stakeholder influence on CSR implementation.
70
COVER PAGE
Title: Crowdsourcing: Toward innovation of project management and mass

customization
Authors & Affiliations:
Dr Kathleen Wilson, The University of Melbourne,
kathleen.wilson@unimelb.edu.au, M. +61 (0) 400 813 064
Prof Daniel Samson, The University of Melbourne,

d.samson@unimelb.edu.au, M. +61 (0) 438 782 866
A/Prof Vikram Bhakoo, The University of Melbourne,

vbhakoo@unimelb.edu.au, M. +61 (0) 422 310 945
Submission type: Research paper
Abstract: This paper explores how mass customization process and delivery is
improved through crowdsourcing firms’ innovative project practices and processes.
Five firm-based case studies were conducted in Australia and the United States of
America of firms which operationalised crowdsourcing projects. This included 31 firm
executive and crowd participant interviews. Findings suggest that crowdsourcing injects
dynamism, huge crowd size, up-down scaling of resources, earlier customer
involvement and participation as well as improved delivery speed in project
management (PM) practices and mass customization processes. Crowdsourcing brings
mass resources at low cost and applies the crowd in a fluid manner for agile and speedy
delivery results in PM and mass customization. This study challenges conventional
processes and practices concerning project management and mass customization and
provides a new and enhanced understanding via crowdsourcing mechanisms.
Crowdsourcing firms and characteristics that are important to PM practices and delivery
of mass customized outcomes are explored as a way to achieve cost efficiency, scale,
flexibility, and risk reduction.
Keywords: innovation, crowdsourcing, projects, project management, mass
customization, management strategy
Topic (Theme): OSCSM and innovation
71
1. Introduction
Projects are conceived as essentially temporary, time-limited, globally practiced, often
require tasks to be performed which may never have been performed before, and can be
utilised to create unique, novel products and services (Bryde, 2003; Geraldi et al., 2011;
Malach-Pines et al., 2009). The Project Management Institute (PMI) (2016) amplifies
this point through its definition emphasizing a project as a temporary endeavor which
has a clear beginning and end and discrete scope and resources, which is undertaken to
create a distinctive and novel product, service or result.
There appears increasing pressure for business and project managers to create
operational models and adaptive functional architectures so as to be operationally agile
and to inject dynamism, novelty or uniqueness into their management of projects in
order to be successful (Lewis et al., 2002). This paper is responding to these calls to
help understand newer adaptive functional architectures which respond to dynamic
environments in a novel and agile manner.
Crowdsourcing is a new operational strategy that is revolutionizing the operations
and project management (PM) space as a result of a confluence of decades of macro
change. Crowdsourcing was a term first coined by Jeff Howe (2008) which he defined
as the act of a company taking a function once performed by employees and outsourcing
it to an undefined (and generally large) network of people in the form of an open call.
In its modern context, it is widely practiced online and attracts large participatory
crowds. Crowdsourcing has been evolving since Howe’s original definition and now
encompasses nascent and hybrid business forms whereby the firm’s crowd may
concurrently fulfil multiple roles including de facto employee, (sub-) contractor, co-
creator, decision-making collaborator, idea-generator and even consumer (Boudreau and
Lakhani, 2013; Chafkin, 2008).
Crowdsourcing has been used more recently by firms as an operational business
model, and these firms are termed crowdsourcing-centric in this study. These are firms
where the majority of their funding comes from using the crowd dynamically, and
indeed existentially, in their operations. Modern crowdsourcing-centric firms attract and
engage large distributed and amorphous crowds to produce goods and services through
project delivery methods to produce mass customized items. The project practices
inside these crowdsourcing-centric firms appear novel and innovative and hold promise
for producing mass customized goods and services with more dynamism, earlier
customer focus and input as well as improved speed to market - elements which have
been suggested as highly attractive to mass customization producers (Akinc and
Meredith, 2015). For example, Threadless (2016), an online t-shirt retailer, produces
unique and dynamically-created mass customized t-shirts by involving multiple
injections of crowd co-creation and/or decision-making at various points in each t-shirt
production project. The (artist) crowd, in this instance, produce t-shirt designs which
another (decision-making) crowd vote to include or reject. Those crowd-voted-in-
designs are sent off by Threadless for bulk printing and the voting crowd then become
consumers and buy the mass customized product for which they have voted. Each t-shirt
design, production and sales process is an agile product development project, with the
various crowd inputs lowering the project risks.
Given these newer developments with crowdsourcing-centric firms, as with
Threadless, and the increasingly novel manner in which they are using crowds, there is
growing scholarly interest in understanding the value crowdsourcing generates in
72
executing dynamic and complex projects. Scholarly research in this pivotal area is in an
embryonic stage (Liu et al., 2016). This is particularly so in project environments,
which can efficiently produce mass customized results, because there is a scholarly and
practitioner interest in understanding new and innovative forms of project delivery and
more efficient ways that goods and services can be mass customized through efficient
operational practices (Åhlström and Westbrook, 1999; Geraldi et al., 2011).
In summary, the purpose of the paper is to explore the nascent concept of
crowdsourcing-centric firms and examine the important characteristics of and the
innovative processes used inside these firms which help to execute novel project
delivery which results in efficient mass customized output. The key research questions
which drive this study are:
RQ 1. What are the important characteristics related to crowdsourcing-centric
firms’ project delivery?
RQ2. How is innovative mass customization delivered through crowdsourcing-
centric firms reflected in project practices and processes?
2. Literature Review
2.1 Crowdsourcing and its links to Project Management and Mass Customization. Mass
customization alludes to ‘flexible’ production of uniquely customized goods and
services distributed out to a mass market via agile supplier networks (Åhlström and
Westbrook, 1999; Davis, 1987; Feitzinger and Lee, 1997). Global markets are moving
to demanding speedy, cost-competitive and efficient delivery of unique, customized
products and services for a global customer base (Akinc and Meredith, 2015). The
ultimate aim of mass customization is to provide consumer choice for individuals of
specific custom designed and selected items with the efficiency and lower costs inherent
in mass production processes (Gilmore and Pine II, 1997; Kincade et al., 2007).
Kincade et al. (2007) posit that mass customization has developed to encompass
elements like consumer co-design and co-creation which represent a shift from linear
production processes and reduces sensitivity to time-to-market pressures.
Crowdsourcing business models often use co-design and co-creation to help build
innovative products and services (Chesbrough, 2011).
Filippini (1997) notes the development of general operational management (OM)
processes and practices have advanced in a broader, yet more integrated manner,
upstream with suppliers and downstream with clients. In a modern context where end-
point consumers are now increasingly also arbiters of value, crowdsourcing firms work
with crowds so that such crowds become critical upstream and downstream arbiters of
value (Priem, 2007; Priem et al., 2013). Crowds may function upstream effectively
inside the firm at early points in the cycle to produce items or ideas, assist with
decision-making and market products and then, downstream to purchase those same
products (Boudreau and Lakhani, 2013).
Crowd based mass customization is now an operational reality. Crowdsourcing firms
have started using input from crowd communities to bring more certainty to the make-
to-forecast approach (Akinc and Meredith, 2015) by injecting consumer crowds very
early in the production cycle. The use of low cost and widely available information and
communications technology teamed with enormous crowd labor has enabled individuals
and communities of people to act as either temporary or longer term stakeholders of the
73
organisation, especially as contributors to the firm’s production and outputs, and move
the efficient frontier forward relative to more traditional forms of business model and
employment (Liu et al., 2016). The operational novelty suggested by crowdsourcing of
being able to team efficiency of production with project agility to result in low cost
processes resulting in continual project turnover has generated close interest by scholars
(Kohler, 2015).
While mass customization is usually positioned in relation to manufacturing
environments, newer crowd-based organizations where crowds are used innovatively to
produce goods (and services) can be positioned in a hybrid context where product
manufacture combines with crowd-based project management. Åhlström and
Westbrook (1999) posited the view that there are a wide variety of methods to achieve
mass customization and so limiting the focus to only manufacturing environments is
unnecessarily restrictive. For our earlier example of crowdsourcing firm Threadless, for
example, blends an iterative online process of collaboration with manufacturing and
online retail.
Many crowdsourcing based firms are completing a multitude of recurring projects,
sometimes in the hundreds and thousands, where they are effectively creating a line
flow of unique projects comprising outputs/ services. For example, the crowdsourcing
firm Kaggle (2016) runs data analysis competition projects on behalf of clients who
have difficult-to-solve data problems and for which the solution would provide cost
savings and/or revenue generation. From an online community of more than 500,000
data scientists (Kaggle, 2016), which Kaggle has attracted and cultivated, data-centric
projects are put out to the community in the form of competitions and the data experts
compete in teams or individually to solve the problem for a winning cash payment or
sometimes no payment - simply for the kudos of winning. A real-time leader-board is a
feature which updates instantaneously every time a team/individual submits an entry.
The leader-board encourages competitive striving among the active data specialist
crowd to out-perform other entrants and Kaggle’s project results have consistently out-
performed industry standards by healthy margins since its inception. Each winning
algorithm in Kaggle’s competitions represents a unique project output and is the result
of the competitive output of a large crowd of fine minds. It is a mass-customization
service which brings a finely customized algorithm to clients through a large crowd of
competing expert data specialists working on individual data problem projects. Kaggle
CEO Anthony Goldbloom recently commented about the power of his company’s
crowdsourcing model:
We’ve never hosted a competition that hasn’t significantly outperformed the previous
state of the art. Moreover, for just about every competition we’ve hosted, the best entries
reach a plateau, which we interpret to be the limit of what’s possible given that amount of
‘information’ available in the dataset….Having hundreds of eyes on your data often
brings up new insights and raises questions that had never been asked. (Shapiro, 2011).
The statement above highlights that the result for crowdsourcing clients/ consumers
is a mass customized result for each project via a mass of humanity’s ‘hundreds of
eyes’, represented by the crowd, collectively doing a multitude of projects. The salient
point is that crowdsourcing brings mass resources and combines it with innovative
project processes to create a low-cost yet resource-rich system.
2.2 Redesigning mass customization through crowdsourcing. The implications of such
innovative crowdsourcing-based mass customization demand and supply models, such
74
as that used by the example crowdsourcing-centric firms of Threadless and Kaggle, has
implications for the make-to-forecast strategy of mass customization (Akinc and
Meredith, 2015). Such business models, where the mass customization is linked to the
demand side very early in the production process reduces the risk markedly, while at the
same time reducing time-to-delivery, by ensuring the mass customization more closely
fits consumer demand at the earliest point in the production cycle. This rolls back the
make-to-forecast approach much closer to the fast delivery times of the make-to-stock
approach which is characterized by low customization but near instantaneous delivery
(Akinc and Meredith, 2015; Holweg and Pil, 2001). In terms of risk reduction, the type
of mass customization inherent in these types of crowdsourcing business models,
involving early involvement of consumer crowds choosing en masse the customized
design, reduces the likelihood of rejected or compromised orders or unwanted finished
goods (Akinc and Meredith, 2015). Whilst the crowds do not commit to actually
purchasing at this early stage of voting, the collective act of voting and the implied
commitment to the design, has always ensured that the final mass produced t-shirt
typically sells out (Hollender and Breen, 2010). This novel co-design principal of
allowing crowd members to submit and vote for designs also supports the research of
Kincade et al. (2007) which develops the notion that co-design in mass customization
processes works to truncate product development and delivery times.
There is still sparse literature and research on crowdsourcing and how it is
characterized in relation to project management and mass customization. Little is known
about the workings and characteristics of pure-play crowdsourcing-centric firms and
how they approach project practices and how mass customization works in this context.
3. Methodology
Given the knowledge base is still in an early stage of development, the use of an
exploratory case study methodology is considered appropriate so as to enable the
collection of specific and detailed information and to provide detailed and rich insights
(Barratt et al., 2011; Eisenhardt, 1989; Eisenhardt and Graebner, 2007; Yin, 1994).
3.1 Case selection and context. Theoretical sampling was used for the selection of case
studies (Eisenhardt, 1989). The theoretical sampling involved using five case studies of
pure-play crowdsourcing-centric firms. These firms all engage crowds in an existential
manner, whereby they are solely reliant on the large crowds they attract to deliver
projects. Each firm attracts crowds which are larger than 100,000 people, had been
established more than three years and were recognised publicly as crowdsourcing firms
– in most cases the firms were publicly (proudly) self-proclaimed crowdsourcing firms
on their firm website and in press articles. All five firms delivered mass customized
output via project delivery processes. Most of the firms selected for the study had won
major industry awards and public accolades for their unique (and successful) approach
to business. Details of cases, their industry segment and location is provided (Table 1).
Table I. Case study details
Firm Headquarters Staff Crowd Industry Firm Interviewee designation

(FTE) size maturity
Firm A Australia 75 1,340,000 Design Start-up – Founder/CEO
Founded 2008 CTO
Product Manager
3 crowd members
75
Firm B USA 50 5,000,000 Services Start-up – Founder/CEO
Founded 2007 Founder/CTO
CFO
3 crowd members
Firm C Australia 300 7,300,000 Services Start-up – Founder/CEO
Founded 2009 CTO
Client Manager
Firm D USA 20 105,000 Science Start-up – Chairman
Founded 2010 Founder/CEO
Scientist
4 crowd members
Firm E USA 106 2,500,000 Fashion/ Start-up – Founder/CEO
design/ Founded 2000 Chief Creative Officer
retail Business Manager
2 crowd members
3.2 Data collection and sources. During mid-2011 to mid-2012 five company-based
case studies were conducted which included in-depth interviews with 15 crowdsourcing
business executives including founders and also matched with 16 crowdsourcing crowd
members associated with the firms. Interviews were conducted in both Australia and the
USA. Both sets of informants, that is, firm executives and crowd members were deemed
to have unique insights and expert knowledge of crowdsourcing in a real-life context.
The firm executive participants were c-level informants and also included founders of
all firms. It was important that the firm founders were interviewed due to their lifecycle
experience commencing at the firm foundation to provide a particularly intense insight.
All executive informants had been at the firm for more than 12 months.
The crowd members were experienced and dedicated to crowd-based work. The
crowd informants had extensive crowdsourcing experience and indeed some informants
were performing crowd-based tasks up to 18 hours a day, every day. The crowd were
included to allow for an understanding at a deep level how the whole process of
crowdsourcing worked, that intrinsically crowdsourcing-centric firms relied
existentially on the crowd and both major crowdsourcing stakeholders be included.
The case studies used multiple sources of data such as interviews, qualitative
surveys, emails and phone calls, site visits and observational data, media/news reports,
document and image analysis, online website material, firm blogs and website public
web-posting sites. A summary of the data sources, quantity and types is illustrated at
Table 2.
Table 2. Data Inventory
Themes Data Type Quantity Data Source
Interviews Interviews 15 Expert informants
Interviews Phone calls 16 Expert informants. Support staff. Crowd
members.
Observation Site visits 3 Business premises occupants
Observation Observational data 15 hours Notes, recordings re site visits;
Notes from two-way exchanges in crowd
community sites;
Notes and recordings from 2-day industry
conference.
Online Company web home-page 118 visits to In-house corporate communications, selling
home-pages communications,
Internal News articles. Company philosophy.
Specialty crowd web-sections.
76
Online Company Facebook 16 visits to In-house corporate communications, Feedback
Facebook from clients and crowd members, complaints and
accounts praise from crowd members, company events.
Company philosophy and mission statements.
Specialty crowd sections.
Online Company Twitter 4 visits to 3 In-house corporate communications, company
Twitter accounts events, company philosophy and mission
messages.
Online Company blogs 45 visits to Expert company informants including founders
company blog- and high level executives.
sites
Online Emails 83 Expert informants. Support staff. Crowd
members.
Online Image analysis 41 In-house communication images. Firm event
images. Showcase images.
Online Company documents 39 Company conference presentations. Company
brochures. Press releases.
Online Media and News reports 42 Online newspaper and practitioner journal
reports. Online trend reports.
The crowd members who were interviewed were located in eight countries including
Australia, New Zealand, Philippines, Serbia, United Kingdom (UK), Ukraine, USA and
Venezuela. These diverse countries were included to provide evidence for the study’s
internal validity related to case selection. The study also included a balance of both
developed and developing countries to help strengthen research triangulation. All crowd
interviews were conducted one-to-one. In terms of the 16 crowd members who were
interviewed, 6 were based in developing countries and 10 in developed countries.
Interview length averaged 40 minutes. All interviews were audio-recorded and
directly transcribed in vivo. The executive interviews were semi-structured. Of the 16
interviewed crowd members utilised for the study, six were recruited through online
appeal and a further 10 were recruited ‘snowball’ style via initial personal contact with
crowdsourcing community colleagues. The interview length were much shorter in case
of the crowd. Any ambiguities were resolved and follow up interviews were conducted
with both CEO’s and the crowd to clarify those ambiguities.
Information emanating from the combined responses of the informant was evaluated
to saturation point. At this point of saturation it became clear that no further new
information was emerging and incremental learning was sharply diminishing
(Eisenhardt, 1989).
3.3 Data coding and analysis. The data for this study was analysed inductively (Strauss
and Corbin, 1998). Elements in the text were examined and identified its relevance to
the overarching research questions. The overarching editing approach was
supplemented by conducting a thematic analysis for example based around questions
associated with how crowdsourcing businesses worked, how they were structured and
how crowd members were engaged and paid (or not) (Gioia et al., 2012). Following
recommendations by scholars in the general management and OM discipline, analysis
was supplemented by conducting a within-case and cross-case analysis as doing so for a
multiple case study research design to enhance the generalisability of the findings
(Meredith, 1998; Miles and Huberman, 1994). Each interview transcription was
checked by a professional transcriber and then subsequently by each informant. Once
this process was complete, a further line-by-line in-vivo coding analysis was conducted
using NVivo 10 software.
In keeping with the prescriptions of Glaser and Strauss (1967), the study prescribed
consistent interview and written survey questions to all informants in each of the two
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groups so as to allow constant data comparison data across both groups of informants
over time. Such repetitive data collection resulted in the exponential building up of
themes until no new themes were appearing and data saturation was thereby achieved.
All crowd interviewees were sent their own interview in written transcription form after
the interview to confirm its accuracy to ensure the reliability and validity of the data. To
ensure reliability and validity multiple data sources were examined (Table 2).
4. Findings
4.1 Within Case Analysis. A within-case analysis (Eisenhardt and Graebner, 2007) was
conducted for each of the five firm-based case studies to highlight operational aspects.
A summary of each firm is presented as follows:
Firm A. Firm A is based in Melbourne, Australia. It operates primarily in the online
graphic design space, where it is a leader in its field. It has a crowd ‘philosophy of
‘anyone, anywhere, anytime’ in terms of its crowd. This effectively means there are no
barriers to entry for producing work. The company runs design projects where it serves
as a mediator for customer/crowd and makes money as a percentage on transactions.
The results of the crowd production are mass customized to the client’s written
project brief which can be as brief or detailed as clients wish. The client may clarify or
change the brief at any time in the process and there is no obligation to purchase or use
any of the designs the crowd produce. The client will typically receive more than 100
designs per brief and scores or hundreds of individual crowd members may be involved
in tailoring designs based on his/her interpretation of the client’s brief. Excessive
production takes the form of unwanted designs and the client makes the decision to
discard unwanted production items. The client will receive designs within less than an
hour and will usually have many (over 100) multiple designs within 72 hours. This
process is typically much faster, cheaper and gives higher levels of choice to the client
than the traditional pathway of outsourcing to a design agency. The model Firm A uses
to raise revenue is summarised below in Figure 1.
Firm Crowd Client Firm Crowd
Attracts clients Submits work for Chooses winner Collects payment Winner(s) only
judgement and pays firm and pays crowd paid
Attracts a crowd Job may be Winner(s)

unpaid, volunteer thanked
based
Creates open call
Creates work
requests after
client consultation
Figure 1. Schematic of workflow In Firm A
Firm B. Firm B is based in San Francisco in the USA. Clients use it to have their data
collected, cleaned and labelled. Again it is styled as an ultimate meritocracy, whereby
only crowd member’s the output and the best selected crowd production receive
monetary compensation. Algorithms decide which members of the crowd are the most
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meritorious in terms of quality. The firm’s enormous crowd of 5 million is thereby
automatically controlled and regulated through these advanced algorithms which test
regularly for proficiency and accuracy. The firm guarantees the standard of its crowd
based on the accuracy generated by its proprietary algorithms. This represents both a
technical and governance efficiency. The crowd is paid often virtually, through points
systems or through Internet-transferred store gift cards.
Clients run data-driven projects through the system and these are projects which
require specifically scaled mass human intervention in data content. For example a
client may require 100,000 people to work on a data content issue for only a few
minutes. Projects for clients can be completed rapidly by scaling human resources
working for minutes at a time. The firm has devised efficient payment systems to allow
such scaling to occur on a large and recurring basis.
Having ‘many eyes’ on data content and being able to scale so many human
resources for minutes, has created a unique form of mass customization, whereby
projects can benefit from the combined efforts of hundreds of thousands of people,
albeit possibly for only a relatively short time. The company claims that through this
technique they produce seven human years of work daily.
The firm makes money from big client project contracts and has a number of Fortune
500 clients. The quality-output checking algorithms and innovative payment systems
combine to create huge efficiencies of scale. The client receives results within minutes
and most projects will be started and ended within 24 hours. The operational model
Firm B uses to raise revenue is summarised below (Figure 2).
Firm Client Firm Crowd Firm Crowd
Attracts clients Creates work Promulgates Perform work Collects All crowd
requests work to crowd tasks payment output paid
and pays
crowd
Chooses an
‘elite’ crowd
Creates social
grid recruitment
process
Clients
generally do not
self-serve
Figure 2. Schematic of project workflow in Firm B
Firm C. Firm C is based in Sydney in Australia. It is an online crowd-based freelance

project services firm. It also runs crowdsourcing contests on behalf of clients for
projects requiring efficient mass customization. The crowd in these contests compete
against each other to either be chosen for their completed production items or for the
chance to contribute for a particular project.
Again, the model used by the firm is a meritocracy whereby best production rises to
the top. Its one-stop-shop website reduces search costs and is highly technically
automated and thereby efficiently transactional so clients and crowd are not ‘known’
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individually to the company in a traditional sense due to the huge human scale. The firm
is the middle-broker between clients and crowd and takes a percentage of each
transaction.
A crowd member is only paid if client chooses their production offering and so it is a
winner-takes-all competition. Clients benefit from access to skilled crowd members
who can produce online project tasks for client project managers. Firm C has reported
that at times the crowd and clients collaboratively add new work categories for the
executed projects. In this instance, the firm will take note of the new work category and
add to the available work project categories on their website.
A client will typically start to receive results in as little as ten minutes and would not
usually need to wait longer than a week to have transaction with a large number of
crowd members. Final results are fully controlled by the client, who only pays if
satisfied. The model Firm C uses to raise revenue is summarised below in Figure 3.

based
Creates open call
Creates work
requests after
client consultation
Figure 3. Schematic of project workflow in Firm C
Firm D. Firm D is based in San Francisco, USA. It runs a specialist data science and
data prediction platform and offers specialised data analysis services for clients. This
firm has a model of ‘anyone, anywhere, anytime’ for its crowd recruitment and a
‘winner-takes-all’ philosophy. The crowd self-select regarding data analysis/ prediction
skill set and capability of delivering complex algorithms. No qualifications are required.
The crowd enters competitions to win (often large) prize-money, sometimes in

excess of $1 million. The firm boasts more than ten thousand registered PhD crowd
members with many in well-paying day jobs. The firm’s key proprietary leader board is
updated in real-time so teams know where they place during the course of the
competition. Firm D has always out-performed established knowledge.
The firm is a middle-broker between client and crowd and makes money from
individual firm competitions. Each project is mass customized by virtue of having the
many fine analytical minds of large numbers of crowd members competing against each
other to improve and innovate. Results from crowd transactions can commence within
24 hours or less. The model Firm D uses to raise revenue is summarised in Figure 4.
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based
Creates open call
Creates work
requests after
client consultation
Figure 4. Schematic of project workflow in Firm D
Firm E. Firm E is based in Chicago, USA and is an online fashion retailer. The firm
uses a model for crowd recruitment of ‘anyone, anywhere, anytime’. There are three
crowds which are curated by firm e including ‘artist’, ‘voting’ and ‘buying’ crowd. The
artist crowd enters always-open design submission competitions and most do not win
because there are about 300 entries per week and only around 10 of those chosen by the
voting crowd.
The voting crowd choose the t-shirt designs they like best and these are sent off by
the firm for production. In this sense the products are mass customized through the
engagement of the voting/buying crowd who effectively signal to the company at the
earliest stages how they want their designs customized and what they are willing to
purchase. The buying crowd (which includes but is not limited to both the artist and
voting crowds) are informed when the manufactured product is available and all mass
customized units of production typically sell out.
The firm has limited staff to control or overlay the decision-making of the voting
crowd and is thereby transactionally efficient in its use of labor-alternative crowds. The
project process takes around a week from start to finish. The voting and buying crowds
are not paid by the firm – in fact the buying crowd pay the firm in the sense that they
purchase the mass customized t-shirts or other production items.
The firm has won a significant national public innovation awards. They make money
on each production unit sold and have expanded recently to other related products such
as coffee mugs to increase their consumer reach. The model Firm E uses to raise
revenue is summarised below in Figure 5.
Firm Crowd Crowd Firm Crowd
Attracts clients Submits work Judges work and votes Produces voted products Winner paid
Attracts a crowd Votes best items Informs crowd product ready Buys product
Creates open call process
Figure 5. Schematic of project workflow in Firm E
4.2 Cross-Case analysis. Table 3 presents the relationships in a cross-case analysis

(Eisenhardt and Graebner, 2007) for the five cases of project management
characteristics, mass customization elements and how they work in combinations of the
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cases. The project management characteristics include that the crowd resource provided
novelty, speed, uniqueness, dynamism and large scale engagement that reduces risk.
The similarities apparent in a cross-case analysis (Table 3) include that all firms are
online, global, are always available, efficiently scaled and flexible, combine firm and
crowd in an existential manner and have truncated delivery and turnaround timeframes.
Similarities among crowdsourcing firm’s crowds include that they are large in volume,
English-literate, task-centric, participative and output a mass customized
product/service, Most firms would self-label as an ultimate meritocracy, whereby the
best production rises to the top and self-perceive as unique, innovative and trailblazers.
The advantages of crowdsourcing for doing multiple, customized projects can be
considered by comparing the case study crowdsourcing firms to organizations
attempting to do similar work in traditional business models, meaning the use of
conventional workforces. Firms B and D, for example, offer highly varied solutions to
data analytic and other technical challenges, utilizing the resources of a multitude of
experts (the crowd). If a traditionally-employed or contracted workforce were used
instead in these firms, they could not have the range of capabilities provided by the
crowd, and single teams would attack each challenge, as against the many in the crowd.
A traditional PM model using employed or contracted project teams would also not be
able to be flexible in volume terms the way the crowd can, as needs vary. It would have
higher fixed costs than the crowd’s negligible fixed costs, and would likely even have
variable costs as well. Employees would need to be selected and performance managed,
whereas the crowd does not. Further, the skill-set of the employed workforce would be
high in inertia and lower in innovativeness than the dynamism of the crowd. Finally, the
scale and depth of talent could not be anything as extensive as the crowd has become.
For Firms A and E, for example, if ‘regular’ employees were used instead of the
crowd, there would be many fewer competing potential designs, and the range of
creativity of these would likely be lower, being limited to that of a finite, in-house
design function. Research as to popularity and therefore expected demand for each
design would be lesser without the crowd, and more expensive, and less accurate
conventional market research or trial-and-error would be used, leading to inferior
outcomes, risk and waste. And once production is conducted, the market would not be
known, identified and focused as with a crowd. As the Product Manager, Firm A, says:
“at its heart, we have used crowdsourcing as a way to disrupt an industry”. Echoing this
sentiment, Firm E, CEO and founder, remarks: “What we're really doing is we're
opening up a whole area of the market that didn't really exist before.”
In terms of the notion that a project is characterized typically as having results which
are often novel (Davies and Brady, 2016), an examination of the cross case analysis
(Table 3) reveals that most crowdsourcing firms saw their crowd-involving projects as
typically ‘novel’ and ‘trailblazing’ and the results as ‘unique’ and process as
‘innovative’. These projects were all conducted within truncated timelines when
compared to traditional, non-crowdsourcing firms. Most projects were started and
completed typically within a week and some in considerably less time. In some firms,
such a firms A, B and C, results could start arriving in 10 minutes or less. Firm A
created a new production item every five seconds around the clock and firm B claimed
to project manage seven human-years of work daily with less than 50 staff. In term of
the traditional performance elements of project management, time, cost and quality,
crowdsourcing was demonstrated in the case studies to be capable of moving the
efficient frontier of these forward in various combinations across the three. Using a
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crowd can take out time from a project. Crowds reduce employee cost, both direct and
indirect, and they can also reduce the risk of quality problems arising, in the sense of
project outcomes missing the market or customer requirement.
Table 3. Cross Case analysis of firms and characterizations of PM and Mass Customization
PM Mass customization Where it When it Who it involves?

characteristics elements works? works?
New, novel (firms Output is mass Globally – Always on, Firm, crowd, client are
A, C, D and E) customized (all most follow-the- all critical elements (all
firms) countries sun, 24/7 firms)
represented timeframe
(all firms) (all firms)
Unique, The quality of end Where Mutual Developed/Developing
trailblazing (firm product and speed it flexibility is benefits are world (firms A, B, C, D
A, B, C and E) is produced is key valued (all apparent and and E)
(firms A, D and E) firm’s attainable
crowds) (all firms)
Short-term and Competition- Online across Firm, crowd Trailblazing, innovative
quick turnaround focussed (firms A, C, ubiquitous and client firms (firms A, B, C and
(all firms) D and E) Web 2.0 interact in a E)
networks (all systemic
firms) manner (all
firms)
Innovative process Co-operation- Generally Firm and Participative, task-
involving large focussed (firms A, D English- crowd centric, engaged crowds
groups of crowd and E) literate interact in a (all firms)
members who may participants relational
also be customers are required manner
(firms A, C, D and (all firms) breeding
E) trust (firms
A, D and E)
New way of doing Customers are Some in Task is clear Underground, edgy,
business or involved in tailoring services (all firms) engaged, participative
conducting a end product at (firms B, clients (firms A, B and
project (firms A, multiple stages C,D) some in E)
B, C and E) (firms A,D, E) production
(firms A, C,
E)
Dynamic (firms B, Firm/Crowd/Client Crowds are

C, D, E) interdependent very ‘large’
system (all firms) (all firms)
Innovative Efficient scale
response to management (all
uncertainty/risk firms)
(firms B, C)
Tables 4, 5 and 6 present selected informant quotes from stakeholders illustrating the
project management, mass customization and operational configuration of the cases.
The outcomes of risk reduction, uniqueness, cost efficiency and innovation in
conducting a multitude of projects can be deduced from these quotes across the cases.
4.3 Informant Quotes
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Table 4. PM Characteristics
‘Clients...we have 6.7 Million that have signed up to the website to date. At any given time, point in
time there’ll be something like 12,000 (clients) online… there’s 700 Million now in terms of jobs that
have been posted that have gone through the system in total which breaks down to about 4 Million
Projects.’ (CTO, Firm C).
‘I think the fact that we were the first player in the States, and that we’re still here and that we’ve
grown the community to hundreds of thousands.’ (Business Manager, Firm G).
‘But I would say, at its heart, we have used crowdsourcing as a way to disrupt an industry...’ (CTO,
Firm A).
‘So it’s very disruptive in terms of what we are able to pay.’ (CEO and Founder, Firm D).
‘Yes, sometimes they (the client) can get 80 – 100 different designers.’ (CTO, Firm A).
‘What we're really doing is we're opening up a whole area of the market that didn't really exist before.’
(CEO and Founder, Firm E).
‘Certainly better, I mean the accuracy – we run a whole bunch of these competitions and we have
never failed to out-perform the best that a company can do themselves or using a consulting firm.’
(CEO and Founder, Firm D)
Table 5. Mass Customization elements
“You might have a thousand pieces of content, and tomorrow you might have ten thousand or one
hundred thousand, so we can actually scale (the crowd) for that and it doesn’t drastically increase your
cost nor does it take a big amount of time to actually make that happen, whereas it would with a
traditional outsourcing firm or an internal team. (CTO, Firm B)
‘We can do it better, faster and cheaper, and I mean that, it’s better, it’s faster and it’s cheaper.’ (CFO,
Firm B).
‘What I have to be able to do is to deliver (clients) an answer in which I have mathematical statistical
proof of that there is a 95% probability that the number I’ve given them is correct.’ (CFO, Firm B).
‘I mean we have a new design that is submitted to the site every five seconds, right, so it’s a huge
amount of work.’ (Product Manager, Firm A).
(Firm B) can produce several years of work per day. (CEO and Founder, Firm B).
‘There are 100 million people that are members of communities at which (Firm B) work is
available...Four million have actually done tasks for us, and on the average day we have 20,000 –
25,000 new people and we have no idea who they are, they are just an IP address.’ (CFO, Firm B).
Table 6. Where/ when it operates and who is involved
‘I mean we have designers in 192 countries.’ (Product Manager, Firm A).

‘I don’t know exactly how many countries, but it would be I’d say about 100, it’s definitely more than
100.’ (CEO and Founder, Firm D).
‘We’ve got 7.3 million (crowd) and growing, and our closest competitor has got two .. so we’ve got
more skills, a deeper marketplace, more liquid market place etc., so there’s a lot of benefits there.’
(CEO/Founder, Firm C).
5. Discussion
To the best of our knowledge, this study is one of the first to contribute linking
crowdsourcing to the PM literature and mass customization processes. The first
contribution is thereby to explore how crowdsourcing-centric firms work and then to tie
in the type of crowdsourcing practised with PM and mass customization processes. The
findings indicate that crowdsourcing firms practice project management using large
crowds in a dynamic and existential manner to create, implement and consume unique,
mass customized goods and services. The crowd can now perform tasks which have
historically not been able to be undertaken until the advent of ubiquitous networks and
omnipresent global communications, occurring only in the past decade (Wexler, 2011).
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Crowdsourcing firms use crowds to perform tasks that have never been performed
before in the sense that the tasks require the focused work of the many eyes or many
fine minds of the crowd to coagulate to a customized result. Most of the crowdsourcing-
centric firms in the study utilise crowds of considerable size with two firms numbering
attracted crowds over a million individuals (Table 1). In addition, the nature of the
crowd which is characterized as an amorphous mass collaboration of diverse,
omnipresent, co-operative individuals/ groups appears at prima facie glance a non-
logical choice of existential business partner for crowdsourcing-centric firms. This is
due to the fact that the large attracted crowds are, in most of the five cases, unpaid and
may readily disappear, rendering such crowd-dependent firms unviable. For
crowdsourcing-centric firms to use the crowd as such an essential partner in their
project management delivery is surprising and unprecedented.
The second contribution is based on empirical observations across the five
crowdsourcing firms of how the PM was practised and how the mass customization was
operationalized. A schematic derived from the various within-case analyses (Fig 1-5) of
the operational project workflow across all five firms is summarised below in Figure 6.
Firm Client Crowd Crowd/Client Client/Firm Firm/Client/Crowd

Conception Input Customization Refinement Final vetting Mass production
ideas/content via human mass of mass and consumption
Project start Project end
Key: = Possible variations or iterations across the process

Figure 6. Schematic of Project/Process Flow for Crowdsourcing firms’ projects
Figure 6 highlights key attributes of crowdsourcing projects and how the process flows
across the firm, client and crowd to achieve mass customization. The process flows
dynamically from project start to project end and encompasses various
firm/client/crowd roles. However, a number of variations and iterations regarding the
various roles of the firm, client and crowd are well-tolerated and easily accommodated
across the flow processes of crowdsourcing-centric firms. These variations and
iterations are represented by the striped arrows (Figure 6). The process, especially
concerning the injection of the crowd at various points, is highly fluid and flexible.
Padalkar and Gopinath (2016) conclude that after six decades of PM research there is
still an ongoing search for explanations of project performance linked to practices. From
their research, one of the main calls for research in PM is for future researchers to
develop normative models to reflect current best practice. The contribution of this study
is that it responds to that call and attempts to map critical practices in PM linked to
crowdsourcing (Figure 6). In terms of crowdsourcing project management, the firm,
client and crowd link in a fluid manner and variations within the process are easily
accommodated. The crowd can be injected across the whole project lifecycle for
ideation, content, mass customization, mass refinement, decision-making, finalization
stages, review and then even mass consumption (as with Firm E). The process is not
85
necessarily fixed in order for every project for every firm. Variation and dynamism
across where crowd and client interject is deliberately fluid and flexible. This ensures
clients can have a greater or lesser role in the final product and the crowd can submit
more/less ideas, customization and refinement across the whole project lifecycle until
the point of final vetting leading to final product/service production/consumption.
Crowdsourcing-centric firms appear to have deep faith in crowds to be reliable and
productive project partners in spite of its amorphous, fluid characteristic. This faith
appears well-grounded with most clients experiencing results that are: “better, faster and
cheaper” (CFO, Firm B); that ‘out-perform the best that a company can do themselves
or using a consulting firm.’ (CEO, Firm D); or have “more skills, a deeper marketplace,
more liquid market place etc.” (CEO, Firm C).
The third contribution is in terms of how mass customization is delivered through
crowdsourcing-centric firm project practices and processes. The use of end users in
terms of achieving mass customization is critical in the crowdsourcing process and the
early, continuing and sustained involvement of those end users is a key feature of
crowdsourcing style mass customization.
Scholars have characterized mass customization as a type of customer co-production,
whereby consumers are incorporated in the design of products and services and add
value through the shared production activity (Hunt et al., 2013; Vargo and Lusch,
2004). Consistent with this view, Åhlström and Westbrook (1999) found that the two
main issues firm encounter with mass customization relate to understanding the wants
of the customer and managing the supply chain. In terms of the supply chain, they
conclude that there are opportunities for improvements in in-bound logistics if mass
customization is to succeed and a neat solution is to “customize products at the point of
reception…referred to as ‘adaptive customization’ “(p. 272). Gilmore and Pine II (1997)
highlight a number of approaches to mass customization which include ‘adaptive’ and
‘collaborative’.
Adaptive customization refers to the firm making it possible for customers to
customize the product easily on their own. Collaborative customization concerns
collaborating directly with individual consumers to understand their needs then to
identify the exact item to fulfil those needs, and then to make customized items for
them. The overall notion suggested by Gilmore and Pine II (1997) is that end users may
be involved in mass customization processes in a variety of manners in order to improve
and streamline end results. In the same vein, Kincade et al. (2007) posit that
emphasising a consumer-focused process facilitates new types of mass customization
processes which positively affect time-to-market demands. The study findings point that
managing the desire for customization for end users is critical in the crowdsourcing
process and the early, continuing and sustained involvement of those end users is a key
feature of crowdsourcing style mass customization. The findings suggest that adaptive
and collaborative customization processes can occur throughout the crowdsourcing
cycle. In the schematics of work flow (Figures 1 to 5) both crowd and client (and
sometimes the crowd and client are the same group as with Firm E) are involved
intimately at the very start of the process so the crowd is clear before customization
process commence what direction to take the product.
Scholars have highlighted the trade-off for producers between crafting bulk
customizable goods and services while at the same time maintaining a competitive
speed-to-market to keep consumers happy (Åhlström and Westbrook, 1999; Mather,
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1988; Meredith and Shafer, 2007). As Akinc and Meredith (2015, p. 733) suggest: “This
paradigm parallels the process-product positioning choices” which forms a continuum
from manufacture/engineer-to-order with its process focus to the other end of the
continuum end represented by make-to-stock with its product focus. Akinc and
Meredith (2015) analysed new manufacturing approaches to mass customization to
examine favourable combinations of customization/delivery performance. The newest
approach, make-to forecast, was delineated as a continual release of customizable
products to production made upon forecasts of what producers believe (albeit partially
blindly) will order. These customizable products are able to be modified after-the-fact to
match down-the line customer requirements as customer’s orders become more defined
and specific (Akinc and Meredith, 2015). The delivery times are truncated under this
process so delivery to customers is much faster.
The study findings suggest a reduction of the trade-off between high levels of
collaborative customization and speed-to-market. This occurs through agile and fluid
use of the crowd in the process. The crowd can be used to generate ideas or produce
large numbers of items and can even become consumer of the mass customized items
(Figure 6). The advantage of having a process where fluidity is emphasised and the
crowd can easily be injected, or scaled up or down or huge crowd numbers consulted in
the same moment cannot be under-stated. Collaboration and adaptability of
customization during early or during frequent interludes in the process translates to
improved delivery timeliness performance and result. Customization can be wrought
and re-wrought in a dynamic manner during the course of the process due to the ease
with which the crowd can be applied (or not) at the various stages. The product/service
forecasting of producers is enhanced by the sheer bulk human output of the crowd
which ultimately results in a lower risk process, consistent with the findings of Hunt et
al. (2013). The crowd at times represents or becomes the client (Figure 5). In other
configurations the crowd interact dynamically with the client throughout the cycle to
refine and alter customization without compromising delivery timeliness (Figures 1-4).
Agile manufacturing carries the advantage of responding quickly and effectively to
market demands while also proactively developing future market opportunities; and the
combination of agility and mass customization creates competitive advantage for firms
(Brown and Bessant, 2003). The agility of the crowdsourcing process is that it can place
the crowd as value arbiter in the customization process anywhere in the cycle with
relative ease. This comes much closer to meeting the newer challenges outlined in
literature (Anderson, 1997; Kincade et al., 2007) in terms of mass customization
moving from a linear system of production and distribution activities to a more
integrated, fluid and consumer-focused group of activities.
In addition, all crowdsourcing firms in the study were transactionally efficient
achieving transactional cost reduction through governance, procedural and technical
controls wrought by the firm. For example, efficiency was suggested by high levels of
crowd production and concomitant exchange frequency in the crowdsourcing firms in
the study, for example Firm C received over 300 crowd produced items daily. Such
vast quantities of crowd mass customized items were controlled and governed by strict
technology protocols and in most cases unwanted production over-supply (waste) was
efficiently dispensed with by either the client or the crowd, not the firm.
6. Consolidation
6.1 Implications for practitioners
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The implications for practitioners is that using crowdsourcing in project practices is
developing now as a real option for bringing in bulk human resources at low cost to
help shorten timelines and offer the advantages of ‘many eyes’ or ‘fine minds’
contributing to quality outcomes. For practitioners, the ease of bringing in the crowd
rests with being able to tap into crowdsourcing-centric companies who act as middle-
brokers so as to make access to bulk crowds relatively easy for client firms.
Practitioners who desire a co-creation aspect to mass customization, and who want
flexibility at bringing in consumers fluidly during the mass customization process, can
now consider attracting idea- /production-/ consumer- crowds. Consensus is building
that offering customized consumer variety in competitive settings will increase
competitive advantage - although traditionally offering varietal customization would
also potentially reduce productivity and increase costs (Da Silveira, 1998; Pine, 1993;
Stablein et al., 2011).
6.2 Future research and limitation
This embryonic study opens a fertile area for future research in crowdsourcing and its
novel application to OM. A suggestion for future research is to examine crowdsourcing
as a simple firm routine rather than as an existential business model. The study is
limited to crowdsourcing-centric firms and caution should be exercised in assigning
results generalisability to mainstream firms using crowdsourcing as business routine.
6.3 Conclusion
Projects by nature are temporary, time limited and require tasks to be performed which
may never have been performed before. Crowdsourcing, with its inherent characteristics
pointing to elements of novelty, agility and process efficiency, is an excellent framing
tool for modern project practice. This is due to its efficient matching of vast crowd
resources to quick-turnaround projects. It also moulds into the temporal dynamics and
truncated timeframes characteristic of projects.
The use of crowdsourcing in this new study suggests the ability to combine agile
flexibility through the innovative injection of large productive crowds at critical points
in the production process, combined with the ability to achieve high efficiencies and
low costs that come with scale economies usually associated with mass production line
flow. Crowdsourcing can mitigate the trade-off in mass customization between high
levels of collaborative customization and speed-to-market. Crowdsourcing develops a
newer agile paradigm reflecting complex production environments encompassing co-
creation and fluid, flexible process elements. Crowdsourcing incorporates low (no)
costs for crowd work and multiple forms of agility and flexibility through having fluid,
multi-role and productive output of thousands of crowd members in a single, efficient
and flexible process.
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90
REVISITING THE IMPACT OF SUPPLY CHAIN AGILITY
ON FINANCIAL PERFORMANCE:
AN AUSTRALIAN PERSPECTIVE
Eias Al Humdan
Macquarie Graduate School of Management
Macquarie University
99 Talavera Rd, Macquarie Park, NSW, 2113, Australia
Mob: +61 452422641
eias.alhumdan@students.mq.edu.au
Arash Najmaei
Australian Catholic University
40 Edward Street North Sydney NSW 2060
arash.najmaei@gmail.com
Mob: +61 414872787
Masud Behnia
Macquarie Graduate School of Management
Macquarie University
99 Talavera Rd, Macquarie Park, NSW, 2113, Australia
masud.behnia@mgsm.edu.au
Mob: +61 414369518
91
ABSTRACT
Supply chain agility is a well-known enabler of a firm’s financial performance. However,

the link between these two seems to be more complex than a direct association. This paper
attempts to investigate this relationship. It proposes that supply chain agility is an
operational capability which first enhances a firm’s operational performance through
which the financial performance is enhanced. Using data from 222 Small and Medium
Enterprises (SMEs) in Australia with a lagged financial performance, we found empirical
evidence for this relationship. The results suggest that operational performance is in fact
a mediator of supply chain agility and financial performance.
Key words: Supply Chain Agility, financial performance, operational performance
92
1. INTRODUCTION
Being attentive and responsive to customers is a crucial requirement for any industry.
Further, the shift in competition from the firm level to the supply chain Christopher and
Towill (2001) has triggered the need to find a smart supply chain that emphasises speedy
delivery and accelerated response times (Lee, 2004). During the last decade or so, Supply
Chain Agility “SCA” has evolved as one of the fundamental characteristics needed for a
supply chain to thrive in a turbulent and volatile environment (Agarwal, Shankar, &
Tiwari, 2007; Braunscheidel & Suresh, 2009). It has been demonstrated that companies
with supply chain agility can react and respond much better to unforeseen changes as they
are able to better synchronise supply with demand (Swafford, Ghosh, & Murthy, 2008).
Accordingly, a firm’s supply chain agility has been identified as a critical factor affecting
its overall global competitiveness (Gligor, Holcomb, & Stank, 2013; Ismail & Sharifi,
2006; Lee, 2004). SCA is associated with the speed to handle complex market changes
and deliver customised products with needed features (Qrunfleh & Tarafdar, 2014).
Recent research on SCA has examined the impact of SCA on organisation’s

performance (e.g. Blome, Schoenherr, & Rexhausen, 2013; Eckstein, Goellner, Blome,
& Henke, 2015; Gligor & Holcomb, 2012; Gligor, Holcomb, & Feizabadi, 2016;
Qrunfleh & Tarafdar, 2014; Sangari & Razmi, 2015; Tarafdar & Qrunfleh, 2016; Tse,
Zhang, Akhtar, & MacBryde, 2016; Yang, 2014). In particular, a great deal of research
has examined the impact of SCA on performance by operationalising performance only
at operating levels as Blome et al. (2013) do, while others like Gligor, Esmark, and
Holcomb (2015) measure only financial performance; and still others such as Eckstein et
al. (2015), Yang (2014) and DeGroote and Marx (2013), measure performance at multiple
levels. Nonetheless, the empirical examination of the relationship between SCA and
financial and operational performance is somewhat irresolute. Measuring performance at
varying levels may be the reason why such studies still generate ambivalent results
(Kaynak, 2003) and, hence, inconsistent empirical findings were generated as
demonstrated in more detail in the theoretical section. These inconclusive and, at times,
contradictory results demand further investigation of the association between SCA and a
firm’s performance. Consequently, a more consolidated performance model for SCA is
needed to hopefully lead to more consistent outcomes. This will be achieved by
examining how SCA is related to selected measures of operational and financial
performance. As such, one may argue that SCA may not necessarily be this with the
lowest cost especially when comparing it with lean supply chain (Gligor et al., 2015; Jain,
Benyoucef, & Deshmukh, 2008; Qrunfleh & Tarafdar, 2013; Van Hoek, Harrison, &
Christopher, 2001; Yusuf et al., 2004). This study stresses the fact that there would be no
room for boosting financial performance and thus maintaining competitiveness if
achieving agility will incur significant expenses. Considering this argument, there is a
need for research to investigate the link between SCA and multiple dimensions of
performance.
This paper extends the literature on SCA by attempting to answer the question: what’s
the impact of SCA on a firm’s financial performance? And can a firm’s operational
performance mediate this relationship? This study contributes to the SCA literature by
exploring the effect of SCA on five dimensions of operational performance and four
dimensions of financial performance in a sample of 222 Australian SMEs. This allows
93
the building of a holistic understanding of the relationship between SCA and multiple
performance dimensions, and thus sheds some light on inconclusive empirical results.
In the next section, we review the literature that explores the impact of SCA on
performance followed by our hypothesis generation. Section three describes the research
methodology and design including the measures and the hypothesis testing. Before it
concludes, the implications of the results for researchers and practitioners are discussed
in section four followed by addressing future research avenues.
2. THEORETICAL BACKGROUND AND RESEARCH HYPOTHESIS
2.1 Supply Chain Agility
In essence, SCA is sought to describe the capacity for coping with the incessant change
armed with superior capabilities to maintain competitiveness. The specific concept of
SCA has emerged in the literature by drawing on the diverse perspective of ‘agility’ that
has been developed within the various disciplines to which the broad concept of agility is
relevant. SCA has become a sine qua non as a response to the ever-growing global market
requirements for enterprise competitiveness. Xu, Besant, and Ristic (2003) argue that
complexity in manufacturing processes, uncertainty within a single enterprise and the
heterogeneity in each partner’s procedures created the need to build an entire agile supply
chain.
There are various definitions and interpretations of SCA. For example, Swafford,
Ghosh, and Murthy (2006) define it as the supply chain capability to adapt or respond in
a speedy manner to a changing marketplace environment, while Braunscheidel and
Suresh (2009) define it as the capability of the firm, both internally and in conjunction with
its key suppliers and customers, to adapt or respond in a speedy manner to marketplace
changes as well as to potential and actual disruptions, contributing to the agility of the
extended supply chain. More recent and comprehensive definitions come from Eckstein et
al. (2015) and Fayezi, Zutshi, and O'Loughlin (2015). While the former defines it as the
ability of the firm to sense short term, temporary changes in the supply chain and market
environment (e.g., demand fluctuations, supply disruptions, changes in suppliers’ delivery
times), and to rapidly and flexibly respond to those changes with the existing supply chain
(e.g., reducing replacement times of materials, reducing manufacturing throughput times,
adjusting delivery capacities), the latter define it as a compilation of mindset, intelligence and
process across supply chain organisations which enables organisations to respond quickly to
the environmental uncertainties and changes in a reactive, proactive and, ultimately,
predictive manner by relying on their relationship integration in order to fulfil end-customer
requirements. The above definitions share common issue which is the dynamism of the SCA
concept. This dynamism is associated with the configuration and reconfiguration of the entire
supply chain processes and functions to keep up with the pace of the change and thus
delivering customised products. We thus argue that the SCA is an operational capability
emanated from managing the entire supply chain processes. In order to provide a sound
understanding of SCA and base our argument, we provide below how the SCA concept has
been theoretically conceptualised.
Many scholars have based their conceptualisation on the ground of related strategic
perspectives. Based on the Resource Based View (RBV) for example, Qrunfleh and
Tarafdar (2013) view supply chain practices – strategic supplier partnership and
94
postponement– as resources to facilitate the execution of supply chain strategy. These
resources are differentiated on the basis of superior abilities and consequently reducing
supply chain disruptions and consequently begetting supply chain agility. Blome et al.
(2013) argue that supply chain agility represents a distinctive resource base according to
the firm’s specific supply- and demand-side competencies. Gligor and Holcomb (2014)
provide another example of building on the RBV. They claim that firm-specific logistics
accumulated capabilities that possess the VRIN attributes (Valuable, Rare, Imperfectly
Imitable, Non-Substitutable) can be a source of competitive advantage by taking
advantages of these resources to respond proactively, reactively and quickly to changes
in customers’ needs.
Other scholars utilise the Knowledge based view of the firm. For example, Ngai, Chau,
and Chan (2011) find that supply chain learning orientation composed of 1) commitment
to learning, 2) open-mindedness, and 3) shared vision – enhance supply chain agility. The
continuous learning keeps the organisation with updated knowledge on systems,
procedures and technologies and ultimately assists in responding to the changing markets.
Consistent with RBV, Gligor and Holcomb (2012) consider knowledge-sharing
composed of communication, collaboration and cooperation a source of competitive
advantage as it creates specialised knowledge and consequently enhances supply chain
agility. A more recent study by Bargshady, Zahraee, Ahmadi, and Parto (2016)
empirically addressed the role of IT capabilities in enhancing the effectiveness of
information and knowledge -intensive processes in the agile supply chain through
information integration and information infrastructure flexibility. It is worth noting here
that responding quickly to volatile markets would maximise the results if an accepted
buffer is maintained (Lee, 2004). Companies that keep reasonable levels of buffers of
small-sized inventory that are needed almost in all products will smooth and speed up
delivering customised products. Having provided a wider explanation of the concept, we
will move to discuss the association between SCA and firm performance.
2.2 SCA and the performance of the firm
The performance of a firm indicates how effectively it runs its business. Firm
performance is one of the most relevant constructs in the field of business studies (Rumelt
& Teece, 1994) and is regularly considered the final result of a business model (Richard,
Devinney, Yip, & Johnson, 2009). Accordingly, a clear definition of a firm’s performance
is required in clarifying the multidimensional relationship between SCA and a firm’s
performance. The notion of a firm’s performance has many levels and aspects. Each
aspect has been operationalised in various ways in previous SCA studies. In particular,
SCA literature has increasingly focused on testing the financial and operation related
benefits of SCA separately or simultaneously.
Selecting the most appropriate performance indicators and measures is challenging to
operations management researchers (Melnyk, Stewart, & Swink, 2004). This might be
due to the complexity of supply chain (Beamon, 1999; Flynn, Huo, & Zhao, 2010).
Although financial performance has been argued to be the dominant indicator (Kennerley
& Neely, 2003; Nadkarni & Narayanan, 2007; Neely, 2002), it is a limited indicator of
the firm’s improvement in such highly competitive markets (Kennerley & Neely, 2003;
Santos & Brito, 2012) that might not exactly reflect the SCA’s dynamism. Consequently,
including operational performance indictors along with financial indicators would
95
provide a wider performance conceptualisation (Venkatraman & Ramanujam, 1986).
Composite performance measures generate more precise results about an organisation’s
improvement (Panayides, 2007). Additionally, composite measures allow examining all
aspects of SC, consider the effect of uncertainty, and take into account the strategic goals
of the organisation (Beamon, 1999). As such, the present research considers operational
performance and financial performance as two key aspects of a firm’s performance. This
extended understanding of firm performance helps providing a more inclusive model of
a firm’s performance and hence allows drawing more encompassing conclusion.
It is worth noting that one reason to embrace agile supply chain is to maintain
competitiveness and improve profitability. Only few studies have qualitatively addressed
the link between SCA and the performance of the firm. For instance, Li, Chung, Goldsby,
and Holsapple (2008) conceptually investigated the relationship between SCA and the
firm’s competitiveness from a work-design perspective. They concluded that a firm’s
agile performance is positively related with its competitiveness. Likewise, Lee (2004)
with the aid of international case studies posits that agile supply chains equip companies
with competitive advantages. Akin results are found by Ngai et al. (2011) based on case
studies in Hong Kong. They assert that maintaining supply chain agility at large
organisations can generate much revenue, while small organisation benefit from agility
by satisfying the markets’ needs.
Through their comprehensive study, Yusuf et al. (2014) revealed that SCA has a
significance influence on competitive objectives and business performance in the oil and
gas industry. Eckstein et al. (2015) empirically demonstrated that supply chain agility
significantly impacts both cost performance and operational performance. This is
consistent with Liu, Ke, Wei, and Hua (2013) who measured firm’s performance via
multiple constructs: operational, marketing and financial. Utilising structural equation
modelling, Tse et al. (2016) claim that SCA has significant influence over firm’s
performance in the electronics industry in terms of turnover, net profit, market share and
customer loyalty. Gligor and Holcomb (2012) extended the analysis scope and stated that
agility is a broad and multidimensional concept. They empirically addressed the
association between supply chain agility and the firm’s operational and relational
performance. They concluded that supply chain agility is a key factor in improving
organisational performance especially in the cases of meeting promised, dependability
and accuracy of a service. Likewise, Blome et al. (2013) claim, from a dynamic
capabilities perspective, the positive influence of supply chain agility on operational
performance. Further, DeGroote and Marx (2013) empirically contended that supply
chain agility, combined with adaptable and aligned supply chain, improves the firm’s
financial and operational performance with significant impact on all measures. Financial
performance was measured by sales, market share, and profitability; while operational
measures by speed to market and customer satisfaction. On contrary, although Dwayne
Whitten, Green Jr, and Zelbst (2012) found a positive relationship between supply chain
agility and marketing performance through supply chain performance, the relationship
between supply chain agility on financial performance is found to be weak. In an attempt
to demonstrate how SCA can assist organisations to attain a competitive advantage, Wu,
Tseng, Chiu, and Lim (2016) recently argued, utilising closed loop decision making
structure along with fuzzy set theory and Delphi method, that information integration
aspect of SCA is the major aspect influencing competitiveness effectiveness and
efficiency.
96
Other authors showed irresolute results. For example, Gligor (2016) and Gligor et al.
(2015) find that there is no direct relationship between SCA and firm’s financial
performance measured by ROA, a relationship that showed contradicting result in other
studies (e.g. Khan, Bakkappa, Metri, & Sahay, 2009; Swafford et al., 2008; Tse et al.,
2016). The other ambivalent results confirmed the positive relationship through different
mediating variables. Ambivalent results generally suggest a complex relationship
between SCA and different types of performance. For example, Tarafdar and Qrunfleh
(2016) found a complementing relationship between agile supply chain strategy and
particular supply chain practices such as, strategic supplier partnership, customer
relationship, postponement and lean practices, that can enhance the supply chain
performance through the mediating effect of such practices. Similarly, Yang (2014) found
no direct relationship between SCA and firm’s performance measured by multiple
constructs. Deploying path analysis, the study posits that cost efficiency mediates this
relationship. In summary, we can say that, based on the above argument, the positive and
direct effect of SCA on financial performance is not assertive.
2.3 Supply chain agility and firm’s operational performance
In this study, the firm’s performance is based on both operational performance and
financial performance. Figure (1) shows the theorised performance model. SCA is
hypothesised as positively influencing both operational and financial performance of the
firm. Additionally, operational performance is hypothesised as positively influencing the
financial performance of the firm.
Operational
Performance
H1
H2
Supply Chain
Agility
H3
Financial
Performance
Figure 1 Supply Chain Agility Performance Model with Hypotheses
The discussion below seeks to demonstrate how SCA can contribute to operational
performance. SCA has been always associated with operational aspects especially by
stressing the importance of flexible operations (Braunscheidel & Suresh, 2009; Fayezi et
al., 2015; Swafford et al., 2006). Naylor, Naim, and Berry (1999) postulated that agility
provides firms with flexibility to cope with changing technologies, uncertain demand, and
short product life cycle. Brusset (2016) conceptualised SCA as an operational capability
97
focussing on timely and cost-effective product delivery. Lee (2004) argued that SCA can
also facilitates supporting the overall cost leadership strategy by reducing market
mediation costs. Postponement or delayed configuration can accurately and quickly
capture demand fluctuations and thus enhance flexibility (Prater, Biehl, & Smith, 2001;
Qrunfleh & Tarafdar, 2013; Tarafdar & Qrunfleh, 2016). This will lead in enhancing
customer service through delivering the right quantity while maintaining the requested
level of quality. Moreover, postponement can result in reduced cost of inventory,
production, and transportation through less stock-keeping variants and volume-oriented
economies of scale (Christopher, 2000; Lee, 2004). SCA enables firms to meet delivery
deadlines and ensure dependability and accuracy of a service (Gligor & Holcomb, 2012),
all of which are product quality characteristics. Building inventory buffers and safety
stocks help execute design and engineering rapidly and accurately (Blome et al., 2013;
Lee, 2004; Van Hoek et al., 2001) which will result in exactly delivering tailored
products. Operation collaborative planning reduces SC uncertainty while improves lead
times and handling of customer deliveries (Agarwal et al., 2007; Yang, 2014). Thus, SCA
can quickly assess markets that assist the firm in quickly reconfiguring its operations and
tactics which leads to launching innovative and desired products to gain competitive
advantages in a constantly changing environment. Having developed this argument along
similar lines, this study hypothesises the positive impact of supply chain agility on
operational performance:
H1: Supply chain agility positively influences the firm operational performance.
2.4 Firm’s operational performance and its financial performance
Generally, managers work to improve operational performance in terms of cost,

flexibility and quality. Such operation-related improvements should impact financial
performance through improved revenue numbers. Liu et al. (2013) posit that partnership
integration within the supply chain incorporated with speed will result in improving daily
operations and reducing costs along with maximising profitability. Restructuring supply
chain operations may lead to reduced costs and increased profitability (Eckstein et al.,
2015). IBM was able to rapidly respond to customer needs through reconfiguring their
internal processes by directly transmitting customers’ orders to suppliers that has led to
cost reduction and eventually increase in profit and competitiveness (White, Daniel, &
Mohdzain, 2005). Hence, this study proposes the following hypothesis:
H2: The firm operational performance positively influences the firm’s financial
performance.
2.5 Supply chain agility and firm’s financial performance
Supply chain agility can also positively affect financial performance in myriad ways.
While the supply chain agility aims to chase the customers’ needs, and sometimes convert
markets’ threats into opportunities. This will eventually increase the overall sales and
maintain market share. Customers tend to repeat purchase if felt looked after and
98
comfortable towards a specific company. Swafford et al. (2008) found that supply chain
agility improves return on assets, market share and profit margins. Akin results are found
on many related studies (e.g. Khan et al., 2009; Liu et al., 2013; Tse et al., 2016). Cisco
was able to secure profits and gain market share by tailoring its supply chain structural
configuration to different target markets and customers (Lee, 2004). Using archival data,
Gligor et al. (2015) found that SCA affects the firm’s financial results by positively
impacting its customer effectiveness and cost efficiency. Agarwal et al. (2007) argued
that the ability of SCA to introduce new products into the market can lead to a greater
market share and higher price premiums, which will accordingly result in higher
profitability. The collaborative relationship among members enhances capability for low
cost, quality, speed and product innovation which in turn might lead to greater revenue
and profit (Yusuf et al., 2004). Agile supply chains are market-sensitive and will profit
by exploiting their supply chains to swiftly and cost effectively respond to unanticipated
changes (Baramichai, Zimmers, & Marangos, 2007). All these argument lead to the third
hypothesis:
H3: Supply chain agility positively influences the firm’s financial performance.
3. METHODS AND DESIGN
3.1 Data collection and source
To test research hypotheses, we extracted a segment of a large custom built dataset on the
performance of SMEs in Asia-Pacific. This dataset was accumulated over 4 years (2012-
2016) by a team of scholars form different universities in Australia, Hong Kong, Malaysia
and Iran (1). The dataset contains information on supply chain agility and performance
dimensions of 222 manufacturing SMEs in Australia. The second author of this paper was
a member of the data collecting team and has provided access to this dataset. Appendix 1
explains the process of building and developing this dataset.
Sample firms were distributed across six states [NSW=70 (32%), VIC=65 (29%),
SA=40 (18%), QLD=30 (14%) and WA=17(8%)]. No firm from ACT, Northern Territory
and Tasmania in the sample. Sample firm have between 31 and 147 employees (mean=
45 employees) and are of age of between 5 and 28 years (mean=13 years). Distribution
of sample firms according to the Australia and New Zealand Standard Industrial
Classification Codes (ANZSIC) is as follows: 52 firms (23%) were in food processing,
58 firms (26%) in beverage manufacturing, 48 (22%) in wood product manufacturing, 34
firms (15%) in basic chemicals manufacturing and the remaining 30 firms (14%) were in
fabricated metal manufacturing sector. This heterogeneity suggests that the sample
represents a relatively complete picture of the Australian manufacturing sector.
Data robustness checks
For checking robustness of data, several measures were performed. First, we ensured the
anonymity and confidentiality of data and explicitly mentioned that the data is collected
solely for research purposes and would not be used in any competitive benchmarking or
evaluative activity. Second, two rounds of ad-hoc ANOVA test to assess the bias inherent
in sampling process were conducted. These tests revealed no significant difference
between early, late, and non-responding firms, ruling out the effect of sampling bias
99
(Armstrong & Overton, 1977). Finally, since we collected data from a single respondent
from each firm, we tested for common method bias using Harman’s single factor test. The
test did not show any single factor carrying more than 50% of the variance in the model
(Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). Therefore, we concluded that common
method bias is not a threat to the quality of data.
3.2 Measures
Previously validated scales are selected to measure the constructs. Supply chain agility
was measured by the scale developed by (Qrunfleh & Tarafdar, 2014). This scale is
composed of five items each with five anchors sorted from strongly disagree to strongly
agree. A sample item is “our supply chain responds effectively to changing requirements
of design”. The measure has shown high reliability in the past research (CA=0.81).
The firm’s operational performance was measured by five items taken from the Blome
et al. (2013). This measure captures performance of the firm in terms of its ability to
deliver the right quantity and quality at the right time, relative to that of main competitors.
The measure uses five anchors ranging from much worse to much better and has achieved
high reliability in prior studies (CA= 0.79).
Finally, the firm’s financial performance was measured using the scale developed by
(Qrunfleh & Tarafdar, 2014). This scale asks participants to rate performance of their firm
in terms of Return On Investment “ROI”, profit margin on sales, overall growth in sales
and growth in market share relative to main competitors. The scale has also high
reliability in prior studies (CA=0.92).
3.3 Validity and reliability
Before proceeding with the testing of the hypothesized relationships, the measures from
the dataset underwent a refining process by assessing their unidimensionality and
reliability through examining the convergent validity, internal consistency, and
discriminant validity of the constructs.
Convergent validity:
First, due to potential conceptual and statistical overlap, an attempt was made to produce
parsimonious set of distinct nonoverlapping variables from the full set of items underlying
each construct. An exploratory factor analysis was performed to ensure reliable scale.
EFA provides evidence for the validity of the constructs and the measurement model.
With this evidence, there is more confidence in the results of the hypothesised model. A
principle component analysis (PCA) as means of extraction and Varimax with Kaiser’s
normalisation as a method of orthogonal rotation was performed. An examination of the
Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy suggested that the sample
was factorable (KMO= 0.924) as a minimum KMO score of 0.70 is considered necessary
to reliably use factor analysis for data analysis. Similarly, Bartlett’s test of sphericity (the
higher the better) was 2006.816 with significant level of P < 0.005.
100
Table (1) shows the results of EFA. When loading less than 0.40 were excluded, the
analysis yielded a three-factor solution which explained cumulatively 70.8 % of total
variance, lending preliminary support to claim for constructs’ unidimensionality.
Convergent validity assessment involves examining the factor loadings of each item
measuring a construct. The items in question should converge on the same construct.
Results in table (1) indicates that all items loaded into their respective factors with
loadings greater than 0.50, which means that the convergent validity is supported (Bollen,
2014). To further assess the convergent validity, the average variance extracted (AVE)
and the composite reliability (CR) were calculated. AVE and CR were all above the cut-
off value of 0.5 and 0.7, respectively (Hair, 2010), implying good convergent validity of
the measurement model.
Reliability Testing:
The reliability of each construct was further analysed. To be retained in a scale, items had
to exceed the recommended 0.70 cut-off for Cronbach’s Alpha (Nunnally, 1978). The
reliability of the scale of all measures exceeds 0.843 as table (1) depicts which indicates
adequate internal consistency.
Table 1 Reliability and convergent validity test results
Scale/item Item loading, Cronbach’s α, min ≥ Average Variance Extracted Composite Reliability
min ≥ 0.50 0.70 (AVE), min ≥ 0.50 (CR), min ≥ 0.70
Supply Chain Agility 0.90 AVE= 0.64 CR= 0.88
SCA 3 0.841
SCA 2 0.811
SCA 1 0.810
SCA 5 0.765
SCA 4 0.757
Operational Performance 0.88 AVE= 0.54 CR= 0.85
OP 2 0.798
OP 4 0.796
OP 3 0.760
OP 1 0.682
OP 5 0.628
Financial Performance 0.84 AVE= 0.55 CR= 0.89
FP 1 0.803
FP 1 0.802
FP 4 0.679
FP 3 0.669
Discriminant Validity:
Before conducting discriminant validity, linear composites of the component variables
have been created using the summative method. Discriminant validity can be inferred
when the measure of each construct converges on their respective true scores, which are
uniquely distinct from those of the others (Churchill Jr, 1979). Discriminant validity was
101
assessed by examining factor correlations (Kline, 2005) and whether the square root of
the average variance extracted (AVE) for each construct was larger than its correlation
with other factors (Henseler, Ringle, & Sarstedt, 2015). As shown in table (2), all
construct correlations were less than 0.80 and the square root of the AVE for each
construct is significantly higher than the correlation between any pair of factors. This
indicates that none of the constructs shared more variance with another construct than
with its own indicators, thus exhibiting sufficient levels of discriminant validity.
Moreover, none of the correlations were higher than 0.90, suggesting that there was no
problem of multicollinearity (Hair, 2010).
Table 2 Discriminant Validity Test Results
Item SCA OP FP
SCA 0.95
OP 0.60 0.94
FP 0.55 0.70 0.92
Note: Diagonal elements are the square roots for AVE
3.4 Hypothesis testing
Test of direct link
Hypothesis testing was conducted using a series of regressions. The first regression
examined the association between SCA and Operational Performance (OP). The results
show a positive relationship between SCA and OP (β = 0.6, t = 11.2, P ≤ 0.001, R² =
0.362). This finding provides full support for H1, indicating that Supply chain agility
positively influences the operational performance of the firm. Next, OP was regressed on
Financial Performance (FP) providing full support for H2 showing a positive relationship
between OP and FP (β = 0.70, t = 14.6, P ≤ 0.001, R² = 0.492.) Finally, the relationship
between SCA and FP was analysed. The results suggest a positive relationship between
SCA and FP (β = 0.54, t = 9.6, P ≤ 0.001, R² = 0.297). This finding provides support for
H3, specifically that supply chain agility positively influences the financial performance
of the firm. A summary of the multiple regression results is presented in table (3).
Table 3 Multiple regression analysis results
Independent Variable Dependent Variable

OP FP FP
SCA 0.6 0.54 -
OP - - 0.70
(P-value) .000 .000 .000
R² 0.362 0.297 0.492
102
Mediation analysis
In order to examine the mediating role of operation performance in the link between SCA
and Financial performance we used the method proposed by Baron and Kenny (1986).
Then the Sobel test value (Sobel, 1982) was calculated using the bootstrapping approach.
The results are shown in figure (2). The mediating effect of OM in the relationship
between SCA and FP was statistically significant (Z=7.42, P<0.00). Note that the total
effect (C=0.5325) is equal to the direct effect (C’=0.1879) plus the indirect effect (A×B=
0.3445). However, while all paths were shown to be significant as the figure shows, full
mediation occurs when there is no direct effect (path C’) but an indirect effect (the path
going through A and B). As such, the results suggest that OP partially mediates the link
between SCA and financial performance.
Mediating
Variable (MV)
Operational
Performance
A B
Independent Dependent
Variable Variable (DV)
Supply Chain C= total effect Financial
(Yusuf,
Gunasekaran, Agility Performance
Adeleye, & C’ = direct effect
Sivayoganatha
n)
Effect of IV on Effect of M on Direct Effect (C’) Indirect effect (A×B) Total effect (C) 95% CI for mean
MV (A) DV (B) indirect effect
0.5831 0.5909* 0.1879* 0.3445* 0.5325* 0.2262 - 0.4982
(0.0522) (0.0593) (0.0575) (0.0518) (0.0553)
Sobel test (Normal Theory Test) = z score test if c – c’=/ 0
Z= 7.42, p ≤ 0.001
• Note: Standard errors are shown in parentheses.
• *Significant at P ≤ 0.001
Figure 2: Mediation results
4. DISCUSSION AND CONCLUSION
4.1 Implications for theory
The results of the present study provide an important theoretical contribution to better
conceive the SCA benefits. It mainly conceptualises SCA as an operational capability
stemmed from the ability to manage across the demand and supply network (Brusset,
2016).
103
The SCA literature, with its theoretical and empirical studies, indicates the presence
of a positive relationship between SCA and performance. Previous studies, however, have
not been conclusive about this positive relationship, nor have they considered operational
performance as a mediator. Our results support the notion that supply chain agility plays
an instrumental role in enhancing the firm’s financial performance and that this
relationship is also mediated through operational performance (full support to H1- H3).
This finding extends the SCA literature by delivering a unique direction in the relationship
between SCA and the firm’s performance that it has not been tested before to the best of
our knowledge. The impact of SCA in operational performance has been conducted
previously (e.g. Blome et al., 2013; DeGroote & Marx, 2013; Eckstein et al., 2015; Gligor
& Holcomb, 2012). Likewise, the relationship between SCA and financial performance
has been previously investigated (e.g. DeGroote & Marx, 2013; Dwayne Whitten et al.,
2012; Gligor, 2016; Gligor et al., 2015). However, our performance model validated a
different perspective on the direct influence of SCA on financial performance via
operational performance. Besides, and as per our knowledge, the effect of SCA on firm
performance has not been empirically performed before in Australia. Consequently, this
study confirms previous results and increases its generalisability.
4.2 Implications for practice
Our empirical testing presented in the study shift our understanding of the relationship
between SCA and firm financial performance a step forward. It conveys important
guidelines for logistics and supply chain managers to maintain financial performance and
thus satisfy shareholders by maintaining operational excellence. Besides, the definitions
and measures provided for SCA can help supply chain managers define specific actions
to be taken to engender SCA, i.e. customised products, maintaining buffer, quick response
to markets. Likewise, the measurements provided for operational performance can serve
as a powerful tool for supply chain managers to squeeze the financial benefits of SCA,
i.e. flexibility, cost, quality, quantity, delivery. They can also help firms to minimise the
chance of financial failure by addressing these key operational dimensions.
This study found that SCA enhances a firm’s operational performance and
consequently enhances its firm financial performance. This relationship alerts logistics
and supply chain managers to conceive the dynamic conceptualisation of SCA and act
quickly internally and externally with each partner across the supply chain that will
eventually aid in creating and sustaining their competitive advantages.
4.3 Limitations and directions for future work
Despite its contribution, the present study is subject to certain limitations that represent
future research opportunities. The first limitation is the size and nature of the sample.
Supply chains vary from industry to industry. So do the capabilities of the firm to adopt
agility and convert it to performance outcomes. Hence, collecting more data from a wider
range of firms is an important direction to validate findings of this study. Another
opportunity emanates from the contingency theory and points to the importance of
expanding this model using other mediators and moderators. This paper is just an early
step in this direction and we hope that researchers will use our model and findings as a
104
guiding point to expand the body of knowledge on how, when and through what processes
practicing supply chain agility yields financial and non-financial results.
4.4 Conclusion
Many companies have recognised that SCA has become the main source of performance
improvement (Yusuf et al., 2014). This study utilised a dataset from Australian
manufacturing SMEs to confirm relationship between SCA and a firm’s financial
performance, a relationship that seemed to provide complex results. A set of hypotheses
was formulated based on a theoretical framework as well as existing literature to establish
the relationships among the model constructs. It was found from the empirical analysis
that supply chain agility has positive effect on the firm operational performance and
consequently on the firm’s financial performance.
We hope that this study adds some granularity to the SCA construct. Still, SCA is
relatively a new concept within the supply chain literature. There will be a need to delve
further into what other performance indicators might be affected by SCA.
Notes:
(1) Team members include Dr Arash Najmaei ( Corresponding Author) from MGSM, Dr Shafique
Raghman from MGSM , Dr Zahra Sadeghinejad from MGSM , Mr Tm Yang PhD student at the Hong
Kong University of Science and technology, Mr Brenda Lin from Hong Kong University of Science and
Technology, Miss Saphia Rasul from the International College of Management Sydney, Mr Pejman Zaidani
from Isfahan University of Science and Technology, Dr Nezal Aghajari from the University of Technology
Malaya ( UTM), and Dr Mehdi Poorangi from the University of Malaya.
Appendix I
105
To collect data on Australian firms, the contact information of 1200 Australian manufacturing SMEs was
randomly drawn from the Dun and Bradstreet Database (D&B Hoovers) portal. An invitation to participate
in a general survey about operations, logistics and supply chain management was addressed to the managing
director or CEO of the firms and was sent to each firm’s head office. After two weeks, phone calls were
made to find out how many firms were interested in the research. Executives of 850 firms (71%) expressed
their interest in the survey. Copies of the research questionnaire along with a postage paid return envelope
was then sent to these firms. After two follow-ups, 260 questionnaires were collected. Initial screening
procedure excluded seven incomplete questionnaires, resulting in a calibrated set of 253 workable
questionnaires.
To collect time-lagged financial performance data, executives in the first round were contacted after one
year from the first wave of data collection. 22 executives had been changed or did not respond to the
research team. Also, five firms were not reached due mainly to changes in their contact information.
Executives from 226 firms provided the time-lagged data. After screening four firms were dropped. Data
from the remaining 222 firms were used for the analysis1.
Appendix II – Measures
Supply Chain Agility – adopted from Qrunfleh and Tarafdar (2014)

Responds effectively to changing requirements of design
Responds quickly to customization requirements
Can handle changes in product design
Customizes our products by adding feature models as per our requirements
Maintains a higher capacity buffer to response to volatile market
Operational Performance – adopted from Blome et al. (2013)
How would you rank your customer service, in terms of delivering the right quantity and quality
at the right time, relative to that of your best competitors?
How would you rank your supply chain cost performance relative to your best competitors?
How would you rank your supply chain service level performance relative to your best
competitors?
How would you rank your supply chain flexibility relative to your best competitors?
Financial Performance – adopted from Qrunfleh and Tarafdar (2014)
Return on investment
Profit margin on sales
Growth in return on investment
The growth of market share
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110
A SERVICE-DOMINANT LOGIC VIEW OF PRIVATE-PUBLIC PARTNERSHIPS
Ronald C Beckett
Swinburne University of Technology
Swinburne Business School
Cnr Wakefield & William St
Hawthorne, Victoria, 3122, Australia
Email: rcb@reinvent.net.au.
ABSTRACT
Public-Private-Partnerships (PPP) may be viewed as complex service systems with potential
tensions to be managed. Focussing on common goals and value co-creation, a feature of
successful partnerships is also a theme in emerging Service-Dominant-Logic (SDL) concepts. In
this exploratory study the potential utility of these concepts is considered drawing on four
defence sector PPP case studies. It is suggested that the eleven foundation premises behind SDL
need to be interpreted in the particular context first, then used as a basis for critical questioning
related to individual service events, service event context, and supporting service infrastructure
and goals. Future research into consideration of risk in SDL concepts is suggested.
Keywords: Private-Public-Partnerships, Service Dominant Logic, complex service systems,

operations management
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INTRODUCTION
The public sector faces challenges in developing operations and infrastructure that meet
increasing demand for community services within policy and budgetary constraints, and one
solution is to develop innovative private-public partnerships (PPPs). Such partnerships have to
make operational and business sense in a way that is consistent with community values, and
organizations with inherently different cultures and perceptions of value have to learn to work
together. There are both tasks and relationships to be managed, but who does what is dependent
on the form of agreement reached. This may range from arms-length contracting through
performance-based contracting and service agreements to integrated operations.
PPP’s have been established in a variety of sectors - in transport infrastructure, public utilities, in
health services, and in the defense sector where matters of policy, financing, risk sharing and
performance measurement have to be addressed (Nikolic and Maikisch, 2006; Yescome, 2011).
There is an implied, if not explicitly identified, expectation of value co-creation where partners
benefit from the relationship, albeit in different ways. The principle of customer-supplier value
co-creation is also a component of an evolving service-dominant logic (SDL) model, which is
gaining favor as a theoretical framework in many different studies - including supply chain
(Lusch, 2011; Tokman and Beitelspacher, 2011), logistics (Randall, Pohlen and Hanna, 2010;
Yazdanparast, Manuj and Swartz, 2010) and operations management (Spring and Araujo, 2009).
It has been observed that a multiplicity of factors have to be considered in successful in long-term
PPPs, and this paper explores the utility of a recent representation of the SDL model (Vargo and
Lusch, 2016) in representing this complexity using case material from four defense industry
PPPs. The paper starts with a brief review of some PPP and service-dominant logic literature,
followed by an introduction to the cases and what has been learned from viewing them through a
SDL lens.
OBSERVATIONS FROM THE LITERATURE
Private-Public Partnerships: Some Operational Influence Factors

The PPP literature tends to take a (public sector) customer viewpoint with books being written
about how to establish and operate such partnerships. A cross-national study of good practices
(OECD, 2008) identified the following topics for consideration: affordability; value for money;
fiscal rules and expenditure limits; risk sharing; the need for competition and transparency;
regulatory issues; adequate institutional capacity; comparison with traditional procurement; and
the importance of political support. Multiple performance measures were seen as appropriate,
including:
• Efficiency measures defined in terms of inputs and outputs (e.g. the provision of a health
service at the fee [if the government pays] or user charge [if the user pays] agreed with the
government);
• Effectiveness measures in terms of outcomes (e.g. quantity, level of coverage of area or
population);
• Service quality measures;
• Financial performance measures;
• Process and activity measures.
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The OECD review also noted that some governments had established dedicated PPP advisory
services to help establish different kinds of agreements for different purposes, recognizing the
combination of skills needed to address the complexities involved. Wettenhall (2003) observed
five generic roles enacted in the management of PPP’s: producer, owner, provider, regulator, and
facilitator. Some mix of public and private actors may cooperate to enact these generic roles.
Hodge and Greve (2009) noted mixed views about effectiveness and value for money, and some
difficulty in evaluation, as measures of success depended on the type of partnership being
considered and the particular stakeholder viewpoint (e.g. public good vs private profit).
Bovaird (2004) defined public-private partnerships (PPPs) as “working arrangements based on a

mutual commitment (over and above that implied in any contract) between a public sector
organization with any organization outside of the public sector.” The form and level of
commitment may vary depending on the purpose of the PPP and the interests and concerns of a
particular stakeholder (Trafford and Proctor, 2006). Potential benefits are from access to
economies of scale or scope, or from two-way learning (e.g. Heracleous and Johnston, 2009).
There are many examples of PPPs, but all support the provision of some kind of service to the
community. Brinkerhoff and Brinkerhoff (2011) suggest the following purpose-oriented
categories of PPP:
• Collaborative policy development
• Specialist service delivery
• Infrastructure financing, development and deployment
• Government, community and industry capacity-building
• Regional economic development
Nicolic and Maikisch (2006) studied nine PPP health service initiatives, some related to medical
services, and some related to support services. Clear rules and dedicated experts on both sides
supported smooth planning and transition, with sufficient time for partners to become proficient
in new roles. Shared understandings of potential risks and respective responsibilities plus
performance expectations also supported ongoing review
Outcome or performance based contracting is seen as one way of managing public risk. Ng,
Maull and Yip (2009) studied two UK Defense sector cases, noting this form of contracting
changed behaviors and encouraged an orientation towards value co-creation. Whereas in
conventional service contracts a firm may be paid on the basis of activities, repairs or spare parts
used, the performance-based contracts were awarded on outcome measures - the availability of
the equipment, regardless of how and where the equipment was used by the customer (deriving
value in use). Goods (an aircraft and a missile system) were the foundation of the service
offering. Common understandings and capabilities had to be developed in relation to the concept
of value-in-use, service behaviors and service skills, capacity to frame service value propositions,
and value co-creation / co-production. Ng, Maull and Yip suggested such cases could be viewed
as complex systems drawing on service-dominant logic (Vargo and Lucsh, 2004) and services
science (Spohrer and Maglio, 2005) concepts to consider their underlying features.
Taking a systems view, Lillrank, Groop and Venesmaa (2011) studied two healthcare supply
chain cases. They suggested that process management was appropriate in situations where there
was a structured flow with a sufficient volume of similar repetitions. In cases with significant
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exceptions, a process could be decomposed into service events that could be defined and
managed as part of a flexible supply chain. A particular patient visit was described as an episode
- a time-sequence of events that a patient either performs or is subject to. A service event is
performed by one producer, a person or a team, in interaction with a patient. It is initiated by an
input that can be a request from a patient, a schedule, a signal indicating change in a medical
condition, or a request from another unit. Variations are accommodated by a kind of modularity
in services dynamically configured to support a particular combination of an episode and
associated events. Typical events related to testing, evaluation, intervention and monitoring
activities.
What we take from this is that establishing and operating a PPP is a complex business where a
degree of clarity about roles, responsibilities and common goals is beneficial, but at the same
time, so is some degree of flexibility and agility to accommodate changes in circumstances.
An outline of Service Dominant Logic (SDL) principles

The focus on value-in-use, supplier-customer value co-creation, multiple actor interactions and
the need for ‘rules for the game’ resonates with evolving views of the Service-Dominant Logic
(SDL) concept. Starting from a marketing perspective, Vargo and Lusch (2004, 2008, 2011,
2016) observed that the provision of services increasingly offered significant benefits to
customers and were a source of competitive advantage for suppliers. Over time, researchers from
other fields began to utilize their concepts, leading to refinement and extension of the original
foundation premises [FP]. When other researchers have utilized the SDL concept they have
suggested an interpretation of the foundation premises in their particular context is necessary (e.g.
logistics - Randall, Pohlen and Hanna, 2010). A brief outline of the Vargo and Lusch 2016 SDL
representation and links to PPPs are shown in Table 1.
Foundation Premise PPP context

All economies are service E.g. manufacturers provide a goods-producing service. In the case of PPPs
economies [FP5] all categories are strongly service-oriented.
Goods are distribution This is clearly illustrated in some forms of PPP such as the maintenance of
mechanisms for service provision complex equipment or the development and deployment of physical
[FP3]. infrastructure.
A service-centered view is A market view of service provision oriented around an interaction to deliver
inherently beneficiary oriented and a benefit. In PPPs there are multiple beneficiaries to consider and
relational [FP8] relationship management is a key activity
Operant resources are the Primarily knowledge, but including financial and technological resources.
fundamental source of strategic Use of the word operant reflects the view that the provision of service is a
benefit [FP4] process event where access to capabilities is negotiated. Access to
appropriate knowledge and skills is a functional requirement of all forms of
PPP. This includes domain knowledge related to the focus of a particular
PPP and knowledge of how to manage PPP processes.
Indirect exchange masks the The introduction of specialist functions in a supply chain disconnects the
fundamental basis of exchange original provider from the end user unless special action is taken. In some
[FP2] PPPs a contracting authority may be interposed between a supplier and an
end user.
Actors cannot deliver value but This emphasizes the value-in-use view of service-dominant logic compared
can participate in the creation and with the value-in-exchange view of goods-dominant logic, and is consistent
offering of value propositions with a PPP focus on outcomes.
[FP7]
Table 1. An interpretation of some SDL foundation principles in a PPP context
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Five foundation premises have been presented as axioms, as shown in Table 2.
Foundation Premise (Axiom) Comment

Service is the fundamental basis of exchange It revolves around processes such as a sales/negotiation process.
[FP1]. Exchanges may provide access to tangible, intangible or service
resources
All social and economic actors are resource Resources include operant resources (e.g. knowledge, skills) and
integrators [FP9]. operand resources (e.g. materials and infrastructure). Integration
implies drawing combinations of things together.
Value is always uniquely and Value is idiosyncratic, experiential, contextual, and meaning
phenomenologically determined by the laden. Different individuals or groups may value different aspects
beneficiary [FP10] of a service more highly.
Value is co-created by multiple actors, There are direct and indirect interactions between actors in
always including the beneficiary [FP6]. negotiating and delivering what is valued.
Value co-creation is coordinated through Institutions can include such things as property rights, norms, and
actor-generated institutions and institutional monetary systems.
arrangements [FP11].
Table 2. Comments expanding on SDL axiomatic foundation principles
The view taken here is that the seven Foundation Premises first cited above may be associated
with all forms of PPP, and considering the five axioms is more likely to draw out the
complexities of a particular partnership.
A Service View of PPPs

Viewing sustainable PPPs as providing a service introduces a focus on suppliers co-creating
value-in-use with customers, supported by institutional actors that focus on goals and rules of
engagement, and by integrating actors that draw together resources needed for a particular service
event. Individual events in time may be viewed as elements of an ‘episode’ - a higher level
context-specific event in a longer time frame that may be on-off or recurring in nature. The
evolution of a PPP may be described as a series of episodes, e.g. related to establishment,
operational and adaptation stages.
Osborne, Radnor and Nasi (2013) outlined a public service dominant theoretical viewpoint that
may be applied to four domains of public management: a strategic perspective, in marketing
public services, in the co-production of services with customers and in operations management.
They suggested future research could explore existing service management tools within a public
services context. Consistent with this suggestion, a comparison of Italian and Indian health care
PPPs by Saviano et al (2012) used a Viable Service Approach, drawing on aspects of services
science (Spohrer and Maglio, 2005) and SDL (Vargo and Lusch, 2008). They concluded that the
approach was helpful in identifying criticalities where different aims and expectations need to be
harmonized to make the collaboration effective.
However there is a paucity of studies framing SDL in a PPP context, and this paper is intended to
help fill the gap.
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THE RESEARCH APPROACH
The exploratory study presented in this paper examines the research question - how might the
application of service-dominant logic concepts help reveal the underlying complexities of public-
private partnerships. A multiple case study approach has been adopted, as according to Yin
(2014) this is appropriate when investigating a ‘how’ question. One suggested case selection
criterion was the accessibility of suitable data, which in our research was available in relation to
some defense sector PPPs. Cases were selected following the lead of Phang, 2007 who compared
urban rail PPP’s in several countries, framing strategies adopted in terms of the combination of
public/private operations and infrastructure utilized, as shown in Table 3
Operations Infrastructure
Public Private
Public The Australian DLT Case The US F/A 18 Case
Private The UK ATTAC Case The Australian BPT Case
Table 3. Strategic dimensions of selected cases
The four defense sector PPP cases illustrated how value was delivered by different kinds of
services, two providing support for a product (a military aircraft) and two providing operational
services. The cases illustrate different governance arrangements and are presented from a supplier
perspective.
The case material used had been assembled for teaching purposes in an engineering Systems of
Systems Masters degree course and was collected from publicly available sources. The case
material had been utilized by experienced students from both industry and the military in thinking
about how to configure networks of actors, activities and resources to deliver innovative
outcomes. Research by the students has added to the richness of the case material to varying
extents. An outline of each case follows.
The UK ATTAC Case

The Availability Transformation Tornado Aircraft Contract (ATTAC) 2007 contract provided
guaranteed availability of Tornado aircraft for the Royal Air Force (RAF) until the aircraft is
retired in 2019. It includes on-aircraft maintenance of the Tornado GR4 fleet, spares support,
technical support and training. BAE Systems and Rolls Royce were awarded a 10-year, $2bn
contract to support the RAF Tornado fleet to boost the aircraft's availability for frontline
operations while reducing cost to the taxpayer. Whilst the aircraft has been in service for some 25
years, its capabilities have been enhanced as a weapons platform fulfilling a unique role. The
company’s 250 dedicated employees work in a partnered approach with the Ministry of Defence
(MoD) and the RAF, and its success has lead to the establishment of similar arrangements with
other aircraft types.
The US F/A-18 Case

Following on from pilot programs, the US Navy embraced performance-based logistics
contracting with the defense industry, shifting the government focus from transactions to
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identifying performance outcomes and assigning responsibilities. A PBL contract effectively
switches most of the risk and the responsibility for supply chain management from the customer
to the supplier, for the system (or part) that is managed. The F/A-18, designed in the 1970s, is
still an important asset for Naval Carrier Strike Groups. Seven other countries also operate more
than 400 similar aircraft. Industry support was organized at the aircraft subsystem level. All the
government stakeholders were organized into a virtual program office to focus, manage, and lead
the F/A-18 sustainment effort. Some examples of results achieved are provided in Gansler and
Lucyshyn (2006).
The Australian BPT Case

Starting in 1992, the Australian Defence Force outsourced its basic flying training for Air Force,
Navy and Army pilots. In this contract, administered by the Royal Australian Air Force on behalf
of the three services, the operational fleet of basic training aircraft was owned, maintained and
operated by the contractor. The aircraft were operated on the civil register, but operations also
had to comply with RAAF airworthiness and safety requirements. The contract defined four
formal modes of contractor/customer management interaction. The most important of these was
the Flying Management Group which met weekly and which addressed flying management
issues. There was a Contract Management Group and a Financial Management Group, plus a
higher-level management forum where issues that could be resolved locally were addressed.
Civilian instructors delivered classroom training, whilst civilian and military instructors delivered
flying training jointly.
The Australian DLT Case

DLTP is focused on transforming the Department of Defence logistics network in a number of
ways. A new business service delivery model leveraging commercial ‘better practices’ has been
adapted for Defence’s unique operating environment. Two new national performance based
service contracts draw on industry logistics expertise. Innovative approaches are sought to
facilitate collaborative service delivery and improved service levels. Over $750 million of
purpose built infrastructure, rationalizing 24 sites to 7 primary sites (including in regional areas)
supports a new organization structure. New technologies and systems are being introduced along
with significant training and re-skilling of the workforce.
OBSERVATIONS FROM THE CASES

In the following section, there is some further description of each case plus a variant of Table 2
indicating how each SDL axiom might be represented at a summary level in the case.
The UK ATTAC Case

This case presents a large and complex PPP where withdrawal of an aircraft from service, e.g. for
maintenance, and upgrade, or where an aircraft is deployed away from home base may be seen as
an episode that requires interaction between the military client and the industry partner, with a
third party (MoD Contracting) playing a role. More than 20 organisations or business units
combine to deliver the service. The program was preceded by a pilot supporting just one of the
aircraft sophisticated subsystems, and required a mindset change by all involved. Researchers
from a number of UK universities studied various aspects of initial operations, resulting in a 450
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page book containing 23 research articles covering organizational, contracting, delivery,
information system and integrating aspects (Ng et al, 2011). Drawing on this research, Table 4
provides an outline of the case in terms of some SDL foundation premises.
Foundation Premise ATTAC Case Comment

(Axiom) from table 2
Service is the fundamental The essential service was providing an aircraft ready to operate. This involved
basis of exchange [FP1]. the coordination of a significant number of subsidiary services like supply
chain and maintenance management.
All social and economic actors One could regard the military as a social actor pursuing a national security goal.
are resource integrators [FP9]. The MOD contracting agency and the contractors pursued economic goals. The
notion of a front office and two back offices, with associated ‘lines of visibility’
illustrated how the operational team was supported by resources beyond the
project team. The front office was manned by both military and civilian
personnel who could provide some insight into the respective back offices and
resources available. (Mills, Parry and Purchase, 2011)
Value is always uniquely and BAE Systems saw the nature of their future business changing from a product
phenomenologically orientation to a services orientation, and that participation in this program was
determined by the beneficiary of strategic importance. The military saw this contract as a means of reducing
[FP10] cost whilst enhancing aircraft availability, and providing an opportunity to
focus its support resources on other fleet assets and more modern technology.
Value is co-created by multiple Six attributes supporting value co-creation were identified: complementary
actors, always including the competencies, congruence of expectations, process alignment, behavioral
beneficiary [FP6]. alignment, empowerment and control, and behavioral transformation. Six
elements of capability supported each attribute: competency, capacity, culture,
structure, systems and infrastructure (Ng, Nudurupati and Williams, 2011). Guo
and Ng (2011:163) observed, “managers are heavily dependent on interpersonal
relationships to promote mutual cooperation in service delivery. The role of
legal contracts in monitoring behaviors seemed insignificant. Furthermore, we
noted that with the development of interpersonal relationship, cooperation
moved from reciprocal to communal. That is, at the early stage of relationship,
both parties cooperate conditionally according to the norm of reciprocity. When
the relationship becomes more mature, both parties share a common identity
and work towards their collective goals.”
Value co-creation is A formal contract specifies working arrangements and performance measures.
coordinated through actor- BAE Systems have established a fleet management arrangement staffed by both
generated institutions and civilian and military personnel. A pre-existing Defense Equipment & Support
institutional arrangements organization is responsible for airworthiness and procurement and monitoring
[FP11]. of contract performance
Table 4. A representation of the ATTAC case in terms of SDL axiomatic foundation
principles
The US F/A-18 Sustainment Case

A number of separate PPPs were planned (see figure 1). There was a particular focus on engines
and the auxiliary power unit as these tended to be maintenance-intensive compared with other
components. Aircraft tyres required regular replacement, and a contract to supply tyres for all US
Navy aircraft types, including the F/A 18 was let to the Michelin company, teamed with an
experienced defence contractor Lockheed-Martin. Contractors acted as a single logistics
integrator responsible for requirements forecasting, inventory management, retrograde
management, storage, and transportation. All contractors exceeded legacy system performance
and inventories were significantly reduced. Some organizational, political and business barriers
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were encountered in establishing performance based logistics arrangements. Implementation
enablers were seen as alignment of contractor incentives with performance measures, IT
infrastructure, and the PPP structures building on the strengths of the respective organizations.
Figure 1. Multiple PPPs supporting FA/18 operations
Foundation Premise US F/A 18 Case Comment

Service is the fundamental The essential service was, in conjunction with the military logistics system, to
basis of exchange [FP1]. provide aircraft component parts quickly and economically wherever needed. A
number of parallel service contracts were entered into, each requiring multiple
services to be provided.
All social and economic actors As in the previous cases, one could regard the military as a social actor
are resource integrators [FP9]. pursuing a national security goal, and virtual program office organized the
efforts of numerous government stakeholders and managed all support
contracts.
Value is always uniquely and The value proposition was summarized by a US General as ‘good logistics is
phenomenologically combat power”. The aim of the case program was to reduce resupply and repair
determined by the beneficiary times to equal or better those observed in commercial operations, reducing
[FP10] costs and inventory levels at the same time.
Value is co-created by multiple The aircraft was originally built by a four-company industry team that engaged
actors, always including the with more than 1000 suppliers. Many of these suppliers supported
beneficiary [FP6]. performance-based sustainment initiatives. Some new suppliers (e.g. Michelin)
drew on commercial infrastructure.
Value co-creation is The approach chosen was not to use a single Performance Based Logistics
coordinated through actor- contract at the system level, but to apply the concept at the sub-
generated institutions and system/component level involving 22 individual contracts. This recognized that
institutional arrangements support requirements may be different for each subsystem. US and overseas
[FP11]. delivery targets were set, as was a requirement for a surge capacity and for the
provision of a 24/7service center.
Table 5. An SDL axiomatic foundation principle representation of the F/A 18 case
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The Australian BPT Case
This case provided observations from a successful 15-year+ PPP that allowed the customer to
focus on follow-on, military-specific kinds of pilot training (transport, reconnaissance, fighter
aircraft and helicopters). The long-term contractor, BAE Systems also provided training services
to some regional Air Forces at their Australian facility. About 2014, the Royal Australian Air
Force changed its training strategy, using a newer technology blend of simulators and aircraft,
and has entered into a PPP with a consortium at a RAAF base. As might be expected, the military
client and the contractor had different viewpoints about the lessons learned, but these broadly
reflected a need for each party to have a deep understanding of the other. Table 5 provides an
outline of the case from an SDL perspective
Foundation Premise Australian BPT Case Comment

Service is the fundamental The service included the provision of aircraft and facilities owned by the
basis of exchange [FP1]. contractor using training requirements and training materials provided by the
customer. Classroom training utilized a formal learning management system.
The contractor was required to provide a specified number of aircraft on the
flight line to satisfy the daily training requirements.
are resource integrators [FP9]. pursuing a national security goal. The customer organized a flow of students
and some learning resources, which the contractor managed. The contractor
organized physical and human resources. Unstructured meetings were held
daily between the CO and contract PM to identify emergent events.
Value is always uniquely and The military focus was on mission effectiveness, and not on profit.
phenomenologically Nevertheless, business management skills and training were very useful for
determined by the beneficiary officers. The CO role was not just a military role, but also business manager
[FP10] role, and COs changed in line with normal military posting practice. The
contractor needed to take a pro-active stance and quickly evaluate the
viewpoint and management style of each new CO and adapt to that.
Relationship management was seen as critical at every level.
Value is co-created by multiple Flying training was delivered jointly by civilian and military instructors (22
actors, always including the civilian and 23 military instructors are on nominal strength). Although the
beneficiary [FP6]. civilian and military reporting lines were separate, ADF instructors could be
allocated certain operational tasks by the contractor.
Value co-creation is The effect of the contract is to reproduce a military flying school in a civilian
coordinated through actor- environment. Both civil air regulations and Air Force airworthiness
generated institutions and requirements have to be complied with. One comment by a CEO was “There
institutional arrangements has been a lot of pain in the contract to get where we are – we shouldn’t take
[FP11]. ten years to get here!”
Table 6. An SDL axiomatic foundation principle representation of the BPT case
The Australian DLT Case

In this logistics transformation case there were four overlapping programs. One enhanced IT
infrastructure and interoperability within and beyond the program. A second one rationalised and
updated warehousing physical infrastructure. A third involved a performance-based PPP with a
national logistics firm to enhance warehousing and distribution operations and to draw on the
firms capabilities, whilst a fourth (another performance-based PPP) supported land materiel and
maintenance including military transport and war-fighting machines. The organisation structure is
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illustrated in figure 2. Since the latter contract was let the private firm was firstly split off from its
original owners, then sold to an international services firm. An independent review (Waters and
Blackburn, 2014) reported that “some efficiencies have been realized in the disposal of neglected,
obsolete and overstocked inventory; rationalization of business processes; reduction of fuels and
dangerous goods holdings; and improved policy for holdings of slow-moving and life-of-type
stock. Savings have also accrued from personnel reductions, re-negotiated contract prices, and
improved leasing and on-cost arrangements for storage areas.”
Figure 2. The DLT case organization structure
Foundation Premise Australian DLT Case Comment

Service is the fundamental The essential PPP service was, in conjunction with the military logistics
basis of exchange [FP1]. service, to supplement or take over some logistics operations. Each of the two
associated PPPs required a number of services to be provided.
are resource integrators [FP9]. pursuing a national security goal, integrating military IT and physical
infrastructure. The Defence Materiel Organisation (DMO) was also an
economic actor, integrating government financial resources. The private
partners were economic actors providing access to their knowledge and
physical resources.
Value is always uniquely and The military focus was on operational effectiveness, particularly in deployment
phenomenologically mode. Performance based contracts were utilized in both PPPs, with separate
determined by the beneficiary but complementary measures for each one.
[FP10]
Value is co-created by multiple The DLT program intent is stated as leveraging commercial capability to
actors, always including the support operational logistics service delivery requirements through
beneficiary [FP6].
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‘collaborative innovation’. Value co-creation was facilitated by the use of a
blended workforce.
Most private company employees worked directly with military counterparts.
Many of these employees also had prior military experience, providing a
boundary-spanning capability. An independent review had expressed concern
about on-going PPP effectiveness as these individuals retired.
Value co-creation is Organizational arrangements are outlined in figure 2. There was some blending
coordinated through actor- of institutional arrangements in the DLT design phase where ‘good commercial
generated institutions and logistics practice’ was considered in updating operating practices and
institutional arrangements requirements. Formal competitive tenders were issued outlining requirements,
[FP11]. performance expectations and proposed working arrangements.
Table 7. An SDL axiomatic foundation principle representation of the F/A 18 case
DISCUSSION
As noted by Brinkerhoff and Brinkerhoff (2011), PPPs may be established for a variety of
purposes, each having their own kind of value proposition and drawing on private tangible and
intangible assets to deliver a public benefit. Whilst many PPPs focus on the provision of public
infrastructure facilitated by access to private capital (OECD, 2008), the cases presented here are
in the category of service delivery facilitated by access to specialist knowledge. The PPP
management literature seems to have a top-down structural orientation, focusing on financial and
governance matters and the appropriation of risk, whilst recognising that a variety of actor roles
have to be enacted (e.g. Wettenhall, 2003). But what happens in day-to-day operations to deliver
the intended benefits?
Our research question was - how might the application of service-dominant logic concepts help
reveal the underlying complexities of public-private partnerships The SDL literature seems to
have a bottom-up orientation where value-creating events are facilitated by compatible goals and
infrastructure in a particular context. Our case study analysis indicated that this event focus;
understanding the dynamics at the point of service delivery, gave improved insights into the
operation of PPPs. The outcome of each service event contributes to the accumulation of value
and social capital (e.g. Bitner, Booms and Tetreault, 1990). In a long-term PPP there are many
different kinds of individual service events that accumulate to deliver value some of them one-off
and some of them recurring, each of which may draw on a particular set of services.
Scanning the content of each row of Tables 4 - 7 (that represented individual SDL Axioms)
provided multiple viewpoints and yielded the following insights:
• Private suppliers delivered public benefits via the provision of bundles of services. In the
cases presented here these included: maintenance and asset health monitoring systems;
supply chain and logistics management; quality assurance and continuous improvement;
engineering and certification, including configuration management; human resources
management and training; business support systems including customer relationship
management, cost estimating / contracting and accounting. Parallel PPPs may be
established to achieve the higher level public benefit (e.g. in the FA/18 and DLT cases)
• Both PPP parties act as resource integrators, bringing their respective capabilities to the
partnership, however each partner may have limited visibility (and understanding) of the
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other’s background support network, which may extend beyond the interacting
enterprises.
• The partnerships took some time to evolve, going through stages of learning,
implementation/innovation and clear outcome delivery as suggested by Yazdanparast,
Manuj and Swartz (2010). Also, at the working level, managers relied on interpersonal
relations to get things done, initially cooperating conditionally according to the norm of
reciprocity, then later sharing a common identity and working towards their collective
goals (e.g. Guo and Ng, 2011)
• The public partners generally saw the programs described in the cases as a means of
reducing cost whilst enhancing military asset availability, and/or providing an opportunity
to focus internal resources in other ways. The private partners saw a PPP as a means of
extending their traditional (goods-producing or service) businesses in the context of
changing business environments.
• Case researchers identified a number of capabilities supporting value co-creation:
complementary competencies, congruence of expectations, process alignment, behavioral
alignment, empowerment and control, and behavioral transformation. Six elements of
capability supported each attribute: competency, capacity, culture, structure, systems and
infrastructure (Ng, Nudurupati and Williams, 2011). In all cases, many activities were
undertaken by blended teams of public and private employees.
• A variety of institutional structures were observed covering a spectrum of prime
responsibility assignment from predominantly public, through blended arrangements to
predominantly private at a total system or subsystem level. The establishment of an
overarching goal and performance-based contracts provided an outcome orientation
supporting value co-creation.
These insights could also identified in most of the case studies when viewed from a different
perspective (e.g. a complex systems perspective), but these perspectives did not highlight service
event and value co-creation aspects.
Service-Dominant logic (SDL) is presented as a concept having eleven foundation premises

(Vargo and Lusch 2016). The following five learning outcomes build on the ideas of others
seeking to operationalize the SDL concept.
Learning outcome 1. It is suggested that an elaboration of each foundation principle [FP] in the
context of its application is necessary to establish relevance. In the context of PPP’s, an example
is provided in Table 2.
As has been noted by other authors (e.g. Tokman and Beitelspacher, 2011), the point is that SDL
is presented as a concept that may be interpreted in different ways and applied at different levels
of analysis.
Learning outcome 2. A particular service is provided in a particular context, and the provision
of a service may be represented as a contingent event (or process) or a series of events (an
episode). Drawing on the multi-level framework suggested by Akaka, Vargo and Lusch (2013), it
is suggested that:
• At a micro-level, service is the basis of exchange [FP1] a transaction involving a supplier
and a beneficiary, and value is always uniquely and phenomenologically determined by
123
the beneficiary [FP10]. In other words, if the beneficiary does not see sufficient value in
it, no service or exchange event is negotiated.
• At a meso-level, service context or a service episode (planned or unplanned series of
events) involves multiple actors, always including the beneficiary [FP6], where all social
and economic actors are resource integrators [FP9] and value co-creation is coordinated
through actor-generated institutions and institutional arrangements [FP11]. In other
words, in addition to the supplier and beneficiary actors, there are two other kinds of
actors needed to facilitate a service event or episode: those providing access to requisite
resources and those framing ‘rules for the game’.
• At a macro-level there is a focus on service infrastructure and service goals where it is
argued that all economies are service economies [FP5], that a service-centered view is
inherently beneficiary oriented and relational [FP8], and that operant resources are the
fundamental source of strategic benefit [FP4]. In addition to knowledge and skills, Akaka
and Vargo (2013) see technology as an operant resource. All PPPs can be seen as
providing a service that seeks access to complementary resources. It is argued that goods
are distribution mechanisms for service provision [FP3], that actors cannot deliver value
but can participate in the creation and offering of value propositions [FP7], and that
indirect exchange masks the fundamental basis of exchange [FP2]. In other words there
are background linkages and interactions that may not be immediately apparent that are
influencing the conditions of exchange, and goods derive their value through use (or e.g.
potential use as is the case with insurance)
Learning outcome 3. PPPs tend to be long term agreements, and are likely to go through stages
of learning and innovation prior to effectively delivering intended outcomes (Yazdanparast et al,
2010). During the operation of a partnership, there may be changes at every level - in service
infrastructure and the adaptation of goals, in service context where institutional arrangements
may change, and at a micro-level where individual actors may change. Coping with such changes
and the evolution of the partnership requires strong relational capital [FP8].
Learning outcome 4. Whilst there were particular goals being pursued in each of the cases
presented here, achieving these goals required a multiplicity of services to be provided (e.g.
maintenance plus logistics), some on a broadly continuous basis, and some on a discontinuous
basis. Discontinuities also arose from changes in technology or a change in military customer
operations from a training mode to a deployment mode influencing which services were given
priority. A senior military officer observed (DLT case): “The support the military force needs
must be delivered in an environment that is less than orderly, has disrupted or poorly developed
infrastructure and is subject to interference by a range of forces. Our forces are generally
operating with less than perfect information and within a constantly changing framework. This is
not the ideal commercial business environment”(Cottrell, 2008).
Learning outcome 5. In this dynamic context, the PPP literature and our case studies have a
strong emphasis on risk identification and management, noting that in most PPPs some risk is
transferred from the public sector to the private sector (e.g. Hodge, 2004, OECD, 2008). In
discussing complex service systems, Neely, McFarlane and Visnjic (2011) identify risk
considerations as one of twelve dimensions of complexity (including levels of risk, tolerance for
risk and forms of risk). The SDL literature has some limited consideration of risk. Lusch, Vargo
124
and O’Brien (2007), in discussing competing through service, suggested (p12) “Co-production
involves physical, psychological, and/or social risk-taking. This does not imply that risks are
necessarily increased with co-production, since co-production can also reduce risks. “ In
discussing service ecosystems in a SDL context, Akaka, Vargo and Lusch (2013) suggested that
(p 16) “—managers and researchers can begin to regard risk as much more than political or legal
restrictions; rather, risk becomes associated with the challenge of engaging in exchange within
embedded cultural contexts and multifaceted networks and includes supply chain risks,
intellectual property risks, human resource risks, and risks in brand equity“. The topic of
exchange within embedded cultural contexts certainly came up in the cases reported here, not
only with regard to organization cultures, but in relation to different professional cultures, e.g.
Defense contracting agencies and the beneficiaries they were representing.
As noted in the literature, the success of a PPP may be judged in terms of several performance
measures – efficiency, effectiveness, service quality, financial or process/activity outcomes. The
cases presented here were regarded as successful as value was created for both the supplier and
the client, but the performance benchmark was set in a variety of ways. The client generally
compared its past operational performance with desired future outcomes and/or private sector
benchmarks, whilst the need to rapidly reconfigure operations to support political events could
test perceptions of service quality. The literature on perceived service quality indicates it has both
rational and emotional aspects linked to customer expectations that may change over time, and
that perceptions emerge from multiple service encounters (e.g. Crompton and MacKay, 1991;
Boulding, Kalra, Staelin and Zeithaml, 1993). Thus, adopting a service view of PPPs introduces a
relationship management perspective seen as important in the cases presented here, some ideas
about what has to be managed, and the observation that changing expectations is normal.
CONCLUDING REMARKS
In most developed economies the service sectors are larger than goods-producing sectors.
Proponents of SDL concepts emphasize this, and argue that all types of operation can be viewed
as providing a service - manufacturers, governments and the myriad of specialist service sector
operations, and that for customers/users/beneficiaries value-in-use is a primary driver. An
unstructured list of eleven foundation principles, some relating to the point of service delivery,
and some relating to service context underpins the SDL concept.
This paper presents an exploratory study of the utility of SDL concepts in capturing the
complexity of Public-Private-Partnership services that in turn provide benefits to the broader
community. A brief review of related literature suggests that SDL researchers favor a bottom-up
supplier perspective whilst PPP researchers take a top-down (public sector) customer view of
operations. Other researchers seeking to operationalize SDL concepts have found it necessary to
propose a context-specific interpretation of each of the eleven cryptic foundation principle
statements, and this practice was followed in relation to PPPs. The foundation principles were
considered in two groups - those (five) considered by SDL proponents to be axiomatic, and the
(six) others.
The five axioms could be thought of as characterizing a service event at the micro-level (basis of
exchange, perceived value) and characterizing the context of one or a series of related events (a
125
service episode) at a meso level (involving multiple actors with social and economic actors as
resource integrators supported by coordinating instrumental actors). It is suggested the other six
foundation principles characterize the service infrastructure/ecosystem and service goals at a
macro level.
Four Defense sector PPP case studies were re-visited to frame observations about them in terms
of the five SDL foundation principle axioms, leading to the following observations:
• Service is the fundamental basis of exchange [FP1]. In the cases examined operations
required bundles of different services (e.g. maintenance and training) to be orchestrated
through a series of service events.
• Value is always uniquely and phenomenologically determined by the beneficiary [FP10].
In the cases presented, national security was a primary concern for the beneficiaries
(military operational personnel), conditioned with perceived value for money (Defense
administrators). For the private partners delivery of required value with limited resources
required innovative approaches, including the management of potential risks.
• Value is co-created by multiple actors, always including the beneficiary [FP6]. This is a
feature of PPPs which operate most effectively when public and private sector employees
work together
• All social and economic actors are resource integrators [FP9]. In the cases considered in
this paper there was an underlying theme of front-line actors accessing their respective
back office resources.
• Value co-creation is coordinated through actor-generated institutions and institutional
arrangements [FP11]. The formal PPP contracts and associated performance measures
helped to create ‘rules for the game’, but it was not uncommon for those involved to be
influenced by different organizational cultures, requiring some coordination effort to
maintain mutual understandings and compatible goals. Coordination between contracting
authorities and their clients was needed at the customer end, whilst supply generally
involved the establishment of private strategic pRTNERSHIPS
This study has identified some potential shortcomings in the current SDL perspective that could
be topics for future research:
• Firstly, it is suggested here that whilst adopting a services viewpoint has merit, in
studying complex systems, multiple viewpoints are needed (e.g ISO/IEC 42010).
Osborne, Radnor and Nasi, (2013) suggested four viewpoints were needed in the
application of Public Sector SDL: strategic, customer services marketing, client co-
production mechanisms, and operations management viewpoints.
• Secondly, the identification and management of risk that is important in the establishment
and operation of PPPs seems to be under-represented in current SDL thinking. In any
non-routine or unfamiliar transaction perceptions of value and risk are intertwined in
making a decision to proceed. People may pay more for an option that is seen as less
risky, but the acceptance of risk may also be related to matters of reputation and trust.
• Thirdly, relationships between the 11 SDL foundation principles is left for the user to
develop. Spring and Araujo (2009) suggested that a business model framework may
provide an integrating viewpoint with a focus on the value proposition being offered and
delivery mechanisms.
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• Fourthly, observations focused on the interaction between a supplier and a client, drawing
on a broader service ecosystem promoted by the SDL approach seems somewhat static,
not recognizing the cumulative influence of past interactions in building trust, nor the
impact of external events in the broader business ecosystem (e.g. Hedaa and Törnroos,
2008).
A provisional model tying aspects of SDL from a process perspective is presented in figure 3 for
further investigation.
Figure 3. A Service Dominant Logic Process View.
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Cover page
Dr. ANANYA BHATTACHARYA

Monash University
Level 5, Building N, Caulfield Campus
900 Dandenong Road
Caulfield East VIC 3145
Australia
E: ananya.bhattacharya@monash.edu
130
Title: Integrating Lean and Green and examining its impact on the Triple Bottom Line:
A Systematic Literature Review
Abstract
The purpose of this paper is to perform a systematic literature review of peer-reviewed

journal articles on the topic of lean and green integration and its impact on the triple
bottom line (economic, social and environmental dimensions). After an extensive search,
60 articles from 2006 to 2016 were identified as relevant to this study. Our findings reveal
that whilst there have been a handful of studies done on integrating the two concepts, not
much has been done with respect to examining the impact of this on all three dimensions
of the triple bottom line (TBL). Future research areas are highlighted.
Keywords
Lean, green, lean-green integration, triple bottom line (TBL)
131
1. Introduction
Lean and green supply chains are management philosophies implemented in
organisations to improve their overall performance by maintaining a competitive position
in the industry. Lean supply chain, the philosophy initiated by Toyota Production System
(TPS) after the second world war, employs several strategies such as Just In Time,
continuous improvement, reduction of lead times and inventories, process improvement
and elimination of all kinds of wastes to improve customer satisfaction and quality
(Carvalho et al., 2010; Garza-Reyes, 2015b). Green supply chain, the philosophy created
by the regulations of government and pressures and concerns of environmental activists,
uses to some degree different sets of strategies such as reverse supply chain, sustainable
value stream mapping and life cycle analysis to improve the ecological benefits of the
production system. The ultimate aim behind both philosophies is to reduce costs through
waste reduction efforts and efficient use of resources (Carvalho et al., 2010; Duarte &
Cruz-Machado, 2013b; Garza-Reyes, 2015a).
Since both lean and green are supply chain and operations management
philosophies and aim for similar outcomes, academics and practitioners over the last 20
years naturally search for synergies between the two concepts and aim to achieve common
benefits by integrating the two as a single combined approach. Although there have been
studies on various aspects of lean and green supply chains for instance the synergy
between the two concepts and its influence on performance, these studies have been
fragmented (Garza-Reyes, 2015b). Mostly studies explored either lean supply chains or
green supply chains impact on financial and/or environmental performance; a few studies
also looked at the combined impact on the environmental and/or operational performance.
For example, Folinas et al. (2013) integrated green aspects into Value Stream Mapping
(VSM) to determine and reduce the waste in the agri-food supply chain. There is a lack
of research on the joint impact of both concepts on the TBL- economic, social, and
environmental performances (a few notable exceptions are studies by Azevedo et al.
(2012); Brown et al. (2014); Cabral et al. (2012); Faulkner and Badurdeen (2014)). Since
organisational performance is multifaceted (M. G. M. Yang et al., 2011), it is important
to explore the impact of the combinative implementation of lean and green on all three
dimensions prescribed under the TBL.
In order to develop a thorough understanding about the current research on
integration of lean and green supply chains, it is important to do a state of the art literature
review, although, not many studies were found to have done a comprehensive literature
review on the topic. In addition, frameworks and models proposed for the integration of
lean and green supply chains and their impact on the TBL have not been examined
thoroughly. To complete the gap, we conducted a comprehensive literature review on the
topic of lean-green integration and its impact on the TBL by systematically collecting and
critically analysing all relevant studies on the topic. The main research questions of this
study are:
What is the current state of research on the effect of lean-green
supply chain strategies on the TBL?
What are the key themes for future studies emerging from the current
research?
Our literature review is different from the existing literature review in the following
ways: unlike extant studies a) our literature review primarily focusses on the studies that
132
have integrated the lean and green concepts rather than used them independently; b) we
reviewed studies that explored the impact of integration on the three dimensions of TBL
(economic, social, and environmental performances), both separately and combined; and
c) proposed future research paths on lean-green integration and its impact on the TBL.
This paper is structured as follows. Section 2 presents the discussions on the key
terminology used in this paper. Section 3 presents discussions on the research method we
followed to collect articles for this study. A descriptive analysis of papers that we
identified from the literature review is also presented in Section 3. Section 4 presents the
findings from the study followed by the discussions on future study areas in Section 5.
Finally, we draw on some interesting conclusions in Section 6.
2. Key terminology
In this section, we explain the key terms that are explored throughout the review.
2.1 Lean-Green integration
Lean strategy is a paradigm to generate a system of continuous improvement and
elimination of all forms of waste from production and supply chains to improve quality,
reduce costs and add value for customers (Duarte & Cruz-Machado, 2013b; Simpson &
Power, 2005). Green strategy is a paradigm that focuses on the impact of supply chain
and production on the environment and emphasizes on the elimination of environmental
wastes related to water, energy, air, solid and hazardous wastes (Duarte & Cruz-Machado,
2013b).
Since, both paradigms seem to have some commonality within their definitions,
extant studies have endeavoured to find out compatibilities between these strategies. It is
pointed out by these studies that the seven key lean principles can lead to the improvement
of environmental performances (Vinodh et al., 2011). Some authors focus on the
paradigms’ synergistic features (Azevedo et al., 2012) whilst others authors assume that
lean acts as catalysts to green development (Dües et al., 2013; Garza-Reyes, 2015b). The
concept of synergy was first discussed by Florida (1996). His study revealed that to
remain competitive, use of several advanced manufacturing practices such as lean
management, improved production processes and technology and continuous
improvement were necessary to benefit both environmental performance and
manufacturing performance. The effort to combine both paradigms has increased recently
due to the increased pressure from green activists and general struggle of organisations to
operate in a resource constrained world (Dhingra et al., 2014). Simons and Mason (2003)
were one of the earliest group of authors who attempted to explore the interactions
between lean and green supply chains by using Value Stream Mapping (VSM).
Bergmiller and McCright (2009) observed that lean organisations develop prevention
strategies by implementing systematic solutions that yield sustained results for
environmental related issues. Hence, lean manufacturers can naturally transcend into
greenness. Brown et al. (2014) used the term Sus-VSM to integrate both lean and green
concepts together. Toyota formed the Toyota Production System and was able to integrate
both environmental and social aspects within its traditional lean practices up to a certain
level to achieve this synergy (Verrier et al., 2016). Recently, Campos et al. (2016, p. 628)
defined the lean and green synergy as “the additional effects produced by the
implementation of green practices and lean practices together” that individual practice
alone cannot bring.
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There have been several studies that explored cases where the synergy between lean
and green supply chains were possible. Environmental Protection Agency (EPA) has
provided a list of case studies that used lean principles to gain environmental benefits
(see: epa.gov.au/lean/case-studies). It has been found that the most important catalyst for
achieving synergy is the potential of recombining lean and green knowledge resources
through the support of different supply chain actors such as suppliers and customers. Dües
et al. (2013) concluded that green organisations cannot automatically become lean
organisations but lean organisations are often greener since the green philosophy is a
natural extension of the lean philosophy. Galeazzo et al. (2014) suggested that the
simultaneous implementation of lean and green practices was more efficient than the
sequential implementation of the two. On the other hand, several studies pointed towards
the lack of synergies between the two concepts. Campos et al. (2016) through case studies
asserted that too much adherence with lean principles, lack of communications between
lean and green team within the organisations, presence of power differentials and the lack
of risk sharing attitude create barriers in lean-green synergy. Garza-Reyes (2015b)
provided discussions about the conceptual differences between the lean and green
philosophy. The primary differences between the two are related to how waste is defined,
divergences in focus, and the expectation from customers.
2.2 Triple bottom line (TBL)
The first and the most widely used definition of sustainability was made by the World
Commission on Environment and Development. The definition focuses on ‘meeting
development needs of the present without compromising the ability of future generations
to meet their own needs’ (Brundtland, 1987). Later, Elkington (1998a)Elkington (1998a)
simplified the definition and operationalised it through the TBL concept by integrating
economic, social and environmental issues (Seuring & Müller, 2008). Findings from latter
studies illustrate the need for firms to measure the supply chain performance from three
interrelated components/dimensions: environment, society and economy and put equal
emphasis on all three components (Azevedo et al., 2012). In general, the environmental
dimension involves the initiatives and responsibilities undertaken by an organisation in
its operations for a greener planet, social dimension includes the actions and efforts taken
by an organisation for the well-being of its people and economic dimension is the effort
by organisations to maximize profits, with minimum raw materials, inventory
management and reduction of production costs.
There are several viewpoints on how to measure these three dimensions. Economic
dimension is generally well understood however there is still a confusion regarding the
environmental and social dimensions (Gimenez et al., 2012). The common indicators to
measure economic and environmental performance are air emissions (mainly CO2
emissions), solid wastes, pollution reduction, energy efficiency, consumption of toxic and
hazardous materials, inventory levels, product quality, capacity utilization, ROA,
operational costs, environmental costs, training costs. The social dimension, includes both
support for internal (employees) and external (community) environments and is measured
by corruption risks, supplier screening, use of local suppliers, maintenance of human
rights, supplier labour practices, supplier codes of conduct, job satisfaction and
cooperative work environment, diversity and equal opportunity (Azevedo et al., 2012;
Gimenez et al., 2012).
Although the three dimensions are connected, a few studies looked at the
interrelationships between the indicators. It is often argued that environmental
performance or social performance may not always bring positive financial outcomes. ‘A
134
debate about eco-efficiency versus eco-effectiveness pinpoints the trade-offs between the
environmental and economic dimensions’ (Galeazzo et al., 2014, p. 193). Anecdotal
evidence suggest that investment in environmental management can improve
environmental performance at the expense of financial performance (Klassen &
McLaughlin, 1996). However, (Gimenez et al., 2012) found that various environmental
programmes lead to improvements in all dimensions of TBL by reduction of wastes and
associated costs and improving the company image. However, the impact of social
programmes on TBL is mixed. Although, environmental performance was improved due
to more workers training and the creation of safe work places through social programmes,
financial performance was hampered due to higher manufacturing costs in the short term.
Therefore, while studies have emphasized on all three dimensions of TBL, not
many studies have comprehensively explored this. As found out by Hassini et al. (2012),
majority focus has been on the environmental dimension, followed by economic and
social dimensions. Additionally, in their literature review, they highlighted that a wide
variety of performance measures were utilised to measure individual dimensions.
3. Research methodology
A systematic literature review is useful in finding out the gap in existing studies and
provides information on areas where majority studies have already taken place (Garza-
Reyes, 2015b). To perform the literature review systematic we followed the five criteria
approach: a) a research question; b) searching different databases for locating the articles;
c) article selection and exclusion; d) analysis; and d) reporting/discussions.
3.1 Search, inclusion and exclusion, analysis
At first, we used Google Scholar to search for articles that had lean and green
concepts mentioned in them. The initial search terms were ‘lean-green integration’, ‘lean-
green supply chain’, ‘environmental lean’, ‘lean environment’ and ‘TBL’ to include the
articles that involved social, economic and environmental perspectives. In the next step,
we used several databases such as Science Direct, Elsevier, Taylor & Francis, EBSCO,
Pro-Quest, Scopus, Business Source Premier, Emerald and Web of Science to narrow our
search. By following existing literature reviews, we added ‘sustainability’, ‘JIT’, ‘TQM’,
‘six sigma’ ‘supply chain performance’ and ‘lean-green manufacturing’ in our search
terms to add more articles and exclude articles that did not focus on the integration of lean
and green. Next, we performed a search in a list of representative journals such as Journal
of Cleaner Production, International Journal of Production Economics, International
Journal of Production Research, International Journal of Lean Six Sigma, Journal of
Operations Management and Production and Operations Management similar to that
employed by Martínez and Javier (2016). Finally, we used the snowballing technique to
find out more articles from the reference list of the already selected articles. Out of all the
articles found, 60 articles fittingly discussed the integration of lean and green paradigms
from supply chain perspectives and impact on supply chain performance.
Although, we found several interesting articles dealing with the topic from various
sources, we focused predominately on those that had been published in the last 10 years
(2006-2016) to develop more recent knowledge about the topic. Nonetheless, we included
some of the widely referenced and well-known past papers that were relevant for the topic
such as Florida (1996) and King and Lenox (2001). Although, our focus was on high
quality, peer reviewed journal articles, we also included a few conference papers such as
135
Duarte and Cruz-Machado (2013a) and Bergmiller and McCright (2009), if the papers
were highly cited by later articles and used conceptual models on lean-green integration.
At first, the abstracts were read to put them under individual categories such as
‘only lean’, ‘only green’, ‘lean-green integration’, ‘economic performance’, ‘social
performance’, ‘environmental performance’ and ‘TBL’. Later, the relevant papers were
read and analysed in detail.
3.2 Descriptive information
Consequently, a total of 60 articles matched our selection criteria of a) focusing on lean
and green integration; and b) mentioning at least one of the three TBL performance
dimension.
Figure 1 presents the number of publications per journal, year, industry, and
methodology. In general, the results indicate that the lean-green integration topic has
gained popularity among academics and practitioners since 2010. Despite a slight drop in
publications in 2012, numbers have been growing. This can be attributed to the fact that
the topic is still comparatively new, although the origin of the integration concept can be
traced to the year 1996. In terms of the number of publications per journal, Journal of
Cleaner Production has always been in the forefront of publishing on lean-green topics.
As the figure 1 (b) shows, majority of the articles on lean-green integration and
performance are still published in Journal of Cleaner Production (24) followed by three
other journals: International Journal of Production Economics (3) and Environmental
Quality Management (3) and International Journal of Lean Six Sigma (3). It is also
evident from the figure that a wide range of journals were used by the authors to publish
these articles on lean-green integration. Journal of Cleaner Production published a higher
number of papers on this topic because this journal publishes a) articles on different
environmental (or green) issues; b) several special issues (one in 2014 on lean-green
integration) on lean and green and c) more issues (2 in every month) compared to other
operations and supply chain journals.
Regarding the industry (see Fig 1 (c)) used to perform the empirical study,
automobile industry (12 articles) was popular among researchers. General manufacturing
category was also quite popular as this sector is a mix of manufacturing firms from
different backgrounds. Since, automobile industry and overall manufacturing industry
deal with major pollution and waste generation issues, and are subject to stringent
regulations (Verrier et al., 2016), researchers were interested to explore these sectors to
develop frameworks or validate models. Fig 1 (d) also includes information about the
nature of these papers. As is evident, majority of the papers were case study based (28).
Since, the topic is comparatively new and there is a lack of research and understanding
or developed theories on the lean-green integration topic, authors used exploratory case
studies to explain their findings. Finally, figure 1 (e) illustrates a handful of studies (8)
that looked at the impact of integration on the TBL economic, social and environmental
factors. The most popular performance dimension was environmental performance (35),
followed by economic dimension (12) and last social dimension (6).
136
14 13
12
10
10
Number of publications
8 7 7
6 5
4
4 3
2 2
2 1 1 1 1 1 1 1
0
1996 1998 2001 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016
-2
Year
(a)
137
China Foundry 1
International Journal of Enterprise Network Management 1
Production Planning & Control 1
Omega 1
Clean Technologies and Environmental Policy 1
Resources, Conservation & Recycling 1
ECR Journal 1
International Journal of Operations and Production Management 1
Journal of Industrial Engineering and Manangement 1
International Journal of Value Chain Management 1
International Journal of Lean Six Sigma 3
Procedia Manufacturing 1
International Journal of Enironmental Science Technology 1
Sources
California Management Review 1

Procedia Technology 1
Management Decision 1
Int. Journal of Business Performance & Supply Chain Modelling 1
Competitiveness Review 1
IEEE Transactions on Engineering Management 1
International Journal of Physical Distribution & Logistics 1
Conference papers 2
International Journal of Production Economics 3
Supply Chain Management: An International Journal 2
Production & Operations Management 2
Environmental Quality Management 3
International Journal of Prduction Reserach 1
Int. Journal of Construction Management 1
Journal of Cleaner Production 24
0 5 10 15 20 25 30
(b)
138
30 28
NUMBER OF PUBLICATIONS 25
20
15 11
6 8
10 4
5 2 1
0
METHODOLOGY
(c)
Transport 1
Metal containers 1
Electricity 1
Paper 1
Food 1
Industry profile
Furniture 1
Satellite dish manuf 2
General manufacturing 17
Engineering 1
Refrigeration-cooling 1
Construction 2
Aviation parts 2
Automobile 12
0 2 4 6 8 10 12 14 16 18
(d)
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Distribution of research that addressed different
performance indicators
12
35
Triple Bottom Line Economic Social Environmental

(e)
Fig 1: Descriptive data – (a) Year of publication, (b) Number of publications per journal, (c) Number of publications per industry, (d) Number of publications
per method, (e) Number of publications per supply chain performance dimension
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4. Findings
Our study findings only explored the combined impact of both lean and green supply
chain/operations strategies. The findings revealed that to achieve the benefits from both lean
and green supply chains, innovation in supply chain/operations is a prerequisite (Hartini &
Ciptomulyono, 2015). In the next subsections, we explain the studies that considered the impact
of lean-green integration on all three dimensions of the TBL. Table 1 and 2 in the Appendix
provided summary of the studies in this area.
4.1 Lean-Green and environmental impact
The highest number of studies (35 articles) considered the relationships between lean-
green synergy and environmental performance. Mostly studies found that lean supply chain
management has a positive relationship with green supply chain management because the
underlying principal of both paradigms is waste reduction (Hajmohammad et al., 2013; King
& Lenox, 2001; Rothenberg et al., 2001). Environmental Protection Agency (EPA) mentioned
that environmental wastes are embedded in or related to Taichi Ohno’s 7 deadly lean wastes.
It is shown that lean is green because the experiences accumulated through lean management
help organisations to move towards green management. Through an empirical study, the
authors found that different lean management processes, such as adoption of ISO 9001 or
minimising inventory, increases the likelihood of adoption of ISO 14000, waste reduction,
pollution prevention and lowering emissions (King & Lenox, 2001). The authors suggested for
managers to consider lean and green practices as a bundle. Rothenberg et al. (2001) in their
study on the automobile industry demonstrated that if lean organisations wanted to integrate
green practices into their strategies, they would need to focus on value-added activities. For
example, pollution prevention strategies such as process improvement, recycling, energy
recovery and material change are used by lean organisations to attain the benefit of lean green
combination. On the other hand, some organisations use pollution control technologies to
comply with the regulations quickly. The first group of organisations was able to integrate both
concepts by using value-added activities from both concepts, however, the last group of
organisations treated both concepts separately and failed to receive similar benefits. These
findings support the research by Florida (1996) that organisations that are innovative and
research intensive are able to combine lean and green paradigms and achieve environmental
improvements as a result. Other factors that generally help in the integration are supportive
work practices like empowerment to employees and having an environmental manager work
on the shop floor. Jabbour et al. (2013) found that lean management has a strong positive
influence on environmental management which in turn influences operational performance.
On the other hand, another series of studies claimed that the direct relationship between
lean and green is not possible. For instance, Hajmohammad et al. (2013); Rothenberg et al.
(2001); M. G. M. Yang et al. (2011) stress that lean management cannot improve
environmental performance alone because of the inherent conflicts in these two practices.
However, lean management supports development of environmental management practices
(such as ISO 14001 certification or life cycle analysis or investment in pollution prevention
technologies) in the organisation which in turn improves environmental performances.
Martínez-Jurado and Moyano-Fuentes (2014) state that lean supply chain encourages long-
term collaborative relationships throughout the supply chain which in turn encourages
environmental management processes from design to product take back. Pampanelli et al.
(2014) demonstrate that the combined impact of both strategies can be beneficial for the
environment since both philosophy emphasize on waste reduction, productivity increase by
optimal use of resources and collaborative supplier arrangements. However, their model was
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based on some prerequisites. The most important one was the presence of a lean environment
first to smoothen the transition into the green environment.
On a different note, Bandehnezhad et al. (2012) revealed that lean practices can improve
environmental performances in some ‘specific functional areas’ in the organisations.
Specifically, lean management related to processes and equipment, human resources, product
design and customer relationships positively influenced environmental outcomes, while,
manufacturing planning/control and supplier relationship did not show any significant
relationships with environmental outcomes. A study by Verrier et al. (2016) provided an
integrated lean and green maturity deployment model. This model used the waste concepts
from lean paradigm and found a link with waste concepts from green paradigms. Moreover,
the authors prescribed several lean management tools (for e.g., Value Stream Mapping or
Gemba Walk - used to describe personal observation of work -where the work is happening) to
reduce green wastes. Fercoq et al. (2016) studied the impact of seven deadly wastes from lean
paradigms and 3R (reduce-reuse-recycle) from green paradigms and found that combined
applications of the two can reduce waste generation more than what an individual paradigm
can achieve. The authors developed a lean/green matrix to help practitioners and academics in
their waste minimisation plan.
On the contrary, Hallam et al. (2016) model demonstrated that green management if
combined with lean management can together reduce the wastes from the ‘whole supply chain’
such as design, production, factory management and supplier network, not only from specific
functional areas. Verrier et al. (2016, p. 90) studied the integration of lean and green paradigms
and revealed that both ‘lean and green actions should be taken as a whole’ in order to achieve
the common target of environmental improvement.
From our systematic literature review, we have observed that research findings are mixed
regarding the impact of integration of the lean and green concepts on environmental
performance. Some studies indeed found positive relationships between the two, however,
others showed that integration between lean and green is a complex issue and may not always
lead to positive influence on the environment directly or indirectly.
4.2 Lean-Green and social impact
Compared with the other two dimensions, extant studies (6 articles) have paid little attention
on the impact of lean and green supply chain/operations on the social dimension.
Maxwell et al. (1998) through the Honda case study identified that integration of green
management into lean manufacturing practices can help employees feel more empowered
regarding finding suitable environmental related solutions for car painting. Similar to lean
management principles, production workers (or associates) were involved throughout the
production processes to find innovative environmental and occupational health safety solutions
and received awards. In every step of the supply chain, the company motivated workers to
improve environmental performance. Chiarini (2014) revealed that lean management tools
such as 5S can reduce the injury rate and improve the poor conditions of health and safety.
Wong and Wong (2014) found that the lean-ecosphere model assisted companies to reduce
employee dissatisfaction and improved overall employee behaviour by increasing their
motivation. Throughout the integration, humans were considered as a resource by following
the lean principle. Govindan et al. (2015) state that a combined impact of lean, green and
resilient supply chain can improve customer satisfaction by decreasing transport lead time,
making packaging environmentally friendly and improving quality of the products in the
automobile industry. Hallam et al. (2016) explains how lean-green combined strategy can help
the social aspects by improving employee satisfaction, retention rate and having high quality
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prospective candidates because of good company reputation. Verrier et al. (2016) included ‘lost
people potential’ as the 8th lean waste that has social implications. Lost potential can be created
through poor health and safety in organisations and can lead to missed opportunities and lack
of motivation. The lean-green integration can therefore help reduce human waste and improve
social and environmental dimensions.
As can be seen above, only a handful of studies have focused on the social impact. This
gap in research has also been highlighted in several literature reviews (Hartini &
Ciptomulyono, 2015; Martínez & Javier, 2016).
4.3 Lean-Green and economic impact
The systematic review revealed around 12 articles that explored the impact of lean-green
integration on the economic dimension. Although, it is not as large as the environmental
dimension, the sample is unquestionably more than the social dimension.
Florida (1996, p. 101) asserts that ‘convergence of zero defect, inventory and emission
approach lead to improvement of productivity, performance, and profits’. Vais et al. (2006)
through a case study on the paper industry found that due to the lean and green synergy, the
organisation was able to reduce water consumption and triple its profit. Miller et al. (2010) also
found that lean-green combined effect improved financial performance by cost savings when
implemented concurrently. M. G. M. Yang et al. (2011) saw that the presence of various lean
management concepts in organisations (such as continuous improvement, TQM, JIT and
collaborative supplier relationship) creates strong managerial experiences to develop a
proactive environmental management process which in turn improves the competitiveness of
the organisation by improving costs and delivery performance.
The impact of lean and green integration on economic performance may not be direct or
positive always. Hallam et al. (2016) found that lean and green strategies together cannot
directly improve the financial performance. However, indirectly both of them could improve
the productivity which in turn can reduce the operating costs. On the other hand, they also
found that the choice of green supply chain strategies can sometimes reduce the financial
benefits by increasing operating costs or production times (Hallam et al., 2016). This finding
is in line with that of Carvalho et al. (2010). Their findings show that green supply chain has
minimal direct impact on economic performance but can impact indirectly through improved
efficiency, customer satisfaction and reduced environmental costs. Likewise, M. G. M. Yang
et al. (2011) found that the relationship between lean/green management and financial
performance is a complex one. Initially, financial performances could be negative since
organisations need to invest in human, structural and social capital for the implementation of
various environmental management practices. However, in the long run, good environmental
performances such as waste reduction or reduced emissions lead to higher market valuations
of the organisations which eventually improves financial performance.
It is evident from the above discussions that the impact of lean-green integration on
economic dimension is mixed. In the short term, during the initial periods of implementation
and investments, the costs would be higher, hence, economic performance may go down.
However, in the long run, the impact may become positive.
Fig 2 is based on the findings of the literature. According to the literature, lean and green
are two separate paradigms and only few areas of both paradigms can be integrated. The
shaded area in Figure 2 highlights the common segments of both paradigms that can be
integrated. Also, the figure shows that the influence of integration on TBL is mixed, according
143
to literature. It is also evident that the lean-green integration can influence TBL dimensions
stronger than what lean or green paradigm individually can.
Lean-green integration
common features
Continuous
improvements
Pollution prevention
Waste management
Lean paradigm
Green paradigm
Employees and supplier
involvement
Lean tools such as VSM,

5S, Kanban
Mixed influence on….
Economy
Triple Bottom
Line
Environment
Social
Figure 2: The relationship between lean-green integration and TBL

5. Discussions and future study areas
USA Environmental Protection Agency (EPA) toolkit in 2003 provided guidelines to
practitioners regarding how to extend lean principles to include various green principles to
benefit organisations EPA (2007). According to EPA, the lean definition should now include
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environmental and social concerns to provide a holistic improvement in organisations.
Nonetheless, our literature review revealed that still more studies are required to focus on the
suggestions provided by the EPA and overcome the gap in existing studies. In this section, we
will discuss the gaps in existing studies and propose some potential future research paths.
It is evident from our literature review that the empirical research on the integrated impact
of lean and green management are limited (Garza-Reyes, 2015b; Garza-Reyes et al., 2016;
King & Lenox, 2001; Martínez-Jurado & Moyano-Fuentes, 2014) although it is often
mentioned that there is a connection between lean and green paradigms in strategic, tactical
and operational levels (Duarte & Cruz-Machado, 2013b). Nevertheless, there needs to be a
systematic way to implement both lean and green paradigms in a combined and innovative
way. Zhu et al. (2008) mentioned that to reduce the external pressure from community and
regulators, manufacturers need to integrate green concepts into existing manufacturing
practices. To generate combined impact of both paradigms, a mix of critical factors are needed.
Some of these critical factors include a supporting culture, involvement of all employees,
leadership commitment and existence of suitable organisation structures. Maxwell et al.
(1998) showed that Honda’s US plants were able to not only extend the lean management
principles but also successfully trained workers to solve the manufacturing and environmental
issues with common solutions. It was possible partially due to its culture and mostly due to the
integration of lean and green paradigms. Although, several models and frameworks have been
proposed, various limitations or barriers against the lean-green integration have been put forth
too. Galeazzo et al. (2014) revealed that lack of interactions of green practices with other
operational and organisational practices such as lean practices hinders the firm’s ability to
create unique combinations of resources and capabilities required for developing competitive
advantage. Pampanelli et al. (2014) identified that lean manufacturing is centred on preserving
value with less work, whereas, green manufacturing is centred on preserving value with less
damage to the environment. Garza-Reyes (2015b) mentioned that the lean is a concept
composed of a series of practices and methods, but green is more than a collection of tools, an
overarching philosophy. Another issue associated with the lean-green integration is a lack of
resources to invest in the integration. A lot of data and effort are required to map and analyse
sustainability performance. Therefore, if a firm already is facing resource constraints, it may
not be willing to spend more resources on lean-green integration (Ng et al., 2015). For instance,
Vinodh et al. (2011) explained how additional data and more time are required to use the
conventional Value Stream Map (VSM) for environmental purposes. Hence, more research is
required to develop a simple but comprehensive lean-green integration model that is also easy
to implement and measure.
As mentioned earlier, only a handful of studies attempted to find the link between the
combined impact of lean and green on the three dimensions of the TBL. For example, Carvalho
et al. (2011) through a conceptual model proposed the links between lean, green, agile and
resilient paradigms and different supply chain performance attributes. They assert that the
synergic impact is possible for some attributes but not for all. Likewise, Cabral et al. (2012)
proposed that a lean, agile, resilient and green supply chain can improve operational,
environmental and economic performance. However, their study also revealed that in
organisations, equal importance was not given to all four features of a supply chain. The
greatest emphasis was placed on the agile feature and least importance was placed on the green
feature. Likewise, the study by Govindan et al. (2015) on the relationships between lean,
resilient and green practices and performance found that these supply chain features can
influence operational cost, business wastage, environmental cost and customer satisfaction
significantly. Martínez and Javier (2016) explained that lean means efficiency and
effectiveness whereas green means efficacy, effectiveness, and ethics. Therefore, in isolation
145
lean, or green philosophy may have a negative impact on TBL dimensions. Hence, the results
from these studies are inconclusive because these studies included several other features (such
as agile or resilient) in addition to lean and green and only a few studies explored the impact
on TBL from the supply chain/operations perspective. Additionally, these studies have used
varieties of industry (automobile, food, construction, forestry, machine parts, equipment etc.)
and different country based (US, Brazil, Sweden, Japan etc.) samples. Therefore, the future
research areas proposed by Martínez-Jurado and Moyano-Fuentes (2014) to look into the
integration between lean and green beyond waste minimization and impact on environment,
social and economic aspects have yet to be addressed properly.
On a similar note, it is found that out of 60 papers, majority is case study based (28) and
conceptual in nature (8). Next popular methodology is survey (6). Therefore, we have found a
large of body research focusing on theory development rather than theory testing. Since, lean-
green integration is a comparatively new phenomenon and there is a lack of established theory
in this area, most studies preferred to use inductive case study to learn about the phenomenon.
However, further testing of these newly developed theories on a larger sample needs to be
undertaken too. Likewise, most of the empirical papers are cross-sectional in nature. Hence,
these studies have provided us limited information about lean-green integration at a particular
point of time. In future, longitudinal research could be used to explore the impact of lean-green
for an extended period of time.
There is a lack of studies that considered the combined impact of lean-green paradigm
on social factors (Cherrafi et al., 2016; Verrier et al., 2016). Both paradigms focus on employee
training and involvement to reduce waste, improve processes to eliminate defects and accidents
in the production process. Although, it is stated by some studies that the combined impact of
both paradigms can create more efficient employees and improve operational efficiency (Ng et
al., 2015; Sobral et al., 2013), it has been found that organisations often do not use the
paradigms in a synergistic way to receive the combined benefits from a social perspective. For
example, lean training provides information about how to reduce lean waste, reduce input
consumption and increase equipment’s life efficiency. However, these trainings do not
encourage employees to think about managing green waste through recycling and responsible
resource consumption. The tools useful for lean paradigms can be used to improve social
efficiency as long as employees understand how to extract the combined value from these two
paradigms. Gimenez et al. (2012) noted that innovative and advanced production processes (a
lean concept) can reduce pollution which in turn improves working conditions and quality of
life of the community. Verrier et al. (2016) and Hines (2009) included poor health and safety
and lost people potential as additional factors under both lean and green waste management
paradigm. However, none of the studies empirically tested the impact of lean-green integration
on other social factors such as community benefits or customer welfare.
Another future area of research could be to consider the combined impact of lean and
green on different stakeholders. As yet, relationship with suppliers and employees (Florida,
1996; Rothenberg et al., 2001; Simpson & Power, 2005; Verrier et al., 2016) were found as
key factors behind the integration between lean and green, however, no research has looked
into the impact of the integration on other key stakeholders such as customers, community,
employees or regulators. For instance, Vais et al. (2006) and Sobral et al. (2013) note how lean
tools such as 5S, TPM and Quality circles train employees to improve efficiency of the
equipment through regular maintenance, monitoring and cleaning. Likewise, these tools can be
used to motivate employees to improve the environmental impact of operations. This finding
also received support from González-Benito and González-Benito (2008). Simpson and Power
(2005) on the other hand, focus on supplier involvement and collaboration to develop and use
146
innovative environmental practices for pollution prevention and waste reduction. The authors
draw references from Japanese manufacturing practices regarding how suppliers’ direct-
involvement approach facilitate the implementation of lean and green teachings into the
production system. Future research could consider how the integration of lean-green paradigms
influence employees and suppliers and other stakeholders.
All the reviewed studies mostly focused on the automobile industry since lean
management originated from Toyota (Cherrafi et al., 2016). As seen through the literature
review, around 28% studies were done on the automotive sector. A few other industries such
as construction or general manufacturing were included in the empirical studies, although no
studies looked into the impact on service industry. The impact of integration may vary
significantly from one industry to other. Therefore, future studies could look at firms from
different industry backgrounds and also examine industry effects on the implementation of
lean-green integration.
Finally, we found that there is a lack of universal measurement scale that include
achievements from integrated lean and green supply chains and influence on economic,
environmental and social performances. ISO 9000 series can measure lean performance, ISO
14000 series can measure environmental performance and ISO 26000 can provide some
evidence about social performance individually (Verrier et al., 2016), however, there is very
little research on the combined measurement criteria (Halldórsson et al., 2010). For instance,
Castka & Balza (2008) reviewed the characteristics of ISO 26000 and explained that this
certification focuses on social performance results, increases customer satisfaction/confidence
and operationalizes social responsibility by defining terminologies used in social
responsibility. On the other hand, different authors measure economic or environmental
performance with different criteria and make it hard to compare the overall performance
improvements across industry or country. Out of the nine reasons Hassini et al. (2012)
explained behind lack of reliable metrics to measure TBL dimensions, the most important ones
were a lack of understanding regarding which measure to use when and how and lack of
agreements among supply chain actors to use one common measure for all three dimensions.
Zhu et al. (2008) mentioned that to advance knowledge about emerging concepts and theories,
it is important to identify appropriate measurement scales. Also, it is important to find out under
what circumstances organisations receive benefits from these certifications. King & Lenox,
2001and Castka & Balza, 2008 mentioned that the adoption of ISO 9000 can facilitate the
adoption of other certifications such as 14000 or 26000. Bowler et al (2015: 9) found out that
presence of absorptive capacity facilitates the diffusion of multiple voluntary certifications in
organisations ‘by developing management systems and creating market awareness for the
certified produce’. In addition, the assimilation of the certifications within the organisations’
daily routine can decide the success of the certifications process. Since lean-green integration
is an emerging concept, a future research area could be to develop a performance metric that
includes TBL factors and explore the impact of lean-green integration. Also, it would be
interesting to know if the above-mentioned factors are relevant in the context of lean-green
integration.
6. Conclusion
We conducted a systematic review of literature on the integration of lean and green paradigms
and their impact on the TBL. We identified 60 papers published between the years 2006-2016
that were relevant to our review. This study makes several contributions. Unlike existing
studies, we only reviewed the studies that focused on lean green integration and its impact on
at least one of the dimensions of the TBL. In addition, we also briefly addressed other relevant
issues such as benefits/barriers of synergy and challenges behind the integration of lean-green
147
concepts. Based on our review, we were able to recommend six future research areas that will
enrich our knowledge on the topic. We hope our findings will help academics to do more
research on the areas of lean-green integration and develop simple and easy to implement
frameworks.
We have limitations in our study too. Although our sample size of 60 articles may not
be a large one, it shows the depth of study undertaken so far on the topic. As mentioned by
Halldórsson et al. (2010), literature and research are continuously being published and added.
Therefore, we may have overlooked a few recent articles although, we have tried to make the
literature review as comprehensive as possible.
Despite the limitations, our literature review is able to shed light on a very useful topic
that is emerging and is of value to both academics and practitioners. Our review and future
research areas illustrate that although the literature is replete with discussions on lean and green
issues, still more research is required to fill the gap and enrich the body of knowledge. From a
managerial perspective, an easy to implement framework or model by integrating lean and
green will help firms achieve competitive advantage without costing a lot and maintaining
equal contributions towards society and environment.
148
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151
Appendix
Table 1: Details of the articles reviewed
Author/year Research Lean-Green Impact on Triple Bottom Line (TBL) Other performance Comments
methodology frameworks/model indicator
Economic Environmental Social Operational performance
performance performance performance
(Verrier et al., Some Causal link between No Wastes Workforce No Literature review performed to
2016) information on lean and green reduction improvement, summarise recent findings on
Toyota case wastes; health & safety, lean-green integration
study Lean tools and their lost people
impact on lean and potential
green waste
management;
Lean and green
house; lean and green
capability maturity
model
(Sagnak & Quantitative Six sigma No Gas emissions No No Inclusion of six sigma can
Kazancoglu, analysis, methodology was from power eliminate the limitations of lean
2016) Thermal employed to facilitate stations and green approach and
power the integration of lean improve the performance after
emissions and green approaches integrating lean and green.
(Fercoq et al., Quantitative Lean and green No Waste No No Combining 3R and the deadly
2016) experimental integration in waste management wastes of lean management
study management improve performance of a waste
minimization program.
(Garza-Reyes Case study, Use of Sustainable No Reduction of No Operational efficiency: Simultaneous application of
et al., 2016) Transport & Transportation Value toxic gas excess distance lean and green concepts through
Logistics Stream Map emissions, reduction, excess STVSM improves road
(STVSM) to allow delivery time reduction, transport operations
simultaneous average number of
deployment of lean clients served increased,
and green principles demand not satisfied
reduced
152
(Campos et al., Case study, Conceptual model to No 3R, waste Supplier No Not all practices from lean and
2016) appliance explain when reduction, evaluation/trainin green can be considered
sector synergistic pollution g, information synergic. Some factors
relationship between prevention, sharing, influence the potential for lean-
lean and green emissions collaboration. green synergy and some factors
possible and wen not. reduction, use of influence the realization of the
green synergy potential.
technology,
reverse
logistics,
green/less
packaging
(Ng et al., Case study of Carbon-Value- - Carbon footprint Safer working Production lead time, Lean-Green integration can
2015) a firm Efficiency Value- reduced conditions, processing time reduced benefit production, improve
produces Stream-Mapping improved skill working environment and
metal stamped (CVE-VSM) sets/employability support workers.
parts , team spirit, trust
between
management and
workers, sense of
accomplishment
(Govindan et Interpretive Impact of lean, green Operation cost, Reduce material Customer No JIT, flexible transportation and
al., 2015) structural and resilient supply environmental wastage and satisfaction environmentally friendly
model (ISM) chain on performance costs, resource packaging are the three common
used for consumption features of lean, green and
automotive resilient supply chain. However,
supply chain trade-offs could emerge.
(Fahimnia et Mathematical Trade-off model Overall supply Carbon No No Lean and green integration
al., 2015) modelling and chain costs emissions, debate focus on both overlap
case analysis waste reduction among two concepts and
(manufacturer and energy barriers. The study found that
of metal consumption trade-offs may exist depending
containers on the environmental objectives
such as water and SCM strategies (production,
tanks) transportation etc.) of the lean
practices.
153
(Piercy & Multicase Conceptual model to No Waste Workplace No The study highlights how lean
Rich, 2015) analysis, integrate lean reduction, less improvements, supports green and green
manufacturing operations and green defects, use of supply chain supports lean practices.
firms business to develop a less resources improvements,
(cosmetics, full CSR & lean community
pharma, metal, supply chain improvements
drink,
furniture)
(Besseris & Experimental, Lean and green No Sustainability No Productivity Lean-green implementation
Kremmydas, manufacturing application in improved the productivity and
2014) (metal cutting) manufacturing sustainability.
(Faulkner & Case study, Comprehensive Costs incurred and Process water Physical work No Revealed in the literature review
Badurdeen, manufacturer sustainable VSM or value added consumption metric, work that several studies extended
2014) of satellite Sus-VSM tool used. metric, raw environment lean tools to include green
television material usage metric, energy measurement criteria, not many
dishes metric, consumption studies truly measured the
metric impact on economic, society
and environmental performance.
Also, they mentioned that the
integration needs to be in the
whole supply chain, not only in
silos.
(Chiarini, Case study, Use of VSM and No Waste No No Literature review revealed lack
2014) manufacturers other four lean tools reductions and of theoretical frameworks on
of motorcycle to develop a mapping atmospheric lean-green integration and
components system to support emissions relationships between use of
environmental reductions specific lean tools and
benefits environmental benefits.
(Kurdve et al., Case study, Integration of formal No Environmental No Quality, cost, delivery 5 global car companies revealed
2014) five Swedish management systems management that integration is beneficial but
automotive such as quality system needs cultural shift in the firms,
manufacturing management (QMS), support from top management
company environmental and inclusion of some
management system environmental management
(EMS) and related KPIs in place.
occupational health
and safety (OHS) into
154
firms operations
improvement system
(Brown et al., Case study, a No model proposed, Value-added ratio: Energy use, Ergonomic No The study revealed that a few
2014) satellite dish use Sus-VSM % of time during water use, motion and work consider sustainability
manufacturing methodology which a water, energy environment holistically by focusing on one
facility part/product in and material aspect of TBL.
being transformed wastes
into a form that the
customer desires.
(Pampanelli et Case study, a Lean-green model Cost reduction of Reduced No No Integration of green practices
al., 2014) global based on Kaizen by 5-10% of the environmental into lean practices required
manufacturing approach total cost of mass impact and merger of traditional lean waste
engineering and energy flows increased management principles and
company productivity in environmental concern about
the use of resource usage. However, to
resources successfully operate the
integration it is important to be
lean first and involvement of all
team members.
(Galeazzo et Case study of No framework No VOC emissions, No Production costs savings, Two propositions: a)
al., 2014) refrigeration- proposed, Natural hazardous productivity, quality, simultaneous implementation of
cooling-water Resource Based View wastes dependability, speed, lean and green practices were
pump industry used to integrate lean volume flexibility efficient more than the
and green principles sequential implementation; b)
collaborations between
operations managers and
environmental managers are
important.
(Banawi & Case study in Integrated model to No Waste No No The framework designed to
Bilec, 2014) construction validate the link generation in improve process performance
industry between three time and by elimination/reducing design
constructs materials changes during the construction
phase.
(Wong & Case study, Lean-ecosphere No Human factor Quality, costs, delivery Scientific and innovative
Wong, 2014) manufacturing management system (dissatisfaction, management of lean is
by using ISM and conflicts among beneficial for the firm and
ANP. departments, environment.
155
cohesiveness
among
employees)
(Duarte & Case study, Lean and green No Not explicitly No No Case study companies are aware
Cruz- automobile success roadmap of the lean-green integration and
Machado, industry possible benefits, however,
2013a) implementation was not done
completely.
(Duarte & Conceptual Transformation No Not explicitly No No To integrate lean and green,
Cruz- paper model by integrating appropriate culture, involvement
Machado, leadership, people, of employees, leadership
2013b) strategic planning, commitment and suitable
stakeholders, strategies are important.
processes and results
(Sobral et al., Case study of Focus on how lean No Efficient use of No No Adoption of lean can generate
2013) automobile manufacturing resources such green benefits but this synergy
manufacturers practices generate as water, between the two concepts not
green benefits energy, and raw always identified/understood by
although no new materials, waste the managers.
model proposed generation
(Aguado et al., Case study of Efficient and Material costs, Environmental Social Productivity, quality Costs, the incomes, the social
2013) manufacturers sustainable production costs, impact, global responsibility responsibility and sustainability
of industrial improvements in a general costs, warming, because of can be improved with
pipes lean production selling price, reduced innovative environmental
system through benefits consumption of approaches to lean system.
processes of the raw materials
environmental and customer
innovation satisfaction.
(Jabbour et al., Survey study Conceptual No No No Cost, quality, flexibility, There is a need identified in the
2013) in Brazilian framework to validate delivery, new product study to focus on human side
automotive the relationships development, time to (such as recruitment/selection,
sector between market for new products training, performance evaluation
environmental and rewards/benefits) of
management, lean environmental management in
management and addition to lean management.
human resource
management with the
influence of
156
environmental
management on
operational
performance
(Hajmohamma GMRG Integrating lean No Air emissions, No No Lean management makes the
d et al., 2013) survey, management, supply waste water organisational environment
manufacturing chain management, generation, solid conducive for development of
sectors environmental waste disposal, environmental management
practices and consumption of practices and these
environmental hazardous/harm environmental initiatives
performance, ful/toxic improve the environmental
Environmental materials and performance. The impact of
practices act as a energy supply chain management was
mediator. consumption marginal.
(Folinas et al., Conceptual Systematic approach No Waste No No VSM is an effective and
2013) paper for determining the management efficient tool for waste removal
waste in agri-food and greening food supply chain.
supply chains through
VSM
(Bandehnezha Survey of Process/equipment, No Environmental No No Not all lean practices are
d et al., 2012) manufacturing manufacturing outcomes beneficial for the green
firms in planning/control, outcome. Manufacturing
Malaysia human resource planning/control and suppliers’
practices, product relationships were fund to have
design, supplier no significant impact on
relationship, environmental performance.
customer relations
and environmental
outcomes are
included in the
model.
(Cabral et al., Case study, Conceptual decision Environmental cost, Business waste No Inventory levels, quality, To improve competitiveness,
2012) Automotive making model: ANP cash-to-cash cycle customer satisfaction, agile is the most important
company by integrating lean, time, cost feature followed by lean,
agile, resilient and resilient and green.
green supply chain
157
(Azevedo et Case study, A theoretical Operational cost, Business Corruption risk, No The authors proposed six
al., 2012) automobile framework by environment cost, wastage, green supplier propositions related to the
industry integrating lean and inventory cost image, co2 screening, local impact of lean and green
green supply chain emissions suppliers practices on the TBL.
practices developed
by including
relationships of the
focal manufacturer
with upstream
suppliers, this is
followed by an
analytical framework
(Carvalho et Conceptual Conceptual model to No Redundant and No Flexibility, Lack of research on all four
al., 2011) paper explain synergies and unnecessary responsiveness, customer features and their integration.
divergences between material demand, speed/quality The study revealed synergies
lean, green, resilient reductions, possible for some supply chain
and agile waste attributes (information
management minimization, frequency, production lead time,
paradigms reduce transport lead time etc.), not for
transportation all attributes.
lead time,
efficiency of
resource
consumption
(M. G. M. Survey in Integration of lean Financial Environmental No No Lean principles with the help of
Yang et al., manufacturing and environmental performance: return performance green management practices can
2011) firms management on assets and return improvements improve environmental
worldwide practices led to on sales, market over last 3 years performances, only lean
environmental and performance: sales and comparison practices cannot improve
business performance and market share with their environmental performance.
competitors Environmental management
practices directly impact the
business performance
negatively, but, positively
influence the environmental
performance.
158
(Vinodh et al., Conceptual Strategies/techniques No Waste Occupational No Several lean principles such as
2011) paper to achieve elimination Health & Safety Kaizen, VSM and 5S can be
sustainability used to integrate environmental
objectives using lean concept.
initiatives
(Torielli et al., Conceptual Comprehensive lean- Cost Environmental No No Lean alone cannot improve
2011) paper, green system model Management environmental performance but
Foundry System integration with sustainability
industry can improve company’s ability
to continuously improve.
(Miller et al., Case study, Discussions on lean- No Waste No No Lean transcends green if
2010) Furniture green integration but reduction, combination of lean tools can be
industry no model proposed. recycling applied. However, the article
did not talk about the lean-green
integration.
(Carvalho et Conceptual Conceptual model Cost, ROA, Environmental No Inventory levels, quality, Lack of supply chain metrics
al., 2010) paper focusing on supply efficiency, cash-to- costs, LCA, customer satisfaction, can create problem in
chain performance cash-cycle business time integrating lean and green and
and lean-green wastage find out the impact on TBL.
practices integration.
(C.-L. Yang et GMRG Integrated model by No No No Manufacturing Environmental management
al., 2010) survey, including advanced competitiveness: cost, practices act as mediator
various manufacturing quality and delivery between advanced
manufacturing practices, manufacturing practices and
sectors environmental competitiveness.
management
practices and their
influence on
competitiveness.
(Sawhney et Case study, Lean and green No Solid waste, Employee’s air - The case study illustrated that
al., 2007) manufacturing integration matrix toxic chemicals, pollution, health there are trade-offs between
(metal cutting) through En-Lean water pollution safety and energy lean and green performance.
methodology use
(Vais et al., Case study, Focus on lean-green Profitability Discharge to No No Innovative use of lean and green
2006) paper board principles but no water, water tools reduced the environmental
companies model/frameworks savings impact and tripled profitability.
proposed.
159
(Kainuma & Experimental, Extending supply Supply chain ROA LCA Customer No Multiple attribute theory
Tawara, 2006) simulation chain to include re- satisfaction supported the integration
use and recycling to between lean and green
integrate green onto paradigms.
lean concepts
(Simpson & Case study, A conceptual model No Environmental No No Lean performance is positively
Power, 2005) Automotive between supply performance, related to environmental
company relationship, mainly focus on management practices and
environmental waste reduction relational customer-supplier
management practice relationship supports the spill
and lean over from lean to green.
manufacturing
(Larson & Case studies Lean and green Touched on overall Waste No No The study found that currently
Greenwood, undertaken by synergies and cost improvement management lean and green operate in
2004) EPA, performance parallel in most firms.
primarily improvement Integrating both could reduce
focusing on the weaknesses associated with
Boeing each paradigm and improve
company overall competitiveness.
(Simons & Case study, VSM methodology Value-added Co2 No No Use of VSM to measure
Mason, 2003) food industry used to integrate percentage minimisation environmental impact is a new
environmental throughout the but growing area in research.
impact, no model supply chain
proposed.
(Rothenberg et Surveys and Integration between No Air emissions of No No Some aspects of lean principles
al., 2001) interviews, lean practices (such VOCs, and may conflict with some aspects
automobile as buffer resource of environmental performance.
industry minimization, work efficiency The relationship between lean
practices and human practices and environmental
resource practices will be stronger for
management) and energy resources than water
environmental since plants perceive energy as
practices more valuable.
(King & Secondary Conceptual model to No Total emissions, No No The authors found evidence to
Lenox, 2001) data from test the relationships relative confirm that lean is green.
existing between lean emissions,
database from production and Waste
US adoption of ISO generation
160
manufacturing 14000, waste
facilities generation, on-site
treatment and
emissions
(Maxwell et Automotive, No separate model, - VOC emissions Human resource - Implementation of lean
al., 1998) case study discussions on policies management makes the
productivity, high adoption of green management
quality and easy.
environmental
sustainability
(Florida, 1996) Mixed Use of advanced No Pollution No No Innovative use of advanced
method, manufacturing prevention manufacturing systems can
manufacturing practices to improve improve environmental impact
firms environmental of manufacturing practices.
outcome
Table 2: Summary of the literature review
Authors Variables of Time Period, number Contribution Findings/comments

interest of publications
Focus of the study Any future Any model Proposition
study area proposed proposed
proposed
(Cherrafi et Lean/six sigma 1990-2015, 118 The authors did a Yes, seven Integrated model No The study identified a lack of integrated
al., 2016) and sustainability articles state-of-art major future by including model between lean, green and Six
literature review research areas barriers/drivers Sigma. They proposed a model to fill this
on the integration identified. and critical gap with the help from DMAIC pattern.
between lean, six success factors
sigma and
sustainability by
focusing on
barriers, drivers,
benefits and
161
conflicts among
the variables.
(Hallam et Lean and green 1996-2016, 60 Relationship Yes The integration of No Lean and green practices were
al., 2016) articles between green lean and green implemented separately, although
and lean wastes and impact on synergistic benefits can be obtained if the
performance from implementation of both can be integrated.
both lean and
green
management side
(Verrier et Lean and green 2008-2015, number Synthesized Yes Several models No This study is not only focused on
al., 2016) of articles reviewed research on lean proposed and literature review but is a part of the large
not mentioned and green topics tested scale ‘Lean and Green project’.
(Martínez & Lean and green 1987-2014, 57 Lean and green Yes Conceptual maps Yes The review revealed that more research is
Javier, 2016) and TBL articles synergy and to identify affect needed to explore the impact on financial
impact on TBL and effect of lean dimension compared to social and
and green environmental dimension. They also
integration on supported existing research findings that
TBL lean has positive implications for the
environment, however, lean sometime can
have negative implications for the
environment too.
(Garza- Lean, green and No time-period Focus on Yes Integrated Green No The inherent limitations of green and lean
Reyes, six sigma mentioned, 57 limitations of Lean and Six approach require firms to integrate with
2015a) articles lean-green Sigma to Six Sigma to address the limitations and
integration and influence complement the green lean approach and
compatibility with environmental, improve effectiveness of the overall
Six Sigma operational and integration.
financial
performance
(Garza- Lean and green 1997-2014, 59 Concept map of Yes, with No No The concept of lean-green integration is
Reyes, articles the lean and green future research still not clear and the authors proposed
2015b) literature review questions several future research paths with
to show the potential research questions. The critical
different research area is to undertake research in under-
streams researched organisation functions.
162
(Hartini & Lean and 2000-2014, 58 Interrelationships No No No Research gaps identified but no future
Ciptomulyo sustainable articles among lean and research path shown.
no, 2015) manufacturing sustainable
performance manufacturing on
performance
(Johansson Lean product 2000-2012, 102 Potential Yes No Seven Lean and green are not two sides of the
& Sundin, development and articles (35 LPD, 67 conflicts, propositions same coin, LPD will not automatically
2014) green product GPD) synergies or lead to GPD.
development overlap between
LPD and GPD
(Martínez- Lean 1990-2013, 58 Lack of Yes No The key future research area could be to
Jurado & management, articles research on look at the social sustainability in lean
Moyano- supply chain the social supply chain management.
Fuentes, management and sustainability
2014) sustainability area,
definition of
lean supply
chain social
impact, key
social
performance
indicators
(Dhingra et Lean and green Special issue of All types of paper Yes No No Review of the articles published in the
al., 2014) Journal of Cleaner submitted in the special issue reveal that lean-green
production, 2014, 43 special issue on integration can help society to move
articles lean and green towards a sustainable future.
paradigms
(Dües et al., Lean and green 1990-2011, Lean and green No A model to No The study highlighted the major areas of
2013) publication number synergy and explain the similarities and conflict.
not mentioned distinguishing possible overlap
features between lean and
green paradigms
(Halldórsson Green, lean, and 1990-2009, first 1000 Complimentary Four future No No Lack of research regarding how to
et al., 2010) global supply articles scanned and conflicting research implement green, lean and global supply
chains factors between agenda chain concurrently. Also there is a lack of
lean, green, and proposed. theoretically grounded research on the
global supply synergies and conflicts between three
chains principles.
163
164
Complexity Dimensions and Related Risks in Supply Chain Networks: A Systematic
Literature Review
Derek Friday
Newcastle Business School | Faculty of Business and Law | The University of Newcastle –
Australia | University Drive Callaghan NSW 2308 | Office: +61 (02) 4921 5512 |
Mob: +61 470510787 | Australia. Email: Derek.Friday@uon.edu.au
Ramaswami Sridharan, David Collins, and Suzanne Ryan

Newcastle Business School | Faculty of Business and Law | The University of Newcastle –
Australia | University Drive Callaghan NSW 2308 | Office: +61 (02) 4921 5512 |
Abstract
Purpose: The purpose of this paper is to clarify supply chain complexity in relation to its
dimensions, levels of analysis, and identify complexity risks.
Method: A systematic literature review based on 76 peer reviewed articles from 29 supply
chain management journals over a 25-year period.
Findings: There are 46 varied terminologies describing dimensions of complexity. In some
cases, dimensions are confused with their drivers. Structural and behavioural dimensions of
complexity are most common although dimensions relating to product, decision-making, and
task complexity are emerging. Levels at which complexity is analysed vary from firm, supply
chain, to systems and networks, in addition to functional levels. Despite the interest in supply
chain complexity, there is reluctance to categorically identify and name potential
vulnerabilities emerging from complexity as complexity risks.
Originality: The paper clarifies the distinction between dimensions of complexity and their
related drivers based on grouping similarities in properties between complexity, networks,
systems and supply chains using two complexity parameters: numeracy and unpredictability.
We reinforce the application of a ‘systems’ and ‘network’ level of analysing complexity in
supply chain networks as a better approach to conceptualising complexity and propose the
expansion of supply chain risk classifications to include complexity risks.
Paper type: Systematic Literature review
Keywords: Supply chain complexity, Complexity risks, Complexity dimensions,
Systematic literature review
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1.0 INTRODUCTION
Increasing complexity in supply chain operations exposes their related networks to more
frequent and intense risks and disruptions. Structural characteristics of supply chain networks
(horizontal, vertical and spatial interconnectedness) have the strongest effect on the frequency
of supply chains risks and disruptions because of interactions among the supply chain process
flows of materials, information and funds (Bode & Wagner, 2015). By nature, complexity is
inherent in supply chains and difficult to pin down, primarily because of its numeracy and
unpredictable patterns (Bozarth, Warsing, Flynn, & Flynn, 2009; Simon, 1962). Supply chain
complexity (SCC) is increasing due to: globalisation of supply chain operations and consumer
markets; adoption to changing technologies; product variety and customization; shorter product
life cycles; and, dynamic and uncertain business environments. Additionally, considerations in
balancing decisions on economic, environmental and social elements add to complexity
through interconnectedness and related uncertainty (Bozarth et al., 2009; Manuj & Sahin, 2011;
Serdarasan, 2013; Wu & Pagell, 2011). It is argued that complexity is not affected by
globalisation of supply chain operations as managers find ways of unbundling components in
manufacturing and service delivery and relocating the information-intensive components along
with adaptable labour to other countries with minimal capital investment requirements (Fisher,
2003). However, complexity is more than the component parts of the supply chain. There is
limited ability to manage complexity because of its key feature relating to difficulty in
identifying ‘actions and behaviours’ of firms and envisaging how they might disrupt supply
chain operations, because the latter (disruptions) are separate from their causes both in time
and place (Holmberg, 2000; Surana, Kumara, Greaves, & Raghavan, 2005).
Supply chain complexity’ is an extension of complexity science from physical sciences,
engineering, ecosystems, social organisations, systems and network theory (Choi, Dooley, &
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Rungtusanatham, 2001; Simon, 1962; Von Bertalanffy, 1968). Complexity is applied to
demonstrate the difficulties in identifying and quantifying causal linkages of firm actions,
behaviours and their related spill over and cascading effects as a consequence of: interactive
effects; delays between cause and effect; individual variations; and interruptions from dynamic
business environment (Renn, Klinke, & Asselt, 2011). Supply chain complexity refers to
supply chain networks comprising of many and different firms (numeracy), with a large
number and variety of relationships, processes and interactions (randomness) at different levels
of management, requiring large amounts of information to control the processes and operations
(Serdarasan, 2013). Complexity goes beyond complicatedness, whereby the sum is greater
than the parts. Supply chain complexity is a topical issue presenting challenges to both
researchers and managers (Bode & Wagner, 2015) primarily because its conceptualisation is
hampered by confusion in dimensions of complexity, variations in levels of analysis, and a
failure in acknowledging risks emerging from complexity in supply chain risks classifications
(Bakhshi, Ireland, & Gorod, 2016; Geraldi, Maylor, & Williams, 2011). Based on a systematic
review of SCC literature, the aim of this paper is to clarity the dimensions of complexity and
their related drivers, levels of analysis, and identification of risks emerging from complexity.
Based on 76 peer reviewed articles relating to SCC, our systematic literature review (Denyer
and Tranfield, 2009) was guided by three research questions: What are the dimensions of
complexity in supply chains? What is the level of analysis for complexity in supply chains?
And, what risks are attributed to complexity in supply chains? We address the research
questions by drawing from complexity science in general and ‘systems and network’ theory in
particular, to interpret complexity in supply chain networks. By grouping conceptual
similarities among properties of networks, systems, and supply chains, using two parameters:
numeracy and unpredictability, we align the dimensions of complexity with their related
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drivers, highlighting variations in levels of analysis, and identifying potential risks emerging
from complexity.
Our findings confirm that complexity and its risks are indeed slippery concepts in supply chain
management. There are 46 complexity dimension terminologies, where in some cases; the
dimensions are often confused with their related drivers. The findings highlight a range of
levels of analysis from a single focal point at firm level, to upstream or downstream sections
of the supply chain, to system and networks. Although several studies highlight the potential
of complexity to disrupt supply chain operations, no single article categorically identifies and
names risks emerging from complexity as complexity risks. Overall, our findings indicate
problems in how SCC is conceptualised. Improved conceptualisation is fundamental to
increasing the understanding of complexity by practitioners and helping managers cope with
disruptions emerging from complexity in supply chain networks.
The paper’s contribution lies in suggesting a simpler means to comprehend complexity in
supply chain networks using a two-prong complexity approach comprising of numeracy and
unpredictability parameters. The parameters provide clear demarcations in the
conceptualisation of complexity and its dimensions, the levels at which complexity is analysed,
and potential risks and disruptions emerging from complexity. We provide coherence around
the two broad dimensions: structural and behavioural complexity and their related drivers,
justify the value of both a system and network level of analysis, and propose an expansion of
the supply chain risks classifications to include complexity risks in future SCC and SCRM
research. The paper proceeds as follows: an explanation of the systematic literature review
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method, presentation and discussion of findings, and concluding remarks with implications for
practitioners.
2.0 SYSTEMATIC LITERATURE REVIEW - METHOD
A systematic literature review is a method appropriate for rigorous investigation of previous
research to enable the management of diverse knowledge, increase replicability, transparency,
validate findings, and overcome generalisation limitations associated with single studies
(Bartunek & Rynes, 2010; Bhamra, Dani, & Burnard, 2011; Elliott, Fischer, & Rennie, 1999;
Leung, 2015; Saenz & Koufteros, 2015). The method has been applied in similar reviews on
complexity in project management (Geraldi et al., 2011) and behaviour uncertainty in supply
chains (Simangunsong, Hendry, & Stevenson, 2012) but not directly to SCC. The method
follows a five step procedure (Denyer and Tranfield 2009): identifying review questions;
locating and selecting relevant studies; critically appraising the studies; analysing and
synthesising the findings; and disseminating the review finding. The five steps act as a
guideline to eliminate bias; enable reformulation of ideas; and help ensure reliability and
validity of findings (Barratt, 2004; Bryman & Bell, 2015; Kirk & Miller, 1986; Tranfield,
Denyer, & Smart, 2003).
Step One: Research Questions
To avoid ambiguity, the first step is to develop a clear focus based on apparent deficiencies in
the relevant literature (Rousseau, Manning, & Denyer, 2008). The limited ability to manage
complexity in supply chain operations is constrained by ambiguities in understanding its
dimensions and related drivers, variance in levels of analysing the concept, and neglect in
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naming complexity risks in mainstream supply chain risks classifications. This inability is
exacerbated by paradoxes arising from simultaneous application of multiple strategies such as:
globalization of processes; outsourcing and insourcing; flexibility and responsiveness; and
adoption of ‘lean’ and ‘agile’ practices, without consideration of the complexities they create
(Bode & Wagner, 2015; Christopher, 2012; Hwarng, Chong, Xie, & Burgess, 2005). This is
akin to asking supply chains to speed up and slowdown at the same time. The following three
research questions guided the review and its logical presentation and discussion of findings
(Elliott et al., 1999; Miles & Huberman, 1984).
RQ1. What are the dimensions of complexity in supply chains?
RQ2. What is the level of analysis for complexity in supply chains?
RQ3. What risks are attributed to complexity in supply chains?
Step Two: Locating Sources and Relevant Studies
To ensure a supply chain context, we focused on supply chain management journals as the
main source of SCC literature in order to situate the location of information and maintain the
quality and relevance of articles to be reviewed (Elliott et al., 1999; Kitchenham, Brereton,
Turner, et al., 2009). We began with 25 supply chain journals from a list developed by the
authors in a previous systematic literature on collaborative risk management (Friday,
Ramaswami, Collins, Ryan, & Heyden, 2016). In cross-referencing citations from articles
located in the 25 journals, we identified an additional four supply chain management journals
(Turner, Kitchenham, Budgen, & Brereton, 2008). In total, we searched 29 supply chain
management journals for SCC articles based on their supply chain research agenda and
irrespective of their impact factor or ranking, as the latter would not influence our results
(Durach, Wieland, & Machuca, 2015).
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Relevant articles were found through searches using the word combinations: ‘supply chain
complexity’ and ‘complexity’, to identify SCC in specific articles based on words used in the
title. If a title contained either of these terms, the abstracts were checked to confirm the
association of complexity with supply chains. Once confirmed, we read through the reference
list of each article for relevant citations to locate further articles relating to SCC that might
have been published outside of the 29 supply chain management journals. The search process
produced 311 documents including journal articles and conference papers. The search was
limited to articles published in English.
Step Three: Selection and Appraisal Criteria
Inclusion and exclusion criteria were developed to select articles for inclusion in the review.
There were three inclusion criteria: peer reviewed articles with titles containing key search
phrases, and/or abstracts referring to complexity in supply chains, and availability of the article.
After applying the criteria, we excluded 235 articles. Majority of the articles were excluded
because they had a specific focus on manufacturing rather than the broader supply chain, and
some others were earlier versions of articles first published as conference papers (Kitchenham,
Brereton, Budgen, et al., 2009). Ten articles met the inclusion criteria based title and abstract
but could not be accessed (Arkhipov & Ivanov, 2011; Azzi, Battini, Persona, & Sgarbossa,
2010; Battini, Persona, & Allesina, 2007; Bjork, Hejazi, & Carlsson, 2006; Buvik & Halskau,
2016; Caridi, Pero, & Sianesi, 2009; Rai, Sharma, & Ganguly, 2015; Seuring, Goldbach, &
Koplin, 2004; Smith, 2011; Taniguchi & Terano, 2005). One article, an editor’s comment was
further excluded (Botta-Genoulaz & Gourgand, 2008). After excluding 235 articles, 76 articles
were retained for reviewing: 74 journal articles and two conference papers (see Figure I).
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Search: 29 Supply Chain
Management Journals
String of Word Combinations

‘Supply Chain Complexity’ or
‘Complexity’ in Title
311 Articles
ArArticles Exclusion Based on
Reading Abstracts or
Earlier Versions
Further Exclusion: 87 Articles

• 10 Articles - Not
Accessible
• One Article -Editor’s
Comment
76 Articles for Review
Analysis and Synthesis
Figure I. Flow Chart: Selection Process (Barrow & Manathunga, 2017)
Step Four: Analysis and Synthesis of Findings
Thematic analysis and synthesis were used to analyse the data and group them into meaningful
themes. This involved isolating relevant data, tabulating it, tracing patterns, and aggregating
common ideas based on a thematic approach. Each of the 76 articles was read carefully by one
researcher to isolate and code the dimensions of complexity, its theoretical context, and the
risks arising from complexity in supply chains. The codes were then checked by two other
researchers to eliminate inconsistencies and increase the internal validity and credibility of the
data (Elliott et al., 1999; Turner et al., 2008). Broader categories were then developed for
grouping similar codes into two complexity science parameters: numeracy and
unpredictability.
The numeracy parameter was used to identify structural complexity dimensions and their
drivers, because it explains complexity properties based on numbers such as: number of
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organisational entities, heterogeneous agents, autonomous agents, multi-levels, and scalability.
The unpredictability parameter was used to identify behavioural dimensions and their related
drivers, because it demonstrates the unpredictable behaviour of complexity properties such as
nonlinear dynamics, emergent behaviour and self-organisation, co-evolution, and the butterfly
effect. Theoretical contexts and potential risks of complexity were identified and aggregated
during reading of the articles. Reconfigured data and themes were presented as qualitative data
using graphs, pie charts, tabulations, and percentages to facilitate verification, interpretation,
discussion and conclusions. Presenting the data this way allowed interpretation of the
descriptive themes to address the research questions (Braun & Clarke, 2006; Fulmer, 2012;
Kitchenham, Brereton, Budgen, et al., 2009; Miles & Huberman, 1984; Rangel et al., 2015;
Rousseau et al., 2008; Shiffman, 1986; Thomas & Harden, 2008).
Step Five: Dissemination of Review Findings
In line with the final step in a systematic literature review, the development and dissemination
objective of this paper was guided by an active approach to spread the results and propositions
through publication in the right domain without conflicting ideologies or infringing on
copyrights. Earlier versions of the paper were presented at two colloquiums to test the
acceptance of SCC and generate feedback prior to revising the paper for publication (Fincher,
2000; Rabin, Brownson, Haire-Joshu, Kreuter, & Weaver, 2008).
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3.0 RESULTS AND DISCUSSION OF FINDINGS
Results are presented and discussed commencing with general results from the search related
to sources and publication trend, followed by results and discussions in response to the three
research questions.
3.1 General Search Results on Sources and Publication Trend
The majority of the 76 SCC articles (85.5%) were published in supply chain management
journals with the International Journal of Production Research containing the most (20%)
articles (see Table 1). The remaining articles (14.5%), comprising of ten journal articles and
one conference paper, were published by sources outside supply chain management.
Table I.
Supply Chain Management Journals and other Sources of SCC Articles
No. of Journals and Conferences
Articles
15 *International Journal of Production Research
6 *International Journal of Operations & Production Management
*International Journal of Physical Distribution and Logistics Management
5 *European Journal of Operational Research
*Journal of Supply Chain Management
*Journal of Operations Management
4 *The International Journal of Logistics Management
3 *Decision Sciences
*International Journal of Logistics Research and Applications
*Production Planning and Control
*Supply Chain Management: An International Journal
2 *Journal of Business Logistics
*Journal of the Operational Research Society
Entropy
International Journal of Production Economics
1 *Research in Logistics and Production
*Production and Manufacturing Research
*Supply Chain Forum: An International Journal
International Workshop on Emergent Synthesis
Engineering Management Conference, 2004 Proceedings
Management Science
International Journal of General Systems
IEEE Transactions on Engineering management
Computers and Industrial Engineering
174
Applied Mathematical Modelling
0 *International Journal of Integrated Supply Management
*International Journal of Procurement Management
*International Journal of Automation and Logistics
*International Journal of Logistics Systems and Management
*International Journal of Shipping and Transport Logistics
*International Journal of Logistics Management
*International Journal of Retail and Distribution Management
*International Journal of Services and Operations Management
*International Journal of Value Chain Management
*Journal of Advanced Transportation
*Journal of Purchasing and Supply Management
*Transportation Journal
*Production and Operations Management
76 Total
Note: *Supply Chain Management Journals
*Conference in italics
Sequential arrangement and frequency distribution of the articles indicated a 25-year
publication trend of complexity related research in supply chain management with the first
article appearing in 1991. The publication trend indicates a growing interest in complexity
among supply chain management researchers in the last decade (see Figure II). While
complexity was adopted into business research as early as 1990 (Geraldi et al. 2011; Bakhshi
et al. 2016), the concept of complexity was extended to supply chain management in 1991
(Gattorna, Chorn, & Day, 1991) . and the term ‘supply chain complexity’ was introduced in
1998 (Wilding, 1998)
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No. of SCC Articles
35
30
25
20
15
10
0
1991-1996 1997-2002 2003-2008 2009-2014 2015- July 2016
Trend
Figure II: Publication Trend 1991 - 2016
3.2 Dimensions of Complexity in Supply Chains
Dimensions of complexity are expressed in 46 different words or phrases (see Table II). The
most common dimensions, regardless of synonym in interpretation, were structural (17),
behavioural (14), operational (11), dynamic (9) and product (7) complexity. The less prominent
dimensions vary widely in wording, and with some demonstrating complexity as specific to
supply chain functions, for example: warehouse complexity (Faber, Koster, & Velde, 2002),
and transport complexity (Venus, Lai, & Cheng, 2011). A further two articles address
complexity without mention of dimensions (K. Li, Sivakumar, & Ganesan, 2008; Mesa &
Galdeano-Gómez, 2015).
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Table II:
Frequency of Terms used for Dimensions of Complexity
Dimension Terminologies No. of Reference
Articles
Structural complexity 17 (Bezuidenhout, Bodhanya, Sanjika, Sibomana, & Boote, 2012; Bode & Wagner,
2015; Cheng, Chen, & Chen, 2014; Christopher, 2012; Day, 2014; Gattorna et al.,
1991; Hearnshaw & Wilson, 2013; Meepetchdee & Shah, 2007; Modrak & Marton,
2013; Nair et al., 2016; Orcun et al., 2007; Pathak, Day, Nair, Sawaya, & Kristal,
2007; Pathak, Dilts, & Mahadevan, 2009; Suja Sivadasan, Janet Efstathiou, Gerry
Frizelle, Rabia Shirazi, & Ani Calinescu, 2002; S. Sivadasan, J. Efstathiou, G.
Frizelle, R. Shirazi, & A. Calinescu, 2002; Skilton & Robinson, 2009; Surana et
al., 2005; Tachizawa & Wong, 2015; Wycisk, McKelvey, & Hülsmann, 2008)
Behaviour complexity 14 (Gattorna et al., 1991; Ma & Xie, 2016; Nair, Narasimhan, & Choi, 2009; Pathak et
al., 2007; Wycisk et al., 2008; Hwarng, et al., 2005;Bezuidenhout et al., 2012; Choi
et al., 2001; Christopher, 2012; Fridgen, Stepanek, & Wolf, 2015; Lowson, 2001;
Nilsson, 2006; Orcun et al., 2007; Surana et al., 2005)
Operational complexity 11 (Apte, Khawam, Regnier, & Simon, 2015; Meepetchdee & Shah, 2007; Sanjika &
Bezuidenhout, 2015; Sivadasan, Efstathiou, Calinescu, & Huatuco, 2006; Suja
Sivadasan et al., 2002; S. Sivadasan et al., 2002; Y. Wu, Frizelle, & Efstathiou,
2007; Sivadasan, S., Smart, J., Huatuco, L. H., & Calinescu, A. 2010;Lukáš &
Hofman, 2016; Sivadasan, Smart, Huatuco, & Calinescu, 2010; Y. R. Wu,
Huatuco, Frizelle, & Smart, 2013)
Dynamic complexity 9 (Day, 2014; Isik, 2010; Leeuw, Grotenhuis, & Goor, 2013; Priya Datta,
Christopher, & Allen, 2007; Serdarasan, 2013; Wilding, 1998; Allesina, S., Azzi, A.,
Battini, D., & Regattieri, A. 2010;Bozarth et al., 2009;Frizelle, G. 2004)
Product complexity 7 (Caniato & Größler, 2015; Eckstein, Goellner, Blome, & Henke, 2015; Gobbi &
Hsuan, 2015; Hofer & Knemeyer, 2009; Inman & Blumenfeld, 2014; Masson,
Iosif, MacKerron, & Fernie, 2007; Novak & Eppinger, 2001)
Decision making complexity 3 (Manuj & Sahin, 2011; Serdarasan, 2013;Allesina, S., Azzi, A., Battini, D., &
Regattieri, A. 2010).
Process engineering complexity 3 (Hofer & Knemeyer, 2009; Perona & Miragliotta, 2004; Subramanian,
Abdulrahman, & Rahman, 2014)
Static complexity 3 (Isik, 2010; Serdarasan, 2013;Allesina, S., Azzi, A., Battini, D., & Regattieri, A.
2010).
Task complexity 3 (Handley & Benton Jr, 2013; Manuj & Sahin, 2011; Schmoltzi & Wallenburg,
2012)
Computational complexity 2 (Kroon, Edwin Romeijn, & Zwaneveld, 1997; Robinson Jr & Swink, 1994)
Detail complexity 2 (Bozarth et al., 2009; Leeuw et al., 2013)
Differentiation complexity 2 (Brandon-Jones, Squire, & Van Rossenberg, 2015; Choi & Krause, 2006)
Functional complexity 2 (Hearnshaw & Wilson, 2013; Schmoltzi & Wallenburg, 2012)
Geographically dispersion complexity 2 (Brandon-Jones et al., 2015; Schmoltzi & Wallenburg, 2012)
Information processing complexity 2 (Vachon & Klassen, 2002;Sivadasan, S., Efstathiou, J., Shirazi, R., Alves, J.,
Frizelle, G., & Calinescu, A. 1999)
Infrastructural complexity 2 (Hartmann, Roehrich, Frederiksen, & Davies, 2014; Spring & Araujo, 2014)
Interaction complexity 2 (Hall, Matos, & Silvestre, 2012; Yang & Yang, 2010)
Organisational systems complexity 2 (Milgate, 2001; Schmoltzi & Wallenburg, 2012)
Performance complexity 2 (Hartmann et al., 2014; Spring & Araujo, 2014)
Relational complexity 2 (Choi & Krause, 2006; Schmoltzi & Wallenburg, 2012)
Technological complexity 2 (Milgate, 2001; Vachon & Klassen, 2002)
Uncertainty complexity 2 (Huatuco, Burgess, & Shaw, 2010; Milgate, 2001)
Combinatoric complexity 1 (Robinson Jr & Swink, 1994)
Complex combinations 1 (Adams, Richey, Autry, Morgan, & Gabler, 2014)
Configuration complexity 1 (Modrak & Marton, 2014)
Cooperation complexity 1 (Schmoltzi & Wallenburg, 2012)
Coordination complexity 1 (Hall et al., 2012)
Delivery complexity 1 (Brandon-Jones et al., 2015)

Distribution complexity 1 (Kersten, Grussenmeyer, & Lammers, 2012)
Environmental complexity 1 (Kinra & Kotzab, 2008)
E-reverse complexity 1 (Adebanjo, 2010)
Global sourcing complexity 1 (Gunasekaran, Subramanian, & Rahman, 2015)
In & Out logistics complexity 1 (Perona & Miragliotta, 2004)
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Location complexity 1 (Handley & Benton Jr, 2013)
Material complexity 1 (Sivadasan, S., Efstathiou, J., Shirazi, R., Alves, J., Frizelle, G., & Calinescu, A.
1999)
Network complexity 1 (Hofer & Knemeyer, 2009)
New product development complexity 1 (Perona & Miragliotta, 2004)
Supply base complexity 1 (Choi & Krause, 2006)
Production process complexity 1 (Perona & Miragliotta, 2004)
Sale process complexity 1 (Perona & Miragliotta, 2004)
Scale complexity 1 (Brandon-Jones et al., 2015)
Sourcing complexity 1 (Subramanian et al., 2014)
Strategic complexity 1 (Schmoltzi & Wallenburg, 2012)
Technical complexity 1 (Xu, Ristic, Besant, & Pradoux, 2005)
Transport complex economy 1 (Venus Lun et al., 2011)
Warehouse complexity 1 (Faber et al., 2002)
Although structural and behavioural dimensions account for the majority dimensions of
complexity (Bode & Wagner, 2015), there are three alterations or transitions in how complexity
is conceptualised in relation to: dimension terminologies; single verses multiple dimension
application; and overlaps between dimensions and drivers of complexity.
Variation in Terminology
Although some terminologies for complexity dimensions are consistent with those in
complexity science, the wide variation in wording is confusing (refer to Table II above). For
example, the structural dimension is also referred to as static (Isik, 2010) or detail complexity
(Bozarth et al., 2009; Leeuw et al., 2013). The behavioural dimension is refered to as
operational (Sivadasan et al., 2006); functional (Hearnshaw & Wilson, 2013); or dynamic
complexity (Day, 2014). While the variation in terminology could indicates a transition in
explaining SCC, the identification of 46 expressions of complexity dimensions implies a need
for consistency in terminology in SCC research. In particular, we suggest wording or
terminologies that are consistent with the fundamental properties of complexity science. For
coherence and simplisty in understanding dimensions of complexity, we use two parameters,
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numeracy and unpredicatability that are consequently used in complexity science in general
and systems and network theory in particular. These two parameters guide our interpretation
in re-aligning the dimension terminologies to structural and behaviour dimensions of
complexity (see Figure III, page 18).
Application of Single, Dual and Multiple Dimensions of Complexity
Dimensions of complexity in Table II are denoted as either single or in combination in the
literature. Applying a single dimensional aspect of complexity in a study may create
unrepresentative results because the interpretations and propositions will not capture the
structural and behavioural loop effect eminent in supply chain networks. Focusing on a single
dimension is misrepresentative as both the structural (numeracy) and behavioural
(unpredicatability) properties within systems and networks are intertwined. For example, a
decision to reduce inventory levels or switch suppliers could reduce one firm’s vulnerability to
supply shortage disruptions. However, making such a decision without taking into
consideration the wider interaction (behavioural) effect of changing inventory quantities or
number of inventory suppliers across the supply chain network may lead to conflicting results
or more intense disruptions. This position is consistent with the Actor Network Theory which
argues that no network exists independently of the recorded flows or things that move within
it (Latour, 1996).
Alternatively, application of more than two or multiple dimensions (organizational, strategic,
task, geographic, competency, relational, functional, and cooperation complexity) within the
same study (Schmoltzi & Wallenburg, 2012) may create confusion in how complexity is
179
conceptualised. Preference to address complexity using a single dimension in isolation raises
questions regarding whether it is accurate to examine complexity by focusing on one of its
facets given the likely contradiction with the theoretical conceptualisation of complexity in
supply chain networks. To overcome the problem of single verses multiple dimensions, we
draw from complexity science to group properties among systems, networks and supply chains
using Vachon and Klassen (2002)’s parameters of numeracy and unpredictability, to
recommend a dual approach based on structural and behavioural properties (see Table III). This
grouping is reflective of the theoretical foundations on systems and network theory referring to
supply chains as comprising of complex systems and networks properties (Pathak et al., 2007;
Surana et al., 2005; Wycisk et al., 2008).
Table III.
Conceptual Similarities in Properties among Networks, Systems and Supply Chains
Parameter Properties of Networks, Systems and Supply Chains Reference

Numeracy • Structures spanning several scales (Bezuidenhout
(Structural) • Organisational entities exhibiting adaptivity et al., 2012;
• A topology with interconnectivity between multiple supply Choi et al.,
chains 2001; Pathak et
• Heterogeneous agents al., 2007; Surana
• Autonomy et al., 2005;
• Multi-levels Wycisk et al.,
2008)
• Scalability
• Tightly coupled agents, counter-intuitive behaviour (such
as the bull-whip effect)
• Agents and schema
• Dimensionality
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Unpredictability • Strongly coupled degrees of freedom and correlations over
(Behavioural) long length and timescales
• Coexistence of competition and cooperation
• Nonlinear dynamics involving interrelated spatial and
temporal effects
• Quasi-equilibrium and combination of regularity and
randomness (interplay of chaos and non-chaos)
• Emergent behaviour and self-organization
• Adaptation and evolution
• Self- organising and emergent system performance
• External environment that co-evolves with the system
• Interaction
• Ability to learn
• Self-organisation
• Melting zone
• Co-evolution
• Adaptation
• Nonlinearity
• Butterfly effect
• Rapid and nonlinear responses
• Internal feedback
• Constant change
• Emergence
• Co-evolution
• Trade-offs
• Self- organization and emergence
• Connectivity
• Dynamism
• Rugged landscape
• Quasi-equilibrium and state change
• Non-linear changes
• Non-random future
Interchangeable Application of Dimensions and Drivers of Complexity
A considerable number of dimensions of complexity are used interchangeably with drivers of
complexity. For example, complexity aspects such as scale, differentiation, delivery reliability
and geographic dispersion, are framed both as drivers and dimensions of complexity (Bode &
Wagner, 2015; Brandon-Jones et al., 2015). This overlap creates difficulties in understanding
SCC especially for managers unaccustomed to complexity science theory, mathematical
formulas and simulations. A simpler way to understanding SCC is to align dimensions of
complexity and drivers by employing a binary of numeracy (number and the variety of firms
and interactions) for structural complexity and unpredictablity (aspects of time and
randomness) for behavioural complexity (Serdarasan, 2013; Vachon & Klassen, 2002). Based
on the conceptual similarities of the grouped properties in Table III, we aligned drivers of
181
complexity to their related dimensions of complexity to distinctly separate the two aspects to
minimise variation and overlaps.
Separating dimensions of complexity from their related drivers based on numeracy and
unpredictability involved the following logic and process (see Figure III). For the numeracy
category, we identified and grouped all drivers that demonstrate property similarities with
numerousness in a supply chain networks and aligned them with the structural dimension of
complexity. Drivers demonstrating property similarities relating to unpredictability in supply
chain networks were aligned to the behavioural dimension of complexity. Articles specifically
addressing drivers of complexity in supply chains as their research objective (Manuj & Sahin,
2011; Serdarasan, 2013; Vachon & Klassen, 2002) guided the grouping of drivers based on
conceptual property similarities. Our categorisation of the drivers basing on a ‘two prong-view’
of complexity is consistent with novel studies in complexity theory (Simon, 1962) and SCC
(Bozarth et al., 2009). The grouping simplifies understanding of the dimensions of complexity
based on the two main dimensions: structural complexity and behavioural complexity, to
minimise overlap in conceptualisation of drivers as dimensions of complexity (Bode &
Wagner, 2015; Latour, 1996; Simon, 1962).
Figure III below illustrates the division between the structural and behavioural dimensions of
complexity. However, we acknowledge other emerging dimensions outside the two common
dimensions, for example: product; decision-making; and task complexity. These dimensions
reflect advancement in understanding and conceptualisation of complexity in supply chain and
operations management.
182
Numeracy Drivers of SCC
• Number of suppliers
• Number of customers
• Number of products
• Number of policies
• Diversity
• Size Dimension
• Structure
• Speed
Structural
Complexity
Supply Chain
Complexity
Unpredictable Drivers of SCC
• Process interactions
• Lack of process Dimension
synchronisation
• Demand amplification Behavioural
• Changing needs of
customers Complexity
• Changing resource
requirements
• New technologies
• Changes in the geopolitical
environment
• Shorter product life cycle
• Trends in the market
• Market uncertainties
• Developments in the future
• Uncertainty
• Variability
• Lack of information
synchronisation
• Lack of corporation
Figure III. Dimensions of Supply Chain Complexity and their Related Drivers
3.3 Level of Analysis of Complexity in Supply Chains
Among the multiple levels of possible analysis of complexity, the supply chain level of analysis
is the most commonly applied (27.6%), followed by firm (19.7%), supply network (14.4%),
network (13.2%), systems (9.2%), and system and network (4%) levels respectively (see Table
IV). Other less frequent levels of analysis explaining complexity include: wholesale, business
cluster, supplier-customer and macro-institutional approaches. One article (Venus et al., 2011)
does not provide any specific perspective on how the influence of complexity in supply chain
operations was analysed.
183
Table IV.
Levels of Analysing Complexity in Supply Chains
No of Level of Analysis Reference

Articles
21 Supply chain (Bozarth et al., 2009; Gattorna et al., 1991; Hwarng et al., 2005; Ma & Xie,
2016; Manuj & Sahin, 2011; Frizelle, G. 2004; Gunasekaran et al., 2015;
Sivadasan, S., Efstathiou, J., Shirazi, R., Alves, J., Frizelle, G., & Calinescu,
A. 1999; Apte et al., 2015; Eckstein et al., 2015; Gobbi & Hsuan, 2015;
Huatuco et al., 2010; Inman & Blumenfeld, 2014; Isik, 2010; Masson et al.,
2007; Modrak & Marton, 2013; Suja Sivadasan et al., 2002; Y. Wu et al.,
2007; Y. R. Wu et al., 2013; Yang & Yang, 2010; Sivadasan, S., Smart, J.,
Huatuco, L. H., & Calinescu, A. 2010).
15 Firm (Adams et al., 2014; Caniato & Größler, 2015; Faber et al., 2002; Handley &
Benton Jr, 2013; Hofer & Knemeyer, 2009; K. Li et al., 2008; Lowson, 2001;
Nilsson, 2006; Novak & Eppinger, 2001; Perona & Miragliotta, 2004; Priya
Datta et al., 2007; Schmoltzi & Wallenburg, 2012; Spring & Araujo, 2014;
Subramanian et al., 2014; Vachon & Klassen, 2002)
11 Supply network (Bezuidenhout et al., 2012; Choi et al., 2001; Day, 2014; Fridgen et al., 2015;
Mesa & Galdeano-Gómez, 2015; Nair et al., 2009; Nair et al., 2016; Pathak et
al., 2009; Skilton & Robinson, 2009; Tachizawa & Wong, 2015; Wycisk et
al., 2008)
10 Network (Kersten et al., 2012; Kroon et al., 1997; Robinson Jr & Swink, 1994;
Serdarasan, 2013; Allesina, S., Azzi, A., Battini, D., & Regattieri, A. 2010;
Cheng et al., 2014; Hearnshaw & Wilson, 2013; Meepetchdee & Shah, 2007;
Milgate, 2001; Xu et al., 2005)
7 System (Christopher, 2012; Hall et al., 2012; Lukáš & Hofman, 2016; Modrak &
Marton, 2014; Sanjika & Bezuidenhout, 2015; Sivadasan et al., 2006;
Wilding, 1998)
3 System and (Orcun et al., 2007; Pathak et al., 2007; Surana et al., 2005)
Network
2 Upstream supply (Bode & Wagner, 2015; Brandon-Jones et al., 2015)
chain
1 Business clusters (Adebanjo, 2010)
1 Macroinstitutional (Kinra & Kotzab, 2008)
perspective
1 Public authorities (Hartmann et al., 2014)
1 Supplier-customer (Sivadasan et al., 2006)
1 Supply base (Choi & Krause, 2006)
1 Wholesalers (Leeuw et al., 2013)
Although the majority of the articles advance dyadic and triadic levels of analysis in supply
chain echelons, discussions on the difficulty in analysing constructs across the entire supply
chain network are not fully resolved. Supply chains are inherently complex given their
184
structural set up and random behaviour, coupled with sensitive interactions, spill over and
cascading effects across their networks (Beamon, 1998; Choi & Wu, 2009). Thus, theorisation
of complexity at a firm or supply chain level cannot fully take into consideration the
intertwinement and interaction effects in supply chain networks. As a result, there is doubt on
whether studies analysing complexity from a single point (firm level), two point (dyadic) or
three-point (triadic) level in supply chains can generate accurate measures of the construct.
Single point, dyadic or triadic levels of analysis are limited in capturing properties and
interaction effects consistent with systems, networks or supply chain networks. Hence, we have
preference of employing both system and network perspectives as the levels at which
complexity in supply chain networks can be more accurately analysed (Beamon, 1998; Choi &
Wu, 2009).
Theoretical Underpinnings of Supply Chain Complexity Analysis
Analysis of supply chains remains a challenge given the unresolved debate on what constitutes
a unit of analysis. Discussions on determining the unit of analysis have progressed from using
an individual firm, to dyads and triadic relationships. Considering a standard supply chain unit
to comprise of three sub-elements (suppliers, focal firm, and distributors/customers),
researchers consider positioning at the focal firm to obtain upstream and downstream
perspectives; a holistic means to analysing complexity in supply chain networks. However, a
system and network level of complexity analysis provides a more representative means of
analysing complexity because it captures both the structural elements/nodes/firms and
dynamic/uncertain/unpredictable behaviour and their related interaction and spill over effects
(Cheng et al., 2014; Isik, 2010).
185
Network theory encourages social and behavioural research at a macro-level of analysis, where
focus is on outcomes relating to how inter-firm interactions can influence the frequency and
intensity of disruptions in the supply chain networks. Network theory argues that analysing
relational interactions in supply chain networks involves understanding aspects of social
complexity, that include features of network topology with patterns of complex connections
among firms, that are neither regular nor random. The supply chain networks are analysed at
four levels: the internal focus of the firm comprising of supply and information flow in a
company; the relationships of the focal firm with immediate suppliers and
customers/distributors (dyad-level); analysis of suppliers’ suppliers and customers’ customers;
and the network of interconnected companies (Marchi et al., 2014).
Understanding the inherent behaviour of supply chain networks requires consideration of
systems theory in relation to aspects of emergence, chaos, adaptation, complexity, non-
linearity, self-organisation and networks. From a systems perspective, supply chains are “a
system of entities that occupy a shared environment while interacting with one another through
buyer/supplier relationships” (Day, 2014, p. 2). Supply chains are viewed as a complex system
comprising of complexities relating to the uncertainty of static and dynamic systems (Cheng,
Chen, & Chen, 2014; Isik, 2010). The two sub-streams provide unique perspectives based on
their individual systems properties and how they influence supply chain networks. Theories
such as the complex adaptive systems theory (CAST) allow a better understanding of supply
chain networks by anchoring on complex adaptive systems given their similarity in properties
including how both are affected by nonlinear and dynamic properties (Wycisk, McKelvey, &
Hülsmann, 2008).
186
A ‘systems and network’ level of analysis allows researchers to shift from analysing a single
firm’s effect on immediate firms (dyadic), to examining how firms and their connecting links
affect each other, and also influence other firms and links to which they are connected, through
a three-way interaction. This perspective allows the analysis to capture the essence of dynamics
of complexity in supply chain networks (Choi & Wu, 2009; Skilton & Robinson, 2009). A
systems and network perspective provides a more accurate lens to better understand how
complexity influences supply chains because it assumes supply chains as entities that occupy
a shared environment while interacting with one another through buyer/supplier varying
relationships and related supply chain process flows (Day, 2014; Hearnshaw & Wilson, 2013;
Pathak et al., 2007; Surana et al., 2005).
Overall, analysis of complexity using a systems and network lens is preferred because it
embraces the two main dimensions of structure and behavioural complexity at levels of a
supply chain network, as opposed to focusing on specific decoupling points: upstream,
downstream, firm, supply base, or functional perspective (Choi & Hong, 2002; Hearnshaw &
Wilson, 2013; Nair et al., 2009). This position is consistent with our systems and networks
theoretical orientation, in which a supply chain network is a large mesh of interlinked firms,
processes and relationships with the possibility of each firm being a member of a larger supply
chain network. Therefore, we encourage future SCC researchers to adopt a ‘systems and
network’ level analysis because focusing on specific sections of the supply chain to
demonstrate complexity generates only partial effects (Choi & Krause, 2006).
187
3.4 Complexity Related Risks in Supply Chains
Despite the increasing interest in research on SCC, only one article identifies risks emerging
from complexity: product complexity risks (Inman and Blumenfeld 2014). A number of general
risks/inefficiencies were identified in the literature: long lead times; difficulties to integrating
supply chains; issues in reliability; reduced finance performance; reduced delivery
performance; inflexibility; and systems that are difficult to describe, predict and control
(Leeuw et al., 2013). However, these inefficiencies are generic sources of risks and
performance failures, and are limited in explaining complexity risks. Two systematic literature
reviews on supply chain risks classifications demonstrate that risks emerging from complexity
are still unexplored or at best mentioned in passing (Rangel et al. 2015; Ho, Zheng, Yildiz, &
Talluri, 2015b). While the risk classifications identify risks with complexity properties such as
chaos, systems, forecasts, behavioural, uncertainty, dependence, control, opportunism, and
relational/interaction, complexity risks do not form part of their risk classification. We
recommend future SCC research addresses the issue of complexity risks and their
subcategorization based on structural and behavioural properties. An illustration of how
complexity risks may be represented in Rangel, de Oliveira, & Leite, (2015)’s supply chain risk
classifications is in Figure 4.
Plan Source Make Delivery Return Complexity Other

s
Strategic Supply Operational Customer Legal Structural Environmental
Inertia Financial Disruption Behavioural Culture
Information Relational
al
Capacity
Demand
Figure 1. Supply Chain Risks Classification: Adopted from Rangel, de Oliveira, & Leite, (2015)
188
The reason complexity risks are not included in supply chain risks classifications is because
common risks including, demand, supply, process and environmental risks, and their impacts,
are easily observable within organisation settings in comparison to complexity risks (Rangel et
al., 2015). Our proposition for the consideration of complexity risks stems from understanding
complexity risks as being inherent in the generic setup of supply chain networks. We propose
a first definition of complexity risks to initiate debate on expanding the supply chain risk
classification and enable the operationalisation of the proposed risks in future research.
Complexity risks are the probability of a variation within a supply chain process that
interacts with many other processes in multiple ways, to culminate in the emergence of
greater disruptions than the sum of the original variation.
The definition describes the subject ‘complexity risks’ as a type of supply chain risks with
complexity attributes, and ‘supply chain networks’ as the unit of investigation within which
the subject can be analysed. A list of complexity risks might include demand amplification,
proximity, information asymmetry, coordination costs, high levels of interference, relational
conflicts, and interdependence risks. Expanding the risk classification to include complexity
risks, will improve SCC management processes by ensuring that they fully capture the
interaction effect (spillover and cascading effects) associated with supply chain risks (G. Li,
Fan, Lee, & Cheng, 2015; Miler & Górski, 2002). In addition, addressing the inherent effects
of structural and dynamic behaviour properties associated with supply chain risks could
increase the effectiveness of risk management interventions in mitigating disruptions and
increasing supply chain resilience (Ho, Zheng, Yildiz, & Talluri, 2015).
189
5.0 Conclusion
The use of 46 different terminologies for the dimensions of complexity might reflect a growing
interest in the construct from various supply chain perspectives. However, the same variety
potentially limits a more coherent understanding of SCC. Complexity is not merely the
opposite of simplicity nor a synonym for complicacy, where everything deemed complicated
can be addressed as complexity.
Complicatedness refers to components of a given aspect knotted, entwined with each

other, while complexity refers to those that interact amongst the different elements.
While anything complicated can be understood by subdividing a given component into
individual parts and treating each part separately, complexity is about systems and
networks made up of individual elements intimately connected and with non-linear
linkage, self-emerging, often with chaotic and uncertain, dynamic behaviours. As
explained in this phrase: ‘understanding the functioning of each single part does not
imply to understand the whole system’ (Perona & Miragliotta, 2004, p. 104).
Future research on SCC could build greater coherence in conceptualising complexity by
employing a two-prong complexity perspective (numeracy-structural, and predictability-
behavioural), on which newer dimensions, like product or decision-making dimensions of
complexity, may build.
Acknowledgement of complexity risks as part of the main supply chain risks classifications
provides a new lens for research and practitioners seeking to mitigate spill over and cascading
effects from supply chain disruptions. By broadening the supply chain risks classification to
include complexity risks, supply chain risk managers may require a different skill set from those
used to mitigate conventional supply chain risks to manage complexity disruptions. The
simpler approach for understanding SCC based on numeracy and unpredictability parameters
allows managers to more easily identify complexity risks and drivers with their related
structural and behavioural dimensions. This in turn should facilitate informed decision making
on how to mitigate disruptions inherent in supply chain networks and their related
190
interdependencies. With a clearer understanding, managers are able to treat supply chains as
complete systems and networks, avoid interventions that optimise operations at single echelon
levels, and deploy ‘pull’ approaches to control amplification effects in entire supply chain
networks.
191
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The Interactive Effect of Task Business Environment and Supply Chain
Relationship on Manufacturing Plant’s Operational Sustainability: Synergies or
Anatagonies?
Research Paper
Buddhika Mannaperuma
P: +613 8344 1479 | Email: bmannaperuma@student.unimelb.edu.au
Professor Prakash J. Singh

P: +613 8344 4713 | Email: pjsingh@unimelb.edu.au
Doctor William Ho
T: +61 3 9035 7560 | Email: william.ho@unimelb.edu.au
199
The Interactive Effect of Task Business Environment and Supply Chain
Relationship on Manufacturing Plant’s Operational Sustainability: Synergies or
Anatagonies?
ABSTRACT
The recent global “Great Recession” showed that many manufacturing plants that
appeared to be operationally sustainable were not able to withstand the forces in their task
environments and supply chains. In this study, we invoke the complex adaptive system
(CAS) theory to assess the interactive effects of these two constructs on operational
sustainability. Here, we show that empirical data from 522 plants across 9 countries and
21 industries validates both the positive and negative synergistic or antagonistic
interactions among the features of task business environment (dynamisms, munificence
and complexity) and supply chain relationship (information exchange, supplier and
customer leveraging and complexity).
Key words:
Task business environment; supply chain relationships; operational sustainability; CAS
INTRODUCTION
The reality for manufacturing plants is that they face extremely turbulent environmental
conditions and operate within the strictures of supply chains. Many successfully operating
plants pay much attention to the supply chain relationships to face the external stimuli but
still fall apart during the shifting economic conditions. For instance, the entire industries
in the United States such as the automobile broke down during the global “Great
Recession” (2008-2010). Hence, the literature that reveals the plant’s operational
sustainability based on its adaptability to the supply chain (Kim et al., 2011) and the task
business environment (Bourgeois, 1980; Miller, 1988; Ward et al., 1995) fails to live up
to their promise and pays less attention to the interactions between these two systems.
CAS view helps to visualise the supply chain's ability to serve as a complex web of
decision-making (Pathak et al., 2007) as it consists of a large number of nonadditively
interacting (Holand, 2002) customers and suppliers that are organised in an
interdependent and networked manner (Choi et al.,2001). Hence, the manufacturing plant
tries to increase its internal fit to the supply chain by modifying the supply chain
relationships through the dimensions of information exchange (Lorenzoni and Lipparini,
1999; Weigelt, 2013), customer and supplier leveraging and complexity (Kim et al.,
2011). It also adapts and learns from the dimensions of the task business environment
such as dynamism, munificence and complexity (Dess and Beard, 1984; Heeley et al.,
2006). The plant seeks the optimal ground between these two forms of adaptation to
increase the operational sustainability which is the plant’s ability to prosper and survive
in its operations longer and possibly characterised by the survival (business continuity)
and the economic growth (financial performance) (Lanier et al., 2010; York and Miree,
2004). Thus, we invoke the CAS theory to propose these system level interactions to be
nonadditive as they could be either greater or lesser than the cumulative of the distinctive
effects of the supply chain relationship and the task business environmental dimensions
on the operational sustainability. The powerful and weaker interactive effects turn out to
be the synergies and antagonies respectively.
By shedding new light on these nonadditive interactions, this paper helps to make sense
of the operational sustainability phenomenon that would otherwise be difficult to explain
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from the viewpoint of either the supply chain or the business environment literature, taken
separately. Hence, this paper’s primary purpose is to offer an answer to “How the
manufacturing plant’s operational sustainability is influenced by the nonadditive
interactions between the dimensions of supply chain relationship and task business
environment?” We analyse both the supply chain relationship and task business
environmental characteristics in our empirical setting: a global manufacturing dataset
from 522 plants across 9 countries and 21 industries to examine how the operational
sustainability is influenced by these nonadditive interactions.
This paper has useful contributions in many ways. Existing literature explains
nonlinear occurrences of events (Choi et al., 2001) and agent’s nonadditive interactions
(Holland., 2002) within a CAS while offering limited knowledge about the nature of the
system level interaction between the CAS and its task environment. Hence, this study first
extends the CAS theory by theoretically proposing that system level interactions between
the dimensions of a CAS and its task environment are either synergistic or antagonistic.
Second, we empirically validate those dimension level interactions that occur in the
coevolution of a CAS with its environment within the context of supply chain. All the
dimensions in supply chain relationship and task environment engage in at least one
significant interaction. Third, we offer a new theoretical view point for the operational
sustainability by integrating CAS theory with the literature of supply chain and business
environment in the directions of profit maximisation and innovation. Finally, we inform
managers about the shifting conditions of supply chain relationships and task business
environment. Their nonadditive interactions would gauge the plant’s operational
sustainability including survival and revenue profile.
The remainder of this paper is split into six main sections. Section 2 presents the
conceptual model, the theoretical and hypotheses development. Section 3 presents the
research methods, data and operational definitions used to test the proposed hypotheses.
Sections 4 and 5 discuss the research findings based on the hierarchical regression
analysis and theoretical contributions and managerial implications. Section 6 provides
conclusions and research limitations.
LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

A CAS consists of an extensive number of agents who interact in nonadditive ways within
the CAS by self-organising and learning to adapt the environment (Dooley, 1997;
Holland, 2002). They change their rules of interactions to improve their survival within
the CAS and its environment. Hence, of key interest in this research is how the plant
interacts in nonadditive ways through the supply chain relationships with its task business
environment to improve the operational sustainability. The model shown in figure 1
indicates the links between the key constructs. We hypothesise these relationships for
empirical validation.
Holland (2002) suggests that a CAS consists of an extensive number of agents
continuously interacting with each other. These agents can be focal business, customers
and suppliers in the context of the supply chain (Choi et al., 2001). They develop rules to
adapt the environmental effects by anticipating the consequences of other agents’
responses (Holland, 2002) and sorting out the regularities from randomness (Gell-Mann,
1994). However, they are embedded in novel surroundings as they perpetually revise their
rules of relationships. The environment interacts with the supply chain relationships in
ways that cause selective pressure and competition (Gell-Mann, 1994) among the
relationship dimensions which create nonadditive effects on the agent’s operational
sustainability. Businesses inescapably engage in this cycle of interaction to increase its
internal fit to the supply chain and external fit to the environment (Choi et al., 2001).
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However, they are usually far from the global optimum, instead, they are preoccupied
with dynamic rugged landscapes or local optima (Choi et al., 2001). The aggregate
behaviour of a CAS is always at disequilibrium by the continuous revision of rules for
survival. If a CAS remains at equilibrium, it will die or terminate, such as the
disappearance of societies, tribes and organisms (e.g., dinosaurs and mammoths) (Gell-
Mann, 1994). Though CAS theory enables defining the supply chain and explaining the
adaptive and coevolving behaviour of the supply chain relationships with its environment
(Choi et al., 2001), it does not offer a comprehensive knowledge of the relationship and
environmental dimensions and the nature of their interactions.
Figure 1: Conceptual model
Task business environment is a multidimensional construct, with the most commonly

recognised dimensions being the munificence, dynamism, and complexity in managerial
perception (Bourgeois, 1980; Dill, 1958; Miller, 1988; Swamidass and Newell, 1987).
Dynamism refers to the unpredictable change within an industry that intensifies the
uncertainty (Dess and Beard, 1984). Munificence is the resource generosity of the task
environment which can support the sustained growth of the manufacturing plant (Heely
et al., 2006). Complexity refers to the heterogeneity and range of a plant’s activity (Child,
1972) and overlaps with the supply chain complexity. Although previous remarkable
studies are illuminating, they obscure the fact that there are also more recent failures in
businesses even with satisfying conditions of the business environment (e.g., Nokia,
2016). They fail to offer in-depth discussions on interactions of the task business
environment which could enhance the operational sustainability.
Supply chain relationship continues when a firm’s input into the relationship is valued
and are being adequately rewarded by its exchange partner and hence, the firm becomes
socially indebted to its partner by responding with a positive attitude (Griffith et al.,
2006). In CAS view, the plant can modify its rules of interactions with suppliers and
customers via information exchange, supplier and customer leveraging (Lanier et al.,
2010; Wagner and Bode, 2014) and complexity (Choi and Krause, 2006; Pathak et al.,
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2007). These relationship dimensions act as the generators of shifting conditions within
the supply chain. Holland’s (2002) popular example of building blocks is less than a
dozen rules of chess creates a miniature artificial world to find perpetual novelty in which
two parties interact. We cannot specify the best strategy for the game even after repeatedly
occurring certain patterns of extracting and exploitation. As such, the interaction of
relationship dimensions with task environment can nonadditively change the direction of
plant’s operational sustainability.
Operational sustainability is the plant’s ability to prosper and survive its operations
longer. It depends on how profitably plant creates the strategic fit between the available
resources and the plant’s absorptive capacity to create an artificial demand and price
(Alchian and Demsetz, 1972; Bain, 1954). Also, the plant’s possession of a specific
combination of resources that is valuable, rare and difficult to imitate (Barney, 1989;
Rumelt, 1974; Schumpeter, 1947) directs to innovation. These two perspectives of profit
maximisation and innovation can conjointly enrich the concept of operational
sustainability to respond the shifting conditions in supply chain and task environment
than the objectives of relative competitiveness and cost minimisation. Therefore, we posit
that this construct to consist of the financial performance (sales, profitability and market
share) and the business continuity (product and process innovations and developments).
In this study, this construct syndicates only the plant’s survival and economic growth as
its antecedents such as the task business environmental dimensions deal with the
environmental audits that the plant has to pass on to stay in business.
The interactions between the dynamism and supply chain relationship dimensions
Dynamism contributes to the fluctuations in innovations, customer preferences (Ward et
al., 1995) and organisational decision making (Bourgeois, 1980; Heeley et al., 2006). The
product-specific sales fluctuations encourage plants to learn, develop and innovate
diverse product and process offerings for business survival. The managers are supposed
to turn the dominant influence of dynamism to the successful resource allocation
decisions (Keats and Hitt, 1988) that increase the operational sustainability.
Anchored in the premise, quality and timeliness of information exchange among the
supply chain partners enhance the plant’s ability to make successful decisions in dynamic
conditions. It indicates what kinds of information are being exchanged, between whom
and to what extent (Haythornthwaite, 1996). Hence, the plant has control over the
capacity and routes of the information exchange that reduce the total logistics cost
(Moberg et al., 2002). Further, CAS view (Gell-Mann, 1994) helps to make sense of the
likelihood that plant exposes to certain kinds of information and the likelihood that
considers data to be authoritative (Haythornthwaite, 1996). This aligns the extent and
quality of information exchange (Moberg et al., 2002) in dynamic situations and applies
to commercial ends (Wagner and Bode, 2014) in which ways that improve the operational
sustainability. Hence,
Hypothesis 1a: The interaction between the information exchange and the dynamism
improves either the business continuity or the financial performance or both.
The plant can gain competitive advantages by accessing the knowledge that resides in
supply chain relationships (Tsai, 2001). Consequently, the plant’s ability to exploit the
knowledge and technology outputs from the suppliers leads to supplier leveraging (Ofek
and Sarvary, 2001). The aim of supplier leveraging is to maximise the value of a
manufacturer’s supply base through substantial reductions in the true cost of materials,
increased flexibility to dynamic situations and faster cycle times which can increase the
market share (Herrmann and Hodgson, 2001). It increases payoffs (Lanier et al., 2010)
and stimulates the pull model of innovation (Wagner and Bode, 2014) to optimise the
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opportunities generated by the dynamic environmental conditions that improve the plant’s
operational sustainability.
Hypothesis 1b: The interaction between the supplier leveraging and the dynamism
Customer leveraging allows exploiting the customers’ knowledge to reduce costs and
improve the quality that maximises their satisfaction while increasing the return on sales
(Ofek and Sarvary, 2001). The plant’s leveraging occurs when supply chain coevolves
with its task environment to create the strategic fit between knowledge exploitation and
exploration (Choi et al., 2001; Holland, 2002). However, during the dynamic conditions
of task environment, the customers become a destitute in their rapidly changing
requirements. Hence, the customer base builds up selective pressure on the plant and
creates competition (Gell-Mann, 1994) among the supplier and customer relationships by
diminishing the plant’s supply chain fit. Consequently, the operational sustainability is
negatively associated with plant’s effort in modifying supply chain relationships to satisfy
the misguided customer requirements during the shifting conditions.
Hypothesis 1c: The interaction between the customer leveraging and the dynamism
decreases either the business continuity or the financial performance or both.
Supply chain complexity, the core constituent of a CAS engages with the chain size,
degree of interdependency and the number of tiers (Kim et al., 2011) that reflect the
structural dimension (Nahapiet and Ghoshal, 1998). This overlaps with the complexity of
the task business environment that focuses on the heterogeneity of plant’s activities and
range (Child, 1972). Choi and Krause (2006) conceptualise that although a reduction in
supply chain complexity may lead to lower transaction costs and increased supplier
responsiveness, sometimes, it may increase the supply risk and reduce supplier
innovation. Pathak et al. (2007) posit that although the rising complexity in a supply chain
creates increased demands for costs, responsiveness and flexibility, the complexity based
solutions would alleviate the situation and increase the operational sustainability via new
product and process developments. Complex supply chains create vast opportunities for
the plant in timely responding to the dynamic conditions through its relationship
reconfigurations that improve the operational sustainability.
Hypothesis 1d: The interaction between the supply chain complexity and the dynamism
improves either the business continuity or financial performance or both.
The interactions between the munificence and supply chain relationship dimensions
Munificence is the resources generosity that may attenuate the resource slack. Developing
resource efficiency is argued to have a stable and predictable (Shah and Ward, 2003)
financial position for a plant. Likewise, maintaining a resource slack would experiment
product and process innovations without compromising plant performance and
consequently attenuating negative financial reactions from the market (Modi and Mishra,
2011). They also confirm that all resources such as inventory, production and marketing
are critical for the business continuity and underscore the importance to managers of
having a holistic view of resource configurations to maximise the financial returns.
Greater information access precedes the plant’s quick responses to the munificent task
environment with the growth of relational governance processes and technological
systems (Williams et al., 2013). The opportunities for and occurrences of information
exchange (Haythornthwaite, 1996) in the relationships endow with the details of sales
trends (Heely et al., 2006) and the resource flow of critical input. The plant’s strategic
priorities of profit maximisation and innovation illuminate specific combinations of
resources that are difficult to imitate (Rumelt, 1974). These combinations which consist
of labour and capital (Alchian and Demsetz, 1972) develop different types of responses
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to the challenges posed by the munificence by restricting the output to create artificial
demand or price (Bain, 1954) (e.g., Apple products). Thus, the information exchange
optimises value and volume of the supply chain relationships by adjusting the resource
flow restrictions in the task environment to increase the plant’s survival.
Hypothesis 2a: The interaction between the information exchange and the munificence
Resource-based theory views that a plant performs superior based on its possession of
a specific combination of resources that is valuable, rare and difficult to imitate (Barney,
1989; Rumelt, 1974). Since the supplier leveraging induces the control over the resource
flow from suppliers to customers, the plant can reconfigure the supply chain relationships
in a unique fashion towards a monopolistic or oligopolistic market behaviour by
leveraging the suppliers’ technical knowledge and resources. For instance, the utility
companies such as water, gas, electricity and even telecommunication continue to remain
in a monopoly in munificent environments. As it inspires the selective pressure (Gell-
Mann, 1994) on supplier relationships, the plant is likely to enjoy the pull model of
innovation (Wagner & Bode, 2014) for its survival. It allows the plant to select the most
appropriate from the available state of the art technologies and skilled workers generated
by the munificent task environment. Hence,
Hypothesis 2b: The interaction between the supplier leveraging and the munificence
The extent a manufacturing plant excels in product and process innovation gives it a
competitive edge to sustain longer in business. The integrated perspective of product and
process innovation allows the plant to align the manufacturing technologies and designs
with new product developments (Ettlie and Reza, 1992). Information exchange and
supplier leveraging envisage to improve the plant’s operational sustainability (Wagner
and Bode, 2014) in a munificent environment but not the customer leveraging (Powell,
1995). While the information exchange and supplier leveraging offer the plant numerous
opportunities to benefit from munificence, the plant sorts the regularities from
randomness (Gell-Mann, 1994) in customer leveraging not to get stranded among the lots
of alternative technical know-how from the customers. Although the customer leveraging
in a munificent environment generates an array of rugged landscapes (Choi et al., 2001),
the plant may get distracted by the random events than finding more fine-grained business
opportunities. Thus;
Hypothesis 2c: The interaction between the customer leveraging and the munificence
A complex supply chain in a munificent environment persuades the manufacturing
plant to approach different industries, a variety of products and geographically diverse
markets even beyond their actual capacity. The plant keeps connecting with new suppliers
and customers while strengthening bonds with the existing partners for survival. These
sudden supply chain reconfigurations hardly attune to the changes in the industry
structure and competition (Stonebraker and Liao, 2004). The complex supply chain which
concerns about the power distribution and greater effort in relationship coordination (Kim
et al., 2011) would impede the chain’s potential to face the challenges posed by the
munificence. Higher coordination costs entailed with prompt and accurate information
that is visible to all the partners (Holweg and Pil, 2008) in a complex supply chain might
go beyond the plant’s capacity. Bound by the rules and regulations of munificent task
environment, the plant might confuse in balancing the relationship requirements and feeds
from new customers and suppliers. Hence, this interaction would degrade the operational
sustainability as the requisite for complexity is unnecessary.
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Hypothesis 2d: The interaction between the supply chain complexity and the munificence
The interactions between the task business environmental complexity and supply
chain relationship dimensions
The insights of task business environmental complexity (Bourgeois, 1980; Dill, 1958) are
congruent with the supply chain complexity which extends to the plant’s suppliers and
customers (Bozarth et al., 2009) and refers to the heterogeneity and range of the plant’s
activities (Child, 1972). We recognise that these two concepts overlap in this study bound
by their definitions. The complexity in CAS view comes in two faces such as detail and
dynamic complexity in products, processes and relationships (Bozarth et al., 2009). It
emerges through the relationships between the plant and embedded partners in the supply
chain and created by the multiplicity of inputs and outputs (Dess and Beard, 1984).
However, it confines the plant’s ability to foresee the disruptions to operations (Azadegan
et al., 2013).
The complex environments urge the importance of sufficient information exchange that
defines the content, direction and intensity of the supply chain relationships
(Haythornthwaite, 1996). It deepens the plant’s understanding of adaptation to the
complex task environment. The complexity based solutions disclose an array of possible
supply chain reconfigurations while the accurate and timely information flow helps to
recognise the optimum solution that ensures the plant’s survival. This interaction that
seeks the strategic fit between the information availability and its acceptance to the
complex environmental conditions improves the plant’s operational sustainability.
Hypothesis 3a: The interaction between the information exchange and the task business
environmental complexity improves either the business continuity or the financial
performance or both.
Supplier leveraging contributes to lower the opportunistic behaviour of supplier base
that generates from the competitors and regulators in the complex task environment. It
also inclines the supplier reliability, lead time and supply base management (Bozarth et
al., 2009). Responsive supply chains which admire the innovations and unique products
(Fisher, 1997) swiftly reconfigure the supplier relationships to adapt the complexity.
Indeed, the plant utilises the environmental complexity by reaching different markets with
product proliferation in shorter life cycles (Azadegan et al., 2013) and optimising supplier
base as it slightly encourages the push model and mostly by the pull model of innovation
(Wagner and Bode, 2014). Consequently, the manufacturing plant sets the relational
strategies such as coopetition (Pathak et al., 2014) to leverage suppliers’ power
sufficiently that shape both the cooperative and competitive behaviours and capture value
from the relationships (Kim and Wemmerlov, 2015).
Hypothesis 3b: The interaction between the supplier leveraging and the task business
environmental complexity improves either the business continuity or the financial
The exchange partners use the power differently depending on their role in the
manufacturing supply chain. This suggests that customers tend to leverage their potential
power to claim benefits from relationships while suppliers are not likely to use their power
in a corresponding way (Kim and Wemmerlov, 2015). They also provide ample shreds of
evidence to prove that greater the supplier’s dependence, the smaller its financial gains.
Although complex task environment with multiple products and shorter life cycles
persuades the plant to leverage the customers, the customer base is very fragmented for
products such as smartphones. Customers’ dependence on multiple manufacturers in a
complex environment debunks the exploited knowledge about the cost reductions,
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enhanced sales forecasting and delivery performance (Cousins and Menguc, 2006)
without satisfying the true customer requirements. Hence,
Hypothesis 3c: The interaction between the customer leveraging and the task business
environment complexity decreases either the business continuity or the financial
RESEARCH METHODOLOGY
Data and Operational Definitions

The database used in this study is the fifth edition of Global Manufacturing Research
Group (GMRG) survey that designed for the improvement of manufacturing supply
chains worldwide and it includes questions related to the business performance, supply
chain management, innovation and sustainability. It collected data from directors of
operations/ manufacturing and the sample consists of 968 manufacturing facilities in 21
industrial classifications and 18 countries. We use data from 522 manufacturing facilities
in 9 countries for the analysis after eliminating the missing values. The unit of analysis is
the manufacturing plant.
Task business environment
We characterise the task business environment through dynamism, munificence and
complexity. Since the task environmental complexity overlaps with the supply chain
complexity, we discuss it under supply chain relationship section. Further, in complex
situations, features of the task environment that represent uncertainty and predictability
are known only through the managerial perception (Swamidass and Newell, 1987).
Hence, the proposed conceptual model focuses on the perceptual measures. All the items
that represent the task environment are measured with 7 points Likert scale from 1(not at
all) to 7 (great extent).
This study uses four items to reflect the dynamism. The first two items are “most
innovations come from monitoring competitors and/or using suppliers” and “constantly
looking outside facility for useful ideas”. They describe the fluctuations in task
environmental elements such as competitors, suppliers, customers and regulatory groups
(Dill, 1958) that are caused by innovation, technology and consumer preference (Ward et
al., 1995). Further, the task environment as a body of accessible information (Dill, 1958)
soundly reflects the volatility and turbulence in managerial decision making (Bourgeois,
1980; Child, 1972; Heeley et al., 2006). Hence, rest of the two items fairly represent the
manager’s perceptual measures of environmental dynamic rigour and its frequency and
instability level (Dess and Beard, 1984; Wholey and Brittain, 1989). They are
“operational decisions are always set to quickly match current needs” and “devote most
of the time solving immediate, short-term issues”.
Munificence mostly focuses on an industry’s sales trend (Heely et al., 2006), and hence,
this study selects items that exhibit how the plant responds to the sales stimuli. Ward et
al. (1995) propose three scales of munificence, which often measured on a reverse scale
of environmental hostility such as business costs, labour availability and competitive
hostility. The selected items are state of the art manufacturing processes, unique
manufacturing process capabilities, workforce technological skills and superior
technological knowhow. The last two items comply with labour availability while first
two items present as a combination of both the business cost and competitive hostility.
Supply chain relationships
Despite a great deal of interest in CAS view of supply chain (Kim et al., 2011; Surana
et al., 2005) that exhibits the plant’s network presence, it requires a deeper understanding
of interactions that form the network and plant’s access to information and resources
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(Nahapiet and Ghoshal, 1998). Hence, we use information exchange, complexity,
supplier and customer leveraging to reflect the dimensionality of supply chain
relationships. We propose five items to measure the information exchange with supply
chain partners which act as catalysts for the plant’s innovation and financial performance
(Bellamy et al., 2014). They are “main customers exchange proprietary information”,
“main customers inform each other about events affecting the other party”, “main
suppliers exchange proprietary information”, “main suppliers inform each other about
events affecting the other party” and “main customers regularly exchange information of
supply and demand forecast”. All the items are measured in 7 points Likert scale from
1(not at all) to 7(great extent).
Lorenzoni and Lipparini (1999) highlight that leveraging of interfirm relationships
must occur with deliberate initiatives undertaken by the plant to enhance the
responsiveness and foster trust and cooperation. In their paper, leveraging considered as
a substitute for the formal control based on the trust in the relationships and as a source
of access to the external knowledge that brings opportunities to apply new technologies,
ideas, innovations and supply chain reconfigurations (Weigelt, 2013). We use six items
for each construct of customer and supplier leveraging which assure the perspectives
highlighted in the literature. The customer leveraging items are “obtain a tremendous
amount of technical know-how from customers”, “rapidly respond to technological
changes in our industry by applying what we know from our customer”, “as soon as we
acquire new knowledge from our customer, we try to find applications for it”, “our key
customer’s technological knowledge enriched the basic understanding of our innovation
activities”, “our key customer’s technological knowledge reduced the uncertainty of our
innovation activities” and “our key customer’s technological knowledge helps us to
identify new aspects of innovation activities that would otherwise have gone unnoticed”.
We repeat same items with ‘supplier’ instead of ‘customer’ for supplier leveraging and
they are measured in 7 points Likert scale from 1(strongly disagree) to 7(strongly agree).
A supply chain’s complexity which overlaps with the task environmental complexity
can be measured in terms of chain size, the degree of interdependency and the number of
tiers (Kim et al., 2011). We select four items related to complexity such as the number of
parts in a typical end item bill of material for the plant’s most important product line, the
number of items listed in the bill of material for the highest value product line, the number
of items that are produced within the manufacturing plant and the number of first tier
suppliers. First two items represent the supply chain size while third item indicates the
degree of interdependency. Last item relates to the number of tiers in a supply chain. All
of them relates to the heterogeneity and range of a plant's activity (Child, 1972) that reflect
the task environmental complexity. The manufacturing plant has been asked to rate one
of the given seven categories which show the ranges in the respective measure.
Operational sustainability
A plant’s operational sustainability is whether it is economically viable to operate
continuously in the respective markets. Therefore, plant’s business continuity and
financial performance become the fundamental dimensions that represent the operational
sustainability. First, business continuity could best characterise by the integrated
approach of product and process innovation that generate future benefits or at least not
worsening the current position of the plant (Bellamy et al., 2014; Wagner and Bode,
2014). We select five items such as “the first within the industry to deploy new
processes”, “frequently introduce processes that are radically different from existing
processes in the industry”, “have no difficulty in introducing processes that are radically
different from existing processes in the industry”, “the first within the industry to
introduce new products” and “frequently introduce products that are radically different
208
from established products in the industry”. They mainly focus on continuous innovation
and deployment of manufacturing processes and products (Wagner and Bode, 2014) and
measured in 7 points Likert scale from 1(strongly disagree) to 7(strongly agree). Second,
financial performance is represented in three items of total sales of goods and services,
profitability (Lanier et al., 2010) and market share (York and Miree, 2004) and measured
in 7 ranges from reduced <25% to increased 25%. A subjective financial performance
which is based on respondent’s opinions mostly applies with suggestive study (Powell,
1995).
Control Variables
We control for each country and industry (Swamidass and Newell, 1987) specific fixed
effects on manufacturers’ operational sustainability using dummy variables. Also, we
control for the plant size which is a proxy for economies of scale and measure as the
natural logarithmic transformation of the number of employees. Since the plant
continuously engages in finding perpetual novelty to increase the relative operational
sustainability rather than settling at an equilibrium (Holland, 2002) within a CAS, plant
tries to balance between its internal fit to the supply chain and external fit to the task
environment. The resulting interrelationship structure always comes with a hierarchical
format with selected combinations of building blocks at one level serving as building
blocks one level up (Holland, 2002). In this research context, the relationship and the
environmental features which are beyond the plant’s internal organisation are at the
higher level of the hierarchy while the performance dimensions that reside within the
plant are at the bottom level of hierarchy and serve as the building blocks of the system
level features. Hence, the performance could signal competence and attractive long term
prospects to the suppliers and customers, thus increase the innovations (Wagner and
Bode, 2014) and financial performance.
We therefore control for the manufacturing performances using the latent variables of
cost, quality, delivery and flexibility (Neely et al., 1995; Peng et al., 2011) to eliminate
undesirable variance in the effects on the operational sustainability. We concern about
three main types of manufacturing costs such as labour unit cost, raw material unit cost
and total product unit cost (Neely et al., 1995). The four selected items to measure quality
are rejected percentages of incoming material, during processing, at final inspection and
from customers for the financial year (Peng et al., 2011). The selected three items for
delivery are delivery speed, delivery reliability and response to changes in delivery due
dates (Neely et al., 1995). Both cost and delivery items are measured in 7 points Likert
scale from 1(far worse) to 7(far better) comparative to the major competitors. The other
seven items measured in 7 points Likert scale from 1(strongly disagree) to 7(strongly
agree) reflect diverse aspects of flexibility (Neely et al., 1995; Peng et al., 2011). They
are a high variety of products, increasing product variety without increasing cost and
sacrificing quality, the lead time to implement new or change existing processes
compared to competitors, the capacity of large scale product customisation, responding
quickly to customisation requirement and customising products while maintaining high
volume.
Validity and Reliability

The principal components factor analysis with varimax rotation converged with Kaizer
normalisation of 0.857 (p=0.000) verifies the convergent validity. The discriminant
validity is ensured through an exploratory principal component factor analysis with
Promax rotation that reveals exactly 8 factors. In both situations, the average factor
loadings are greater than 0.70. The degree of internal consistency of a construct (Boyer
209
et al., 1997) concerns for the reliability. We use Cronbach’s coefficient of alpha to assess
the reliability of scales. The threshold for acceptable reliability for existing measures is
alpha values of 0.70 and 0.60 for new measures (Hair et al., 2006). We standardise all the
items that measured in different scales. Table 1 indicates the mean, standard deviation,
reliability and correlations between standardised variables.
Table 1: Descriptives, reliability and correlations between scale variables

Mean SD Alpha BC FP C Q DE F D M CO IE SL CL
BC 0.01 0.80 0.91 1.00 0.22 .21* .026 .21* .36* .21* .42* .17* .21* .52* .41*
*
FP 0.05 0.89 0.86 1.00 .26* -.053 .23* .11* .10* .20* .00 .18* .10* .14*
*** *
C 0.01 0.83 0.78 1.00 .017 .34* .15* .11* .36* -.03 .03 .11* .17*
Q 0.00 0.87 0.78 1.00 -.25* -.00 -.14* -.04* .24* -.09** .01 .04
DE 0.01 0.90 0.89 1.00 .28* .16* .35* -.17* .16* .21* .22*
F 0.00 0.80 0.89 1.00 .23* .24* -.02 .19* .42* .47*
D 0.00 0.75 0.73 1.00 .14* .11 .17* .20* .26*
M 0.00 0.81 0.83 1.00 .03* .17* .31* .25*
CO 0.00 0.79 0.92 1.00 .00 .07* -.01
**
IE 0.01 0.77 0.89 1.00 .31* .26*
SL 0.01 0.85 0.78 1.00 .50*
CL 0.00 0.84 0.92 1.00
SD- Standard deviation, BC- Business continuity, FP- Financial performance, C-Cost, Q-Quality,
DE-Delivery, F-Flexibility, M-Munificence, D- Dynamism, CO- Complexity IE- Information
exchange, SL- Supplier leveraging and CL- Customer leveraging
*P<0.01; ** P<0.05; *** P<0.10
Endogeneity
The number of survey respondents varying from 1 to 11 persons answered the
questionnaire together from a plant and collected from 18 countries in 21 industrial
classifications. The survey that consists of five separate sections employee different
measurement scales. Although the mentioned precautions are taken to reduce the common
method bias it is still likely to occur in the results. Therefore, we performed endogeneity
tests to check whether some explanatory variables are not independent of the residuals.
First, we use the Hausman’s test to check whether reverse causality exists (Sluis and De
Giovanni, 2016) between the dependent variable, financial performance and the likely
endogenous variable. The munificence and dynamism are likely endogenous variables for
the financial performance in this study due to the susceptibility of the proxy measures
used from the questionnaire to deliver the true interpretations. Reverse causality of the
conceptual model does not exist as all the beta coefficients of likely endogenous variables
of the task business environment and supply chain is not statistically significant. Second,
we performed the Two-Stage Least Squares (2SLS) regression analysis using an
instrumental variable procedure to check the endogeneity for the dependent variable of
business continuity. In stage one, we regress munificence on the instrumental variable of
competitive intensity in the industry. The results indicate that competitive intensity
positively relates to munificence (β=0.57, p=0.05). In the second stage, we substitute the
predicted estimations of the endogenous variable based on the instrumental variable to
the original model equation and calculate the standardised residual. Covariance between
the predicted endogenous variable and the standardised residual does not differ from 0,
as such, endogeneity does not exist in the variable.
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RESULTS
We use the hierarchical regression to analyse how the operational sustainability is
influenced by the interaction between the task business environment and supply chain
relationship. It is of particular interest that this is the most appropriate technique to
analyse the effects of groups of latent variables in an incremental and controlled manner
(Hair et al., 2006). Table 2 shows the results of hierarchical regressions with the business
continuity and the financial performance as dependent variables. The first model that
controls for the firm size, country and industry effects and manufacturing performances
account for a variance of 16.6% for the business continuity and 10.9% for the financial
performance. The concurrent inclusion of the task business environment and the supply
chain relationship variables in the second model provide a significant improvement with
an incremental variance of 17.5% for the business continuity and 3.5% for the financial
performance. Since the inclusion of the interaction effects in the third model explains the
variance of 1.8% and 2.5% for business continuity and financial performance
respectively, it lays the foundation for hypothesis testing of nonadditive interactions. The
overall effect of the model explains 47.2% and 26.2% of the variance in the business
continuity and the financial performance correspondingly, which the associated F tests
are significant at p<0.01.
Table 2: Hierarchical regression for business continuity and financial performance

Model Business Continuity Financial Performance Hypoth
Model1 Model2 Model3 Model1 Model2 Model3 esis
Variables
Beta Beta Beta Beta Beta Beta
Employees .09*** .02 .03 .05 .03 .02
Australia .05 .06 .05 .02 .01 .01
Croatia -.10 -.12*** -.10*** -.04 -.10 -.12***
USA -.14** -.09*** -.10*** .17* .18* .17**
Vietnam .04 .07 .08 .16** .16** .15**
Poland -.07 -.05 -.04 .02 .08 .07
Ireland -.04 .02 .02 -.02 -.02 -.03
Hungary -.09*** -.03 -.03 .13** .14** .12**
China .14** .10** .08*** .13** .12** .11***
Industry 1 -.04 -.01 .00 -.05 -.04 -.05
Industry 2 -.04 -.02 -.02 .07*** .07*** .07***
Industry 3 .01 .02 .02 -.02 -.03 -.03
Industry 4 -.03 -.03 -.02 -.03 -.02 -.03
Industry 5 -.00 .01 -.01 -.04 -.05 -.07***
Industry 6 -.01 .02 .03 .00 .00 -.01
Industry 7 -.02 .01 .02 .02 .01 -.01
Industry 8 .02 -.01 -.01 .05 .05 .05
Industry 9 -.02 .01 .02 -.04 -.05 -.05
Industry 10 .04 .03 .03 -.05 -.05 -.05
Industry 11 -.04 -.05 -.04 -.04 -.04 -.06
Industry 12 .04 .02 .02 .03 .03 .02
Industry 13 -.12** -.10** -.09*** .01 .00 -.02
Industry 14 .04 .01 .01 -.05 -.06 -.06
Industry 15 .01 .00 .01 -.04 -.04 -.02
Industry 16 .07*** .04 .04 -.01 .00 -.01
Industry 17 .03 .02 .03 -.04 -.02 -.01
Industry 18 -.02 -.05 -.05 -.02 -.01 -.01
Industry 19 -.00 -.01 -.00 -.02 -.02 -.02
211
Industry 20 .00 .02 .02 -.12* -.12* -.12*
Cost .18* .06*** .08** .21* .19* .19*
Quality .10** .06 .07*** -.04 -.05 -.04
Delivery .09** .02 .02 .19* .17* .17*
Flexibility .32* .11* .10** .03 -.04 .06
Dynamism (D) .06 .05 .08*** .06
Munificence (M) .20* .18* .05 .05
Complexity (CO) .08** .08*** .19* .17*
Information Exchange (IE) .05 .04 -.05 -.07
Supplier Leveraging (SL) .31* .32* .01 .03
Customer Leveraging (CL) .11* .14* -.02 -.02
H1a: D x IE -.02 .09** Yes
H1b: D x SL .07*** .03 Yes
H1c: D x CL -.01 .03 No
H1d: D x CO .02 -.04 No
H2a: M x IE .02 .02 No
H2b: M x SL .11* .04 Yes
H2c: M x CL -.10** -.14* Yes
H2d: M x CO -.06*** .04 Yes
H3a: CO x IE .07*** -.01 Yes
H3b: CO x SL -.02 .05 No
H3c: CO x CL .01 .01 No
R2 .279 .453 .472 .202 .236 .262
R 2
.166 .175 .018 .109 .035 .025
F 5.654 10.146 8.323 3.703 3.788 3.305
*P<0.01; ** P<0.05; *** P<0.10
The results support six hypotheses. They indicate significant positive interaction
effects of dynamism with information exchange and supplier leveraging by supporting
hypotheses H1a and H1b correspondingly. However, results reveal that customer
leveraging and complexity are not dominant in dynamic task environments as the plant
prominently focuses on accurate and timely information and flexibility in supplier base
to modify the relationships that increase its strategic fit to the environment.
The munificence supports all the interactions with relationship dimensions except the
information exchange. This supports H2b, H2c and H2d. The interaction between
munificence and customer leveraging significantly decreases both the business continuity
and financial performance while the supply chain complexity with munificence reduces
only business continuity. Since, the nature of munificence pumps the information
abundantly and consists of a large pool of alternatives, unnecessary complexity in the
supply chain decreases the plant’s profits and innovations. Also, the plant’s role as a
supplier in the customer relationship does not capture value by leveraging rather
cooperative behaviours and customer initiation increase the profits (Kim and
Wemmerlov, 2015). In contrast, the interaction between munificence and supplier
leveraging significantly improves the business continuity. Leveraging the supplier base
is critical than ever in a resourceful environment which accrue the savings from reduction
in working inventories, losses from excess and scrap inventory and nonvalue adding tasks
(Herrmann and Hodgson, 2001).
The complex task environment urges the need for modifying the products and supply
chain relationships in response to the strategic information about the market fluctuations,
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thus it supports the H3a with a positive significant interaction effect between the
complexity and information exchange. Since, the complexity is both a cause and a
consequence, the plant adheres to selective strategies such as co-opetition to coevolve
with respect to each relationship not as an entity (Pathak et al., 2014). Hence, the plant
may rather appreciate cooperative behaviours in supply chain than making tactical
decisions based on its perceptions to leverage suppliers and customers (Kim and
Wemmerlov, 2015) in a complex environment.
DISCUSSION
The primary objective of this study is to understand how the operational sustainability is
influenced by the interaction between the supply chain relationships and the task business
environment. Our analysis confirms that the significant interactions are either synergistic
or antagonistic. The results empirically confirm that a CAS behaviour is not a derivative
of the individual behaviour (Holland, 2002) since the nonadditive interaction effects
largely vary from the constituting features’ distinctive effects on the operational
sustainability.
In this study, we recognise both synergies and antagonies, if they are only confirmed
as significant interactions (p<0.1) by the results. We interpret the antagony as the
interaction that weakens the respective elements’ cumulative effect on the operational
sustainability but not necessarily a negative interaction. If an interaction is positive and
weaker than the cumulative of the distinctive effects on the operational sustainability, we
recognise it as a positive antagony and if it is negative and still weaker than the totality
of the particular individual effects. The positive synergy represents the interaction that
strengthens the respective elements’ cumulative effect on the operational sustainability
while the negative synergy still strengthens total individual effects but in a negative
direction. We measure the magnitude by the absolute values of the interaction and
cumulative of distinctive effects.
The positive synergy between the dynamism and the information exchange
significantly improves the financial performance. In contrast, the negative synergy
between the munificence and the customer leveraging reduces the financial performance
while the same interaction acts as a negative antagony on business continuity. The
interaction between the munificence and the supply chain complexity also turns out to be
a negative antagony by reducing the business continuity. These negative antagonies
interestingly reflect how their positive discrete effects on the operational sustainability
turned into negative interaction effects in a CAS. The positive antagonies such as the
interactions of supplier leveraging with dynamism and munificence and the interaction
between complexity and information exchange are not effective as their individual effects
on business continuity. The interactions of supplier and customer leveraging with the
munificence are the highest effects on the business continuity and the financial
performance in turn.
Theoretical Contributions
Table 3: Previous work in CAS view of supply chain/network
Authors Findings
Choi et Authors conceptualise supply networks as CAS and propose that supply network
al.,2001 emerges rather than a purposeful design by a singular entity.
Surana et With the advent of information technology, managers need to treat the supply network
al., 2005 as a CAS to effectively understand the inherent network complexity.
213
Pathak et Authors propose the potential research questions to emphasize how the CAS perspective
al., 2007 can enrich the supply chain discipline.
Li et al., Authors model and simulate supply network as a CAS to inform that the firm’s internal
2010 mechanisms such as strategies and product structure have the immediate influence on
the CAS evolution while the external environmental factors have the long-term impact.
Nair and Authors run simulations to understand the significant association between network
Vidal, 2011 characteristics and the supply network robustness.
Nair et Authors explore the initial emergence of environmental innovation in dominant buying
al.,2016 firms and its subsequent proliferation in self organising supply network.
Though existing literature mostly defines the supply chain in CAS view as a form of
adaptation to the environment as shown in table 3 (Choi et al., 2001; Pathak et al., 2007;
Surana et al., 2005), a gloomy conventional wisdom exists about the nature of the
interaction between the supply chain and its task business environment. The CAS theory
postulates the nonlinear occurrences and the agents’ nonadditive interactions within the
CAS but not the nature of the system level interactions between the CAS and its
environment. Therefore, this research further expands the CAS theory by theoretically
proposing that these system level interaction effects on the agent’s operational
sustainability are nonadditive. We empirically validate these interactions by justifying
our theoretical model developed based on CAS theory and literature of supply chain and
business environment. The results confirm the existence of the interactions between the
environment and the CAS and their nonadditive effects on the operational sustainability.
We elucidate both synergies and antagonies accordingly with the properties of a CAS
such as the interactive agents, anticipation, building blocks, coevolution, aggregate
behaviour and emergence (Holland, 2002).
The conceptual model postulates that the plant must maintain both the internal fit to
the supply chain and the external fit to the task business environment simultaneously.
Although researches explore the plant’s adaptation to the task environmental dimensions
such as dynamism, munificence and complexity (Dess and Beard, 1984; Ward et al.,
1995), relatively less attention paid to the other form of adaptation that involves with the
supply chain relationship dimensions. Exploring which relationship dimensions that drive
the operational sustainability vigorous and unpredictable in their interactions with the task
environment is similarly important. Hence, we recognise information exchange,
complexity, supplier and customer leveraging as the building blocks that modify the
volume and value of the supply chain relationship.
To a larger extent, the supply chain and task business environment literature evolve
independently to elucidate the changing fortune of manufacturing plants. They offer
limited knowledge in merging these two forms of adaptation and how these elements
interact in nonadditive ways to increase the plant’s operational sustainability. In this
study, we recognise one positive and one negative synergy and three positive and two
negative antagonies between the supply chain relationships and the task business
environment that significantly impact the operational sustainability. This is quite a
significant finding since, the management expects additive improvements in operational
sustainability by focusing on each dimension individually but the reality is that they
interact with each other at the interface to produce either synergistic or antagonistic
effects.
This research incorporates CAS findings with previous literature in innovation and
profit maximisation perspectives of operational sustainability that is characterised by the
business continuity and financial performance. We propose and validate new measures to
214
represent the dimensions of task business environment, supply chain relationships and
business continuity in the conceptual model. A new theoretical view of the operational
sustainability has been amassed the business continuity and the financial performance to
address the timely business needs that largely absent in this body of literature. For supply
chain managers, this CAS perspective offers a new perceptual model from which to view
the business world that integrates the objectives of profit maximisation and innovation.
Managerial Implications
This research pioneers in informing how the nonadditive interactions between the supply
chain relationship and the task business environmental dimensions stimulate the
operational sustainability. The model development and empirical testing presented in this
study provide an important guidance to the managers who are eventful in upholding the
plant’s internal fit to the supply chain by adapting the task business environment.
Managers who foster the CAS view of the supply chain can develop their plants by
optimising the different aspects of the challenging task business environment. Table 4
provides managerial recommendations with industrial case examples.
In fact, these interactions are becoming increasingly important as plants struggle to find
ways to increase their operational sustainability with rising competition from both the
internal and external parties. At the macro level, these negative effects can be hindered
or positive effects can be advanced by making the strategic fit between the environmental
availability and supply chain manageability. The rationale behind this is that the
manufacturing plant should decide at which level the mutual benefits to be considered
with supply chain partners by optimising the nonadditive interactions to promote the
plant’s own interests. Further, the conceptual model reinforces the CAS view of supply
chain relationships in its task environment to offer a new theoretical view of the
operational sustainability by employing the profit maximisation and innovation
perspectives.
In conclusion, these interactions are effective strategic means of transferring the
resources, knowledge and technology across the supply chain relationships that ensure
the plant’s operational sustainability. Through the lens of CAS, the proposed supply chain
relationship dimensions and their coevolution with the task business environmental
properties provide an ideal platform for the managers to develop more effective business
models by facilitating the supply chain partner enabled vision for the operational
sustainability. It will result in competitive advantage for the plants to stay operationally
sustainable in their target markets and to approach new markets. Having a proper
awareness of the interaction effects can avoid unexpected disruptions to the supplier and
customer relationships and mitigate the negative impact on the operational sustainability.
Table 4: Recommendations for supply chain managers

Hypothesis Managerial recommendations
H1a Dynamism =.08, Information Exchange = not significant, Dynamism * Information
Positive Exchange = .09, |.09|>|.08| Hence, it is a positive synergy. For instance, during the dynamic
Synergy “Great Recession” in 2009, Toyota misinterpreted the accelerator malfunctions to human
error in US market. They decided not to recall the cars with problem parts and continue the
manufacturing with the same parts and it ended up with paying $1.2 billion and withdrawing
eight models from the consumer recommendation label. Hence, managers must ensure the
strategic fit between the available information and the market requirements to respond the
dynamics in a timely manner. Further, they should encourage the customers and suppliers to
inform each other about events affecting the other party including supply and demand.
215
H1b Dynamism = not significant, Supplier Leveraging= .31, Dynamism * Supplier Leveraging
Positive = .07, |.07|< |.31| Hence, it is a positive antagony. Managers must increase supplier
Antagony leveraging to obtain the technological knowhow from suppliers and find applications to
identify new aspects and reduce the uncertainty of innovations. For instance, Apple who
remains the world’s number one supply chain since 2010 grows in revenue even during the
recession. Apple is best at its inventory handling with unrivalled 5 days’ turnover by
handling entire operation with one assembly plant in China and one central warehouse in
US. Its upstream supply chain strategy accounts for around 200 suppliers for 97% of the
supplies while around 600 suppliers for the rest. Apple leverages its diversified supply
network for pricing, volume and strategic raw material during the dynamic economic
conditions through its long term relationships and new entrances that allow competition. This
helps Apple to increase the business continuity that entirely driven by design and innovation.
H2b Munificence = .20, Supplier Leveraging =.31 Munificence * Supplier Leveraging =.11,
Positive |.11|<|.2+.31| Hence, it is a positive antagony. Supplier leveraging helps to stay abreast with
Antagony new technology tapping into external suppliers’ capabilities to compensate the plant’s
weaknesses (Weigelt, 2013) in forms of resources, technical skills and manufacturing
technologies. Although resources are readily available in munificent task environments, it is
how the plant recognises, transforms and delivers resources profitably. Honda works with
the strategic suppliers from an early stage of product developments with open book
arrangements to continuously improve the quality, delivery and costing. It outsources nearly
75% while suppliers provide 90% of the costing details. The plant optimises the available
resources and supplier diversity to fulfil the regional demand with direct contacts of around
600 suppliers in North America.
H2c For business continuity; Munificence= .2, Customer Leveraging = .11, Munificence *
Negative Customer Leveraging = -.10, |-.10| < |.2+.11| hence, it is a negative antagony and for
Anatagony financial performance; Munificence= not significant, Customer Leveraging = not significant,
and Munificence * Customer Leveraging = -.14 hence, it is a negative synergy. Merely
Synergy possessing the customer knowledge and technology (Weigelt, 2013) does not increase the
operational sustainability, rather the plant must ensure the return business and profits by
focusing only on opportunities that enhance the reliability of boundary spanning processes.
Yahoo, the leading business that owned 21% in online advertising by 2005 reorganised its
structure to leverage the operations with key customer segments and create relatively
unimportant unique customer experience in a munificent environment. Its desire to be an
online portal instead of a search player failed to translate its customer base into revenue that
led to near bankruptcy putting behind Google, Facebook and Microsoft.
H2d Munificence = .2, Complexity = .08, Munificence * Complexity = -.06, |-.06|<|.28| Hence,
Negative it is a negative antagony. Complexity based supply chain solutions can become a silent killer
Antagony of manufacturing plants in munificent task environments by creating excess inventories and
non-value adding activities. Compaq, the world’s largest PC supplier during 1990s won an
enormous credibility and a technological lead unmatched by its competitors supported by its
munificent task environment including skilled employees and astute marketers. However,
Compaq’s acquisitions of Tandem Computers and Digital Equipment Company led a great
deal of increased supply chain complexity with excess inventory and unnecessary price
competitions. It wiped out a successful PC selling business from the market by 2002.
H3a Complexity=.08, Information Exchange = not significant, Complexity * Information
Positive Exchange = .07, |.07|<|.08| Hence, it is a positive antagony. Complex task environment urges
Antagony the frequent and accurate information exchange in supply chain relationships. For instance,
Zara operates more than 7000 outlets sensing both demand and supply through online
platforms to enhance capacity, cost, availability and lead time far better than competitors. It
follows a flat hierarchy in information exchange using newest technologies such as personal
digital assistants to capture real time consumer data while centralised manufacturing with 11
plants and one warehouse dedicated to supplying. The fastest fashion chain continues to grow
in profits with improved information exchange to deal with inherent complexity in supply
chain and task environment.
216
CONCLUSION
Our primary objective of onset of conducting this study was to expand the CAS theory
by exploring the nature of the interaction effects between the supply chain and the task
business environment on the manufacturing plants’ operational sustainability. We further
dig into the dimension level interactions characterising the task business environment by
dynamism, munificence and complexity and supply chain relationship by information
exchange, complexity, supplier and customer leveraging. Our findings confirm to the
aggregate behaviour of CAS which in forms of interactions that cannot be deducted to the
manufacturing plant’s behaviour on the operational sustainability. The significant
synergistic and antagonistic interactions provide evidence for the nonadditive behaviour
of supply chain relationships. Further, the interactions of supplier leveraging in both
dynamic and munificent task environments and information exchange in the complex task
environment contribute to positive antagonies of operational sustainability. The supply
chain complexity and customer leveraging in munificent task environments contribute to
negative antagonies of business continuity while information exchange in dynamic
environment claims for a positive synergy.
Our work supplements with the CAS view of supply chain literature and provides
clarity into the interaction effects of a CAS with its task environment and how the
participants’ operational sustainability is influenced by them. Despite a great deal of
interest in the distinctive impacts of the business environmental features (Bourgeois,
1980; Dess and Beard, 1984; Ward et al., 1995) and the dimensions of supply chain
relationship (Lorenzoni and Lipparini, 1999; Ofek and Sarvary, 2001; Kim et al., 2011;
Williams et al., 2013) on business performance, this study emphasizes the criticality of
the missing interactive effects between these two constructs on the operational
sustainability. Hence, it offers a new theoretical standpoint for the concept of the
operational sustainability based on the business continuity and the financial performance.
Further, it integrates the CAS with literatures of supply chain and task business
environment. This study offers a more rigorous and scientific analysis to the managers
elucidating how to foster the CAS view of supply chain to increase the operational
sustainability.
Study Limitations
The use of cross sectional data may limit the discussion of causality in which the
longitudinal researches replicating this study would increase our understanding. Also, this
approach relies on survey respondents to provide opinions which may have a demand
characteristic rather than using externally reported information (York and Miree, 2004).
The use of the existing databases sometimes affects the operationalization of constructs
(Narasimhan and Jayaram 1998) as some of the relevant items in GMRG questionnaire
fail in this study due to the reliability and validity issues.
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219
What is Value? Towards an integrated
Conceptualisation of Supply Chain Value
Tiffany McIntyre*
PhD Candidate**
DDI: +64 3 423 0365
Tiffany.McIntyre@lincolnuni.ac.nz
Dr Mark M.J. Wilson

Senior Lecturer in Supply Chain Management**
DDI +64 3 423 0222
Mark.Wilson@lincoln.ac.nz
Dr Jeff Heyl
Senior Lecturer in Operations Management**
DDI +64 3 423 0208
Jeff.Heyl@lincoln.ac.nz
Dr Birgit Schulze-Ehlers
Senior Lecturer in Agribusiness Supply Chains**
DDI +64 3 423 0254
Birgit.Schulze-Ehlers@lincoln.ac.nz
* Corresponding Author
** Department of Global Value Chains and Trade
Faculty of Agribusiness and Commerce
Lincoln University, NZ
220
What is Value? Towards an Integrated
Conceptualisation of Supply Chain Value
Abstract
Despite the importance placed upon value within the business literature, many academics
still label it ambiguous. Indeed, within supply chain management there are many different
views of value, complicated by the misalignment of firm and industrial customer
perceptions; the firm view based upon utilitarian and financial views, and customer
perceptions based upon the trade-off between benefits and sacrifices. However, as the
firm and customer are closely inter-linked, there is a need for more integrated
conceptualisations. This research paper moves in this direction through the development
of a multidimensional, integrated supply chain value model, based upon several
operational dimensions of value.
Introduction
Supply chain management (SCM) as a discipline has risen in prominence in recent years,
due to drivers such as time and quality based competition, globalisation and
environmental uncertainty. Consequently, firms within the supply chain have been forced
to become more flexible in their relationships and look beyond traditional boundaries to
other firms in the supply chain for a competitive advantage (Mentzer et al., 2001). In this
sense, firms become supply chain oriented as they focus on managing their upstream and
downstream relationships in order to reduce their transaction costs and increase the value
of their product offering (Min, Mentzer, & Ladd, 2007).
Within the supply chain the final customer of the product exclusively defines what value
is through their willingness to pay (WTP) for a product (Brandenburger & Stuart, 1996).
In this sense, the “upstream market is derived from the original downstream market”
(Slater & Narver, 1994, p. 22). Therefore, in addition to a supply chain orientation, firms
must take the needs of the final customer into consideration which suggests that a market
orientation throughout the chain is also needed. Grunert et al. (2005, p. 428) suggest
market oriented firms use “knowledge about the market, especially about customers, as a
basis for decision-making on what to produce, how to produce it and how to market it”.
It is critical therefore, that a firm carefully manage their relationships with chain partners,
yet not lose sight of the end customer. Hence, there must be an alignment of value
perceptions in each buyer/seller dyad throughout the supply chain in order to maximise
value creation.
This need for alignment between firms can be seen in the definition of SCM itself.
Although the description varies between authors, the concept centres on the integration
of business processes and functions across firms in order to add value to products and
services, and meet the needs of the end customer. The way in which to meet these needs
221
and deliver value to the end customer is the subject of debate among academics, but it is
generally suggested that competitive supply chains should have the following
characteristics:
• A consumer centric focus, as the final customer is the arbiter of value (Porter,
1985).
• Seamless integration of business processes and functions that reduces waste and
adds value (Fawcett, Ellram, & Ogden, 2007).
• Collaborative relationships that aid in creating value and delivering the product as
effectively and efficiently as possible to the final consumer (CSCMP, 2016).
Maximising value delivery is important for competitiveness and Sánchez, Callarisa,

Rodríguez, and Moliner (2006) argue that value is the precursor to satisfaction, which
leads to brand loyalty, or a repeat purchase decision. However, within the literature
several studies adopt either a supply-side view or a customer view of value, the supply-
side being firms upstream in the supply chain focusing on procurement, operations and
logistics, and the customer being an industrial customer downstream (Christopher &
Towill, 2001; Sheth, 1973). This limits the potential value capture of a chain as managers
and consumers are both concerned with what is built into an offering. A view that the
“value offering [is] created by the firm for the customer [and] is defined in the
marketplace by the customer” offers a more encompassing view of value (Ngo & O'Cass,
2010, p. 498). Hence, in order to optimise value delivery to the end customer, these
perceptions must be aligned. This papers theoretical contribution is in its integration of
supply chain value at an operational level between firms, taking into account both the
supply-side and customer views of value in order to develop a more holistic
conceptualisation of supply chain value.
The paper adopts a business to business (B2B) perspective to address the following
questions:
• How has value been studied within the field of supply chain management?
• How do value perceptions of value differ between the firm and the customer?
• How is value operationalised in the transactions between the focal firm, its
suppliers, and its customers?
The following section investigates how value is studied within SCM, both in the
definitional and applied sense. The proceeding section investigates how value perceptions
differ between the firm and the customer, using economic value as the theoretical base.
Finally, the proposed model is introduced and a method to test the model is outlined.
Value in Supply Chain Management
Whilst the importance of value has been highlighted, two important question are raised:
how has value been investigated in SCM? and, how is value defined? Despite the
literature being saturated with the term ‘value’, many authors still argue that it is ill-
defined and ambiguous, which can be attributed to the use of value in different
management streams and units of analysis used in studies (Grönroos & Voima, 2013;
Zokaei & Hines, 2007). Additionally, the changing business environment and the rise in
globalisation, technology and complexity of supply chains have greatly influenced the
222
“evolution of SCM and its core concepts” (Zokaei & Hines, 2007, p. 225), resulting in
ever changing views of value. A summary of value use within SCM can be seen below in
table 1.
Table 1 summary of value use in supply chain management

Subject area Topic of investigation Author(s)
Marketing Customer perceived Sánchez-Fernández and Iniesta-Bonillo
value (2007); Woodall (2003); Woodruff
(1997); Zeithaml (1988)
Value co-creation Ranjan and Read (2016); Stabell and
Fjeldstad (1998); Vargo and Lusch
(2004)
Collaboration Behavioural view Barratt (2004); Cao and Zhang (2011);
Ellram (1995); Gundlach, Achrol, and
Mentzer (1995); Snehota and
Hakansson (1995)
Resource view Bowman and Ambrosini (2000); Dyer
and Singh (1998); Othman and Sheehan
(2011)
Chain value Value appropriation Brandenburger and Stuart (1996);
Duhamel, Reboud, and Santi (2014);
Miguel, Brito, Fernandes, Tescari, and
Martins (2014)
Supply chain Agarwal, Shankar, and Tiwari (2006);
competitiveness Cavinato (1992); Gunasekaran, Patel,
and Tirtiroglu (2001); Porter (1985)
Source: Authors
The use of value within SCM can be seperated into three broad subject areas: marketing,
social ties, and chain value. Marketing is generally concerned with customer perceived
value and value co-creation, where customer perceived value is generally concerned with
the trade-offs that occur in the purchase of a product offering (Zeithaml, 1988, p. 14). In
contrast, value co-creation is often discussed within services marketing and involves co-
creation of value within complex networks as opposed to dyadic relationships. This co-
creation takes place between the firm and the final customer, where the final customer
becomes involved in the production process (Lusch, Vargo, & Tanniru, 2009).
Collaboration deals with both intra-firm and inter-firm exchange. The behavioural view
suggests that collaborative relationships fostered through mechanisms such as trust and
commitment allow firms to generate relational rent and “leverage resources and
knowledge of customers and suppliers” to reduce transaction costs and achieve a greater
competitive position (Cao & Zhang, 2011, p. 163). The resource view has a much more
strategic focus, rooted in the resource based theory of the firm, where firms leverage
valuable resources based on the valuable, rare, non-imitable and organisation (VRIO)
223
framework in order to generate rent and gain a competitive advantage in the market. In
order to determine if a resource is of value, Barney (2002, p. 160) suggests it should be
asked whether or not “a firm’s resources and capabilities enable the firm to respond to
environmental threats or opportunities”.
Chain value deals with value appropriation and chain competitiveness. Appropriation
deals with value capture between firms which is often expressed in monetary terms. For
example, Brandenburger and Stuart (1996) developed a value appropriation segment line
seen below in figure 1, in which value is distributed between the buyer, firm and supplier.
The total value created is the summation of these individual actors. Chain competiveness
also deals with either the value capture or cost of the whole chain, but is more concerned
with SCM practices such as development, production and distribution of the product. In
this context Cavinato (1992) defines value in its basic sense as removing costs, and in a
procurement setting as a matter of function divided by cost. Hence, value is improved by
a cost reduction, an increase in functionality, or both.
Figure 1: Value created by a vertical chain of players. Source: Brandenburger and Stuart
(1996)
While value has been investigated in different contexts within SCM, there appears to be
a lack of research examining how value perceptions interact between the firm and the
industrial customer, and how these can be integrated at an operational level captured
between each dyad, as opposed to higher order constructs that govern an entire chain. As
the rationale for a firm’s existence is economic, this paper adopts an economic view of
value where value is subjectively perceived and provides utility, by which demand is a
function of use and "exchange value is derived from use value” (Gordon, 1964, p. 118).
A. Smith (1784, p. 26) described economic value as “the utility of some particular object,
and sometimes the power of purchasing other goods which the possession of that object
conveys”. The first view is often labelled value-in-use, and the second, value-in-
exchange. Everyday use of the word ‘value’ generally refers to value-in-exchange and
can be defined as the quantity of a commodity against the exchange of another, in
equilibrium conditions (Scruton, 2007). Grönroos and Voima (2013) suggest that
exchange value is created within the ‘provider sphere’ where the product is manufactured
and delivered, and is then realised at the point of sale. From the point of purchase value
belongs to the ‘customer sphere’, where value-in-use is created through the process of
224
consumption and derived through the users context, such as social, spatial and temporal
(Ranjan & Read, 2016). Utility, the measure of value-in-use, is contingent upon the
situation and refers to the satisfaction or level of usefulness of a product in satisfying a
particular need (Hilliard, 1950). The difference between the two types of value was
summarised by Taussig (1911, p. 116) who stated that:
“We speak of the value of iron as greater than that of gold, and the value of
wheat as greater than that of diamonds… Yet we also speak of gold and
diamonds as more valuable commodities than iron and wheat”.
The Firm Centric View

From the firm’s perspective, value is added by the processes and activities of the firm as
product moves through the supply chain to the final consumer. This increase in utility is
categorised into four different types by Fawcett and Fawcett (1995, pp. 28-29) and
described as:
• Form utility is captured through the transformation of an input from existing state
to one of higher desirability
• Place utility refers to the product being where the customer needs it
• Time utility refers to the when the customer needs it
• Possession utility is the dissemination of information to create an awareness of a
product and a desire to purchase that product
Form utility belongs to the area of operations management. However, in recent years
purchasing and product development have also had an impact on form utility as the cost
of materials represents a large portion of cost of goods sold (Fawcett & Fawcett, 1995).
Place and time utilities are often discussed together as interdependent variables and
belong to the functions of purchasing, production and logistics (Winsor, Sheth, &
Manolis, 2004). Possession utility deals with pride of ownership and ego and belongs to
the area of marketing (Sheth & Uslay, 2007). It refers to information communicated to
the consumer to induce a perceived need, while simultaneously providing a solution to
the need. The purchase of the product then leads to cognitive reinforcement (pride) of
ownership (Fawcett & Fawcett, 1995).
In regards to the value-in-exchange perspective, the firm generates value through profits
and aims to maximise returns through value-adding firm activities. This perspective often
adopts Porter’s (1985) generic strategies in which an increase of value is born out of
offering equivalent benefits for a lower comparative price, or alternatively, a
differentiated product with benefits justifying a higher price point. Hence, the two forms
of economic value are closely connected as the firm creates value-in-use through its
activities, and then transfers this value to the customer at the point of sale where value-
in-exchange is realised (Bowman & Ambrosini, 2000).
The Customer Centric View

Customer value has many competing definitions within the literature, however it can be
broadly defined as the net benefits arising from a transaction (see for example, Butz &
Goodstein, 1996; Christopher, 1982; Dodds & Monroe, 1985; Grönroos, 2000; Woodruff,
1997). Arguably the most commonly used definition of perceived value is that of
Zeithaml (1988, p. 14) who described it as “the overall assessment of the utility of a
225
product based on the perceptions of what is received and what is given”. In this
conceptualisation, perceived value is derived from perceived sacrifice, perceived quality,
intrinsic (physical composition) attributes, extrinsic (product-related) attributes, and
higher level abstractions (psychological benefits). In line with a multidimensional view,
Anderson, Jain, and Chintagunta (1993) view value as the monetary worth of technical,
economic, service and social benefits received in exchange for the price paid.
Consequently, the inclusion of several dimensions disputes the more traditional
perception of value as a unidimensional construct, involving a trade-off between price
and quality (Mudie, 1997).
When making a purchase, the customer aims to maximise the utility that they receive,
with different priorities assigned to characteristics dependent on the desired goals of
consumption (Rungie, Coote, & Louviere, 2011). However, while each customer
theoretically aims to maximise their utility, there may be limits to this. As the final
customer is the final arbiter of value in any given supply chain, a firm may find that in
order to maximise the WTP at the final point of sale, it must limit its own economic value.
In this sense, local optimisation is reduced in favour of greater final value capture and
distribution across the chain.
When considering intrinsic product attributes, Lancaster (1966) proposed that utility is
derived from the properties or characteristics of the good, rather than the good itself, and
stated (p. 134):
• The good, per se, does not give utility to the consumer; it possesses
characteristics, and these characteristics give rise to utility
• In general, a good will possess more than one characteristic, and many
characteristics will be shared by more than one good
• Goods in combination may possess characteristics different from those pertaining
to the goods separately.
Olsen and Jacoby (1972) suggest that these intrinsic attributes are a greater predictor of
quality perceptions than extrinsic attributes. However, that is not to say that extrinsic
attributes are not of value, and it is argued that in order to maximise value capture, firms
must carefully consider their total product offering. This sentiment is shared by Kumar
and Grisaffe (2004) who investigated buyer perceptions of customer value and quality in
reference to perceived industry leadership, innovativeness, and customer focus. Findings
showed that product quality perceptions (intrinsic attributes) were significantly
influenced by innovativeness and customer focus, while industry leadership had only a
marginal influence. However, customer value was significantly influenced by all three
extrinsic attributes. Hence, in order to maximise customer value, as opposed to just
quality perceptions, extrinsic attributes also become important.
The firm centric view of value centres around adding value to the product as it moves
downstream through the chain towards the end consumer, while the consumer centric
view is largely concerned with capturing the benefits of a product offering. A holistic
multidimensional view of value acknowledges that the firm and the customer are closely
linked and that value is captured through multiple intrinsic and extrinsic attributes present
in a value offering. Additionally, value should be created by every actor in the chain and
summation of value is ultimately captured in the WTP of the final consumer
(Brandenburger & Stuart, 1996). The following section explores those operational aspects
of value and integrates these dimensions into a model for supply chain value.
226
A Conceptual Model of Multidimensional Value
The model presented here is developed through an investigation of both supply-side and
customer-side value constructs. Supply-side dimensions of value, which belong to mainly
to the procurement, operations and logistics literature are consistently used and well
defined, whilst generally being objectively measured, allowing for activities such as
quality control, benchmarking and firm performance to be measured. Within customer
value models there is more variation in the dimensions considered. This can largely be
attributed to different product types (goods or services) and product characteristics
(intrinsic, extrinsic and higher level abstractions) as they are weighted differently between
customers, dependent upon the desired consumption goals. This leads to:
P1. The latent construct of supply chain value is derived from supply-side and
customer views of value.
In terms of dimensions considered, the generic supply chain performance determinants

of delivery, service level, quality and cost are common supply-side dimensions within the
literature (Christopher & Towill, 2001). While location value is often considered within
customer value frameworks as a dimension of value, it is supplied by the firm and
consequently, is considered within the supply-side. Process value is a construct within
Dagevos and van Ophem’s (2013) food consumption value (FCV) framework, which
considers the processes and activities of the firm in conjunction with the needs and
concerns of the final customer. The authors define process value as the “practices and
characteristics of food production processes… [it] is about the inclusion of consumers’
ethical concerns with respect to food production methods” (Dagevos & van Ophem, 2013,
p. 1477). It is argued that while process value is largely driven by the consumer, it is
supplied and communicated to the customer through the supply-side and so it is
considered here as a dimension of both the supply-side and customer. It follows then that:
P2. Supply-side value is derived from delivery, service level, location, quality,
costs, and process views of value held by firms.
In regards to customer value, the dimensions of quality, cost and process value hold a
place on both the supply and customer side. On the customer side, quality and cost are
often viewed as functional value and can be broadly defined as the rational and economic
valuations in regards to a product’s ability to perform its physical purposes, evaluated by
consumers in terms of price and quality (Sweeney & Soutar, 2001). Whilst quality and
price both constitute functional value, some authors advocate that they impact perceived
value separately, i.e. quality has a positive effect and price has a negative effect (Dodds,
Monroe, & Grewal, 1991; Sweeney & Soutar, 2001). This view is adopted here, where
quality and cost are treated as separate constructs. This leads to:
P3. Customer value is derived from quality, cost, and process views of value held
by customers.
Taking all dimensions into consideration, the resultant model can be seen in figure 2.
227
Figure 2: Integrated supply chain value model
Value Dimensions
Delivery Value
There is a general consensus in the literature that delivery refers to the ability to meet on
time demand and deliver the ‘perfect order’, which consists of on time delivery, order
completeness, order correctness, and damage and defect free delivery (Gaudenzi &
Borghesi, 2006). The delivery dimension is supplied by the firm and valued by the
customer, which is reflected in the supply literature where several metrics are used to
evaluate delivery. Common measures includes cycle times and just in time (JIT) delivery
(Bevilacqua & Petroni, 2002). Other measures used include freight terms, lead time,
delivery capacity, and shipment quality (Fazlollahtabar, Mahdavi, Ashoori, Kaviani, &
Mahdavi-Amiri, 2011). Additionally, if the aim is to deliver the perfect order, it is argued
that other logistics activities that add or destroy value such as wastage, packaging and
labelling, energy use, recycling during route to market and so on, could be included here.
Service Level Value

Service level is viewed from several perspectives within the literature, commonly
including after sales and technical support (Saccani, Johansson, & Perona, 2007),
production flexibility and responsiveness (Daugherty & Pittman, 1995), and safety stock
levels and costs (Jeffery, Butler, & Malone, 2008). While service level could be viewed
from any of the three perspectives, it is suggested that after sales and support, and
flexibility and responsiveness may also be perceived as service quality and thus, service
level here adopts a traditional purchasing view of safety stock levels and costs. Good
inventory replenishment policies are important as inadequate service levels result in
destruction of value for customers in terms of delivery, and increased costs in handling
backorders or excessive inventory holding costs and risk of damage, spoilage and loss
(Ronen, 1983). Common programs or measures used by firms include JIT, enterprise
resource planning (ERP) and material requirement planning systems (Koumanakos,
2008).
Location Value
Location value is provided by the supply-side and can be defined as the value generated
by the setting and atmosphere at point of sale or consumption (Dagevos & van Ophem,
2013). It centres on the environment in direct contact with the customer and consists of
the physical setting and atmosphere, but also the customer service received, which Baker,
Parasuraman, Grewal, and Voss (2002) termed “interpersonal service quality”.
228
Additionally, Dagevos and van Ophem (2013) suggest that prosaic aspects such as
opening hours, convenience and cleanliness also constitute location value. Arguably, this
type of value is more important at the retail end of the supply chain as this is where
competition between supply chains is generally directed, and providing a ‘servicescape’
in which the consumer feels comfortable helps to encourage greater levels of consumption
(Bitner, 1992).
Quality Value
Quality within the literature can be defined along three dimensions: product quality,
service quality, and relationship quality. Product quality refers to the traditional product
attributes and can be viewed based upon Garvin’s (1984) eight dimensions of quality.
Importantly, not all dimensions are weighted equally as these differ depending on the
firm’s strategic position and product offering. The customer generally evaluates product
quality based upon these dimension, however in addition to these, the supply-side
evaluates quality using metrics such as process capability, defect rate or conformance,
and reject rate (Montgomery, Jennings, & Pfund, 2011). These metrics allow for
continuous improvement of product quality which not only improves uniformity, but also
helps to reduce cost as variability and rejects are reduced.
Service quality is much less objective than product quality, which Parasuraman, Zeithaml,
and Berry (1985) suggest is because of features unique to services; intangibility,
heterogeneity and inseparability between production and consumption. Due to its
subjectivity, many of the empirical studies use qualitative methods such as multi-item
scales and consequently, there are a number of models that exist to explain service quality
(see Brady & Cronin, 2001; Dabholkar, Thorpe, & Rentz, 1996; Grönroos, 1993; Rust &
Oliver, 1994). Arguably being the most used and critiqued model is Parasuraman,
Zeithaml and Berry’s (1988) service quality (SERVQUAL) scale, developed to measure
customer perceptions of quality. In this research, the authors scale suggests that customers
view service quality as a combination of service reliability, responsiveness, empathy,
assurances, and tangibles (see table 2). Considering the dimensions presented in the
proposed supply chain value model, it is suggested that all dimensions, with the exception
of ‘tangibles’ (which are viewed as components of product reliability and location value),
be considered as constructs of service quality, important to both the supply-side and the
industrial customer.
Table 2 SERVQUAL dimensions and definitions. Source: Parasuraman et al. (1988)

Dimension Definition
Tangibles Physical facilities, equipment, and appearance of personnel
Reliability Ability to perform the promised service dependably and accurately
Responsiveness Willingness to help customers and provide prompt service
Assurance Knowledge and curtesy of employees and their ability to inspire trust
and confidence
Empathy Caring, individualised attention the firm provides its customers
229
Finally, relationship quality is generally accepted to be a:
“higher order construct comprised of a variety of positive relationship

outcomes that reflect the overall strength of a relationship and the extent to
which it meets the needs and expectations of the parties” (J. Smith, 1998, p.
4).
In this sense, relationship quality is correlated with the collaborative view of value in
SCM, and while there is no single accepted conceptualisation of relationship quality there
is a consensus that the central constructs are satisfaction, trust, and commitment and that
each of these is interrelated (Hennig-Thurau, Gwinner, & Gremler, 2002; Ndubisi, 2014;
Ulaga & Eggert, 2006). Relationship quality helps to establish loyalty between the buyer
and supplier which aids in creating long-term partnerships, reduce opportunism and
transaction costs, and generate relational rents (Chumpitaz Caceres & Paparoidamis,
2007). Due to the intangible and subjective nature of relationship quality, the construct is
often measured using qualitative measures such as interviews and surveys to develop
multi-item scales (Skarmeas, Katsikeas, Spyropoulou, & Salehi-Sangari, 2008).
Cost Value
The model for supply chain value presented here views cost in the negative sense, such
that an increase in cost reduces the value of the product offering. This view is in line with
the concept of WTP where value is captured in the difference between WTP and the
purchase price (Brandenburger & Stuart, 1996). However, while the word ‘price’ is used,
the true cost of purchase involves all costs involved in the acquisition of a product. Within
the literature the most common cost considerations involved in purchases are the search
and purchase costs, transportation, and inventory carrying costs (Li & Zabinsky, 2011).
However, a view that also encompasses the supply-side should consider other costs
associated with the product offering such as production, transaction and compliance costs.
Process Value
Process value can be described as the processes and practices used to produce a product
and refers to consumer ethical concerns, especially around ecological and societal matters
(Dagevos & van Ophem, 2013). This is especially pertinent for agri-products where the
consumers are increasingly concerned with health risks and safety, environmental
degradation, credence attributes and cultural authenticity (Saunders et al., 2016). Process
value could therefore be created and captured not only through adhering to these concerns
but also through the communication of production processes to the customer. In the
context of the industrial customer, this may be concerned with transparency practices
within the supply chain, such as traceability systems and information sharing.
Interrelatedness of Dimensions
An important consideration of the dimensions presented are whether they are independent
or interrelated with each other. Sheth et al.’s (1991) theory of market choice behaviour
argued that each value dimension is independent of another, and each incrementally adds
to customer value. The authors argued that consumers are willing to trade-off between
values in order to maximise those value dimensions most important. However, many
authors dispute this suggestion of independence and instead argue that value dimensions
must be interrelated and interact with each other at varying degrees (Dagevos & van
Ophem, 2013; Holbrook, 1999; Sánchez-Fernández & Iniesta-Bonillo, 2007). This model
is more closely aligned with the second view. Moreover, consideration must be made into
230
the importance of each dimension. Clearly not all dimensions will be of equal importance
of differing product types; commodities are unlikely to compete based on attributes such
as service level, but rather on economies of scale and low cost, while value added
differentiated products are more likely to compete on attributes such as process value.
However, treated as interrelated, dimensions may interact without trade-offs occurring in
order to maximise value for the final customer.
Method
Observing Churchill’s (1979) paradigm for better measures, testing of the model will take
place through semi structured interviews, employing a questionnaire developed from
previous studies where possible. The questionnaire survey will first be pretested using
two focus groups. This will improve face validity and provide a way in which to check
that survey questions work in their intended way and are easily understood (Hilton, 2017).
It is proposed that the first be made up of academics in order to peer review the
appropriateness of items and their conceptual fit, question simplicity and fluidity, length
and format. The second focus group of practitioners is intended to be typical of the sample
frame and respondents will be asked about the questionnaire itself, and any question
ambiguity experienced when filling out the questionnaire.
The proposed sample size is 250, however this can be altered accordingly after survey
development, with the sample frame being New Zealand agribusiness firms, chosen
because of the industry’s importance to the New Zealand economy. Organisations will be
identified using the Katalyst Business (formally Kompass) database and the Australian
and New Zealand standard industrial classification (SIC) codes. This will allow an
organised comparison of how value is perceived between different types of firms/chains,
and the importance placed on the different elements of value. It is expected that multiple
staff from within each firm will participate which will ensure a high response rate and a
representative view of how value is perceived.
The collected data will be entered into Statistical Package for the Social Sciences (SPSS)
for windows where it will be coded and cleaned through the use of descriptive statistics
(Burns & Burns, 2008). It is expected that the data will be tested for validity and
reliability, using exploratory and confirmatory factor analyses, and Cronbach’s alpha
(Hair, Black, Babin, & Anderson, 2010). The model dimensions and their relationship
with the latent construct will be tested using a multiple regression analysis, and
comparisons between firms or chain types may be analysed using an analysis of variance
(ANOVA) such as a t-test (Hair et al., 2010). Following the completion of the data
analysis, the model will be revisited and fully developed with a greater understanding of
supply chain value having been gained.
Summary
The SCM discipline offers a unique perspective with which to investigate the process of
value creation and delivery to the final customer. Value is shown to be a complex and
multidimensional construct, often complicated by its different applications at a
definitional level and a misalignment of views at an operational level. Oftentimes, value
models within the literature take on either a supply-side or customer view. However,
231
value cannot be well understood from a single perspective as the customer and the firm
are inextricably linked.
Given the importance of creating and delivering value to the final customer, there is a
need to develop more concise conceptualisations and measures of value within SCM. In
order to move in this direction, this research has examined the most widely used
perceptions of value within SCM and found that these could be broadly categorised as
marketing, collaboration, and chain value. It was found that this body of work was based
either on broad, higher order constructs, or, specific intra-firm constructs and there was
an absence of research investigating how supply chains capture value in their B2B
interactions. In order to explore this further, the ways in which the firm and the customer
view value was investigated and it was found that these views differ somewhat. In order
to address this issue, a multidimensional framework is introduced in which the traditional
price and quality trade-off with other extrinsic attributes of a product offering are
considered. However, it is acknowledged that further research is needed to more concisely
define the constructs and empirically test the proposed model for conceptual fit and
degree of dimensional interrelatedness.
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Title - A Systematic Literature Review on Operations/Manufacturing Strategy with a Special
Focus on Capabilities, Secondary data and Metrics
Author details: Dr Alka Nand (Monash University), alka.nand@monash.edu.au , +61 3 9903

1417
Paper type: Research Paper

Cover page with the title, author(s) and their affiliations, addresses, email addresses, and phone numbers,
also the submission type (research paper or extended abstract).
238
Title - A Systematic Literature Review on Operations/Manufacturing Strategy with a Special
Focus on Capabilities, Secondary data and Metrics
Abstract
Purpose – A literature review within the operations strategy/manufacturing strategy (OS/MS)
discipline with a special focus on operational capabilities, secondary data and metrics is
provided. The paper aims to discuss a classic sub-theme of operations/manufacturing strategy.
This sub-theme relates to ‘how organisations treat and develop their operational capabilities’
(i.e., trade-off, cumulative/sand-cone and integrated) and highlights some of the issues with
data and measurement. Based on a select set of 25 articles published in top-ranked refereed
international journals in the discipline of operations management, the relevant subtheme was
identified and papers critically analysed. Our findings reveal that research in the area of OS/MS
has been in a slight decline recently specifically on the topic of how operational capabilities
are organised. Various research opportunities for future studies are identified in terms of the
commonly accepted metrics and measures and potential data sources.
Keywords: Operations/Manufacturing strategy, Literature review, secondary data, metrics,

measures, capabilities
Paper type: Literature review
1.0 INTRODUCTION
Operations strategy is defined as the development of specific competitive strengths based on
the operations function that is intended at assisting an organisation achieve its long-term goals
(Amoako-Gyampah & Boye, 2001). Similarly, manufacturing strategy plays an important role
in achieving the business strategy (BS) of a manufacturing firm and its origins can be traced
back in history through events such as 1750-1850 England in The Industrial Revolution
(Deane, 1979), the early twentieth Century Ford Assembly Line (Hounshell, 1984), and the
late twentieth century Toyota Production System (Bowen & Spear, 1999). Authors such as
(Skinner, 1969); (Hill, 1985); (Voss, 1995) and (Hayes & Pisano, 1996) have stressed the
importance of the manufacturing strategy concept since the 1960s. The operations strategy and
manufacturing strategy concept in general assume that for manufacturing firms to be
competitive they would need to develop operational capabilities to address business level
requirements.
With heightened competition levels, firms face increasing pressures to strategically develop
and deploy their operational capabilities to stay competitive. Capabilities are the means by
which resources are arranged to effect a desired end (Amit & Schoemaker, 1993). In the
operations management literature, the core capabilities, also known as generic capabilities are
cost efficiency, quality, delivery or dependability and flexibility (Hayes & Wheelwright, 1984;
Hill, 1985). Decisions on how organisations compete via developing their capabilities have
therefore become an important area of discussion amongst many scholars in the area of
operations strategy with the debate being centered on whether organisations combine or trade-
off capabilities in attempting to remain competitive leading to two schools of thought (trade-
off model and cumulative capabilities models).
The “trade-off” model assumes that firms should focus on one or two capabilities at a time to
compete on (Hayes & Pisano, 1996; Skinner, 1969) whilst the “cumulative capabilities” model
suggests that firms should compete on multiple capabilities concurrently (Ferdows & De
Meyer, 1990; Nakane, 1986). The sand-cone model is a special version of the cumulative
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capabilities model which assumes the capabilities need to be accumulated in a specific order
whereby quality forms the base or foundation (Ferdows & De Meyer, 1990). Whilst both views
have received some degree of empirical support, they fall short of addressing the broader
question as to why a firm would trade-off or accumulate capabilities. The more recent
explanation provided in literature is that this depends on available capacity using the
performance frontier theory (Schmenner & Swink, 1998). The performance frontier is a more
recent attempt to theoretically explain and illustrate how capability arrangements bring about
competitive advantage via the “integrated model” (Clark, 1996; Schmenner & Swink, 1998;
Vastag, 2000). The theory of performance frontier assumes that if a firm is operating further
away from its “asset frontier”, it has available capacity to be competing on multiple
capabilities. Alternatively, if it is closer to its asset frontier, then available capacity is reduced
and firms will have to choose between capabilities to compete on.
Hence, in order to develop a thorough understanding about the current research on operations
strategy/manufacturing strategy (OS/MS), it is important to do a state of the art literature
review. Our focus is on the classic sub-theme of OS/MS which specifically relates to ‘how
organisations treat and develop their operational capabilities’ (i.e., trade-off, cumulative/sand-
cone and integrated models) and highlights some of the issues with data and measurement.
Such a review has not been done in the past and the inclusion of discussions pertaining to the
type of data employed raises interesting questions and insights on this classic debate.
To complete the gap, we conducted a comprehensive literature review on the topic of OS/MS
specifically on how firms treat and develop their operational capabilities by systematically
collecting and critically analysing all relevant studies on the topic. The main research questions
of this study are:
What is the current state of research on operations/manufacturing strategy

with respect to developing capabilities?
What are some main paths and themes for future research on the area with
respect to secondary data and metrics?
Our literature review is different from existing literature reviews (see Chatha & Butt, 2015) in
the following ways: unlike extant studies a) our literature review primarily focusses on the
studies that have focused on OS/MS of firms; b) we reviewed studies that have examined this
debate through various methodologies; and c) proposed future research paths on how firms can
best develop their operational capabilities and the value of secondary data and metrics. This
paper is structured as follows. Section 2 presents the discussions on the key terminology used
in this paper. Section 3 presents discussions on the research method we followed to collect
articles for this study. A descriptive analysis of papers that we identified from the literature
review is also presented in Section 3. Section 4 presents the findings from the study followed
by the discussions on future study areas in Section 5. Finally, we draw on some interesting
conclusions in Section 6.
2.0 KEY TERMINOLOGY

In this section, we explain the key terms that are explored throughout the review.
2.1 Understanding capabilities

Capabilities are the means by which resources in an organisation are set up to attain an
anticipated goal (Helfat & Peteraf, 2003; Tracey, Vonderembse, & Lim, 1999). They describe
the potential behaviour modes of an organisation that support and shape the corporate strategy
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for success and determine its competitiveness (Amoako-Gyampah & Meredith, 1989; Größler
& Grübner, 2006a; Hayes & Pisano, 1996). They also indicate the organisation’s relative areas
of current competitive strengths in comparison with its primary competitors in the marketplace
(Antonio, Yam, & Tang, 2007; Roth & Van Der Velde, 1991). In some studies, capabilities
have also been called or are labelled as strategies, priorities, dimensions, practices and
competencies. For instance, competitive advantages and competitive priorities are more
synonymous in the strategic management literature (Galbraith & Schendel, 1983; Murray,
1988). The operations management literature on the other hand tends to use terminology such
as capabilities, competencies and priorities (Boyer & Lewis, 2002b; Noble, 1995).
Nonetheless, cost efficiency, quality, flexibility and delivery have been identified as the focal
operations based capabilities.
The cost efficiency capability refers to how competitive an organisation is with respect to the
cost of producing and providing its products or services to its customers (Nair & Boulton,
2008). It also involves the ability of organisations in being able to reduce their overall inventory
costs, increase capacity utilization, reduce production and overhead costs and increase labour
productivity (Boyer & Pagell, 2000). The second capability, quality, refers to the extent to
which the products and services that are provided meet and exceed the expectation of the
customers and is usually measured in terms of conformance and customer satisfaction levels
(Garvin, 1987; Martín-Peña & Díaz-Garrido, 2008). The delivery capability refers to an
organisation’s ability to meet the promised provision of product or service within a timely
manner and is usually measured in terms of delivery time (Antonio et al., 2007). Finally, the
flexibility capability requires an organisation to have the capacity to meet the contingent
requirements of customers usually in the form of volume and mix (Wheelwright, 1984).
2.2 Operations capability models

The development and arrangement of capabilities is an important decision for firms and can
offer significant prospects for attaining new sources of competitive advantage. Capabilities
serve to directly demonstrate and indicate the economic outcome of a firm (Demeter et al.,
2011). Hence, the relationship between capabilities, such as cost efficiency, quality, delivery
and flexibility, is critical and has been the focus of much of the research in the operations
strategy literature. The relationships amongst the operational capabilities have been described
as cases of either trade-offs or accumulation of capabilities.
Trade-off Model
Predominantly rooted in the work of Skinner (1969), trade-offs amongst capabilities are
deemed necessary when developing an appropriate operations strategy. For firms to achieve
competitive advantage, operations capabilities need to be aligned with the competitive
strategies and objectives of a firm (Amoako-Gyampah & Meredith, 2007). Trade-offs is
achieved by firms recognizing their priorities and focusing on a few capabilities at a time
(Spring & Boaden, 1997). This level of reasoning and prioritization of capabilities is also
associated with Skinner’s proposition of the “focused factory” and Hill’s (1985) idea of “order
qualifiers and winners”. The traditional implications of this model are that managers need to
focus on one to two capabilities or objectives for higher performance, as too many objectives
are considered as incompatible and risky for firms to pursue (Avella et al., 2011; Hofer &
Schendel, 1978). This acknowledgement of the presence of trade-offs thereby allows managers
to wisely plan their use of resources. Despite Hill’s (1985) order winners and qualifiers concept
for a more flexible and adaptable advancement towards competition dynamics, the trade-off
model still suffers from obvious shortcomings. For instance, Noble (1995) and Corbett and
Wasssenhove (1993) together claim that trade-offs are irrelevant in a world of extreme
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competition and advanced operations technologies. This view is further supported by Boyer
and Lewis (2002a); Hayes and Pisano (1996); Schonberger (2007) and Sarmiento and Shukla
(2011). They assert that trade-offs are rather rigid and suppressed, and, therefore, inappropriate
in this hyper-competitive global economy and inhibit world class performance.
Cumulative Capabilities Model

The alternative model, cumulative capabilities model was initially proposed by Ferdows and
De Meyer (1990) based on the successes of Japanese manufacturers. These manufacturers
demonstrated simultaneous development of capabilities through the use of just-in-time and
flexible automation techniques (Nakane, 1986). Within this model, capabilities are considered
to be ‘cumulative’ as they build upon each other and are mutually reinforcing (Boyer & Lewis,
2002a; Flynn & Flynn, 2004). Therefore, it is possible for firms to achieve high levels of
performance in more than one capability. The idea of simultaneous continuous improvements
in multiple capabilities has also been associated with the “competitive progression theory”
(Roth & Giffi, 1995), and Treacy and Wiersema’s (1993) theory of maintaining threshold
performances among various capabilities. The major implications of this model are that higher
and lasting performance can be achieved with multiple capabilities (Flynn & Flynn, 2004;
White, 1996). This emphasis on the importance of multiple capabilities is considered a more
proactive approach to competition and the global market then when the focus is on one
capability. Learning organizations and the power of quality management globally are also
embraced within this model (Noble, 1995). For managers, the emphasis on certain multiple
capabilities can, therefore, prove to be useful and profitable. Despite the model’s improved
outlook toward competition, there are concerns that this model follows a singular path of
progression and assumes that all companies tend to compete on a similar set of capabilities
(Demeter et al., 2011). These factors contradict the very basis of competitive strategy that
different companies compete along different dimensions (Porter, 1985; Treacy & Wiersema,
1993), and questions the sustainability of the model as a strategy. Another concern is that
performance under this model requires firms to be able to excel in all areas, which may not be
that simple or cost-effective (Demeter et al., 2011).
Sand-cone Model
The sand-cone model is a special case of the case of the cumulative capabilities model (Miller
& Roth, 1988; Rosenzweig & Roth, 2004; Schroeder, et al., 2011). This model assumes that
capabilities are built in a specific or prescribed order, with quality as the base or foundation
followed by delivery, flexibility and finally cost efficiency. The origins of the sand cone model
can be traced to the work of (Nakane, 1986). He argued that in order to achieve flexibility in
their manufacturing operations, Japanese manufacturers should first emphasize quality
followed by dependability, then cost, and finally flexibility. Therefore, for firms to be
competitive, the model assumes that quality must first be developed and then other capabilities
can be built over it and at the same time strengthening the base capability (Ferdows & De
Meyer, 1990). Even though the data used by (Ferdows & De Meyer, 1990) support quality
capability forming the foundation, other capabilities were not placed as per the sequence
specified. Since its inception, there have been other studies suggesting several other sequence
variations (Hall, 1987; Noble, 1995; Schmenner & Swink, 1998; Swink & Way, 1995) however
majority do support that quality forms the base capability. They also assert that improvements
in quality can lead to improvements in other capabilities.
Integrated Model
The differences between the trade-off and cumulative capabilities models have resulted in
researchers seeking to reconcile them via the integrated model (Clark, 1996; Hayes & Pisano,
242
1996; Lapré & Scudder, 2004; Schmenner & Swink, 1998). The idea behind this integrated
model is that, whilst it is possible to look at the operations strategy as consisting of two distinct
models, they both share some complementary viewpoints. These common viewpoints have
been brought together under the theory of performance frontiers (Clark, 1996; Hayes, Pisano,
& Upton, 1996; Porter, 1996). Schmenner and Swink (1998) were the first to propose that the
theory of performance frontiers, which consists of two types of performance frontiers (asset
and operating frontiers), can be used to reconcile the two competing models. Under this model,
capabilities are typically cumulative for organizations that are not on the leading edge of
capabilities; however, once on the frontier, organizations will have to make trade-offs to alter
their competitive position (Amoako-Gyampah & Meredith, 2007; Rosenzweig & Easton, 2010;
Schmenner & Swink, 1998). Whilst this model does offer some reassurance, it too has been
subject to criticism pertaining to what comprises a frontier and how best can this frontier then
be measured (Nand et al., 2013).
3.0 RESEARCH METHODOLOGY

A systematic literature review is useful in finding out the gap in existing studies and provides
information on areas where majority studies have already taken place (Garza-Reyes, 2015). To
perform the literature review systematically, we followed the five criteria approach: a) a
research question; b) searching different databases for locating the articles; c) article selection
and exclusion; d) analysis; and e) reporting/discussions.
3.1 Search, inclusion and exclusion, analysis

At first, we used Google Scholar to search for articles that had operations and manufacturing
strategy concepts mentioned in them. Google Scholar helps to include articles from various
sources including books, thesis and conference papers by pooling from many different
databases (Halldórsson et al., 2010). This unstructured review assisted us to have an overall
understanding about the depth of the study already undertaken. The initial search terms were
‘operations strategy’, ‘manufacturing strategy’, ‘capabilities’ and ‘firm performance’ to
include all articles that looked at how firms were competing. In the next step, we used several
databases such as Science Direct, Elsevier, Taylor & Francis, EBSCO, Pro-Quest, Scopus,
Business Source Premier, Emerald and Web of Science to narrow our search. By following
similar literature reviews, we added ‘trade-off model’, ‘cumulative capability model’ and
‘integrated model’ in our search terms to add more articles and exclude articles that did not
specifically focus on capability trade-offs and development. In this structured and systematic
review process, we found several articles that included multiple terms stated above however
upon closer inspection were excluded.
This was primarily because these studies were mainly focused on strategy formulation and
strategy configurations, discussed typologies and taxonomies and business performance trade-
offs (Grant, Cadden, McIvor, & Humphreys, 2013; Martín-Peña & Díaz-Garrido, 2008; Sum,
Shih‐Ju Kow, & Chen, 2004). Since, our purpose of the literature review was to focus on the
way in which firms treated and developed their operational capabilities in line with the three
models (trade-off, cumulative capabilities and integrated), we excluded those articles that did
not fulfil this specific criterion. Next, we performed a search in a list of representative journals
such as International Journal of Production Economics, International Journal of Production
Research, International Journal of Operations Management, International Journal of
Operations and Production Management and Production and Operations Management similar
to that employed by (Martínez & Javier, 2016). Finally, we used the snowballing technique to
find out more articles from the reference list of the already selected articles. Out of all the
articles found, 25 articles specifically discussed how organisations treat and develop their
243
operational capabilities along the lines of the three models. These papers along with handful of
seminal papers were deemed appropriate for the systematic literature review.
For this study, given our distinct sub-theme, we did not restrict the papers to a set time-period.
Rather, we tried to find as many papers as possible since the start of time when the concepts of
operations and manufacturing strategy on our sub-theme were first discussed. Hence, our
systematic review included some of the widely referenced and well-known past papers that
were relevant for the topic such as (Hayes & Wheelwright, 1984; Skinner, 1969; Wheel Wright,
1984). For the purposes of this systematic review only high quality, peer reviewed journal
articles were selected. Conference and dissertation type of studies/papers were thus excluded
from the literature review to maintain consistency. At first, the abstracts were read to put them
under individual categories such as ‘operations strategy and capabilities’, ‘manufacturing
strategy and capabilities’, ‘trade-off model’, ‘cumulative capabilities model’ and ‘integration
model’. Later, the relevant papers were read and analysed in detail.
3.2 Descriptive information

Consequently, a total of 25 articles matched our selection criteria of a) focusing on operations
and manufacturing strategy and capabilities; and b) mentioning at least one of the three models.
Figure 1 presents useful information on the number of publications per journal, year, models
investigated and methodology etc. In general, the results indicate that the operations and
manufacturing strategy topic has been popular among academics and practitioners since the
1990s. Publications seem to be rather consistent on this topic however more work has been
done in the more recent years (2011, 2013-2015). This probably can be attributed to the
intensification of global competition prompting researchers to find more plausible explanations
as to how firms can remain competitive by developing their capabilities and elucidate how
competition could potentially influence their current operations and manufacturing strategy.
The most important journals for operations and manufacturing strategy on the subtheme that
this study focuses identified are the International Journal of Operations and Production
Management (6), International Journal of Production Research (5), Production and Operations
Management (5) and followed by International Journal of Production Economics (3), Journal
of Operations Management and Production Planning and Control tied at (2), International
Journal of Innovation Management and Decision Sciences tied at (1). The most dominant
author’s countries by region are North America (48%), tie between Europe and Australia
including Oceania (20%), Asia (8%), and followed by South America (4%). Research about
operations and manufacturing strategy seem to have been the object of growing attention from
researchers up to 2015. The number of articles published from 2002 to 2015 had been
increasing. The more significant increase occurred from 2010 and continued to rise until 2015.
Based on 25 articles reviewing, the most important source of empirical evidence in the sample
is mainly through survey/empirical (22 articles) with the remaining being longitudinal (2
articles) and literature review (1 article).
As for the industry used to perform the empirical study, the greater majority tend to look at a
combination of firms under the general manufacturing category (electronics, parts, health care,
transport materials, plastics, food, automotive, chemicals, building materials, metal,
technologies, AMT etc.) with a few papers that have specifically looked at the airline industry
(Lapré & Scudder, 2004; Nand et al., 2013). Manufacturing sector has always been the popular
choice over the years as logically it provided a large enough sample size that enabled a more
reliable study of operations strategy in practice and action. Manufacturing firms therefore
demonstrate the focal capabilities of cost efficiency, quality, delivery and flexibility in a more
244
consistent manner. Also worth mentioning is that bulk of studies (88%) have in fact resorted
to using perceptual measures rather than objective measures for the focal capabilities.
These studies have therefore utilised surveys from pre-existing databases such as International
Manufacturing Futures (IMF), Global Manufacturing Research Group (GMRG), Vision in
Manufacturing (VIM), The International Manufacturing Strategy Survey (IMSS), European
Manufacturing Futures Survey (EMF), High Performance Manufacturing (HPM) and World-
class Manufacturing (WCM). These studies are therefore more cross-sectional in nature and
the sample size in these surveys allow for more rigorous empirical analyses to take place such
as correlations, regressions and path analyses. The remaining 12% have employed objective
measures from which independent datasets were then generated from various secondary
sources such as company and government publications. These studies are also longitudinal in
nature. These longitudinal studies are probably a reflection of the endless recommendations of
former studies (White, 1996) to employ objective data across a time period to enable more
realistic testing of how firms treat and develop their operational capabilities. Fig. 1 shows the
results of the descriptive analysis.
Country of Author (first)
Asia
Africa
0
20% 8% North America
South America
20% 48%
4% Europe
Australia incl. Oceania
(Figure 1a)
Models Investigated
INTEGRATED MODEL 3
EXAMINING MULTIPLE MODELS 4
CUMULATIVE CAPABILITIES MODEL (ALSO SAND CONE) 15
TRADE-OFF MODEL 3
0 2 4 6 8 10 12 14 16
(Figure 1b)
Explicit support found for Models

INTEGRATED MODEL 3
NO CONCRETE SUPPORT 1
ACCUMULATION OF CAPABILITIES/MULTIPLE
CAPABILITIES/SAND-CONE SEQUENCE 19
CAPABILITY TRADE-OFFS 2
0 2 4 6 8 10 12 14 16 18 20
(Figure 1c)
245
Methodology Adopted
LITERATURE REVIEW INCLUDING META ANALYSIS 1

CONCEPTUAL
SIMULATION,EXPERIMENT
CASE STUDY
LONGITUDINAL 2
SURVEY /EMPIRICAL 22
0 5 10 15 20 25
(Figure 1d)
Type of measures used for key constructs
Objective
12% 16%
Perceptual
72% Perceptual and

objective data
(Figure 1e)
Number of Articles by Journal
INTERNATIONAL JOURNAL OF INNOVATION

MANAGEMENT 1
JOURNAL OF OPERATIONS MANAGEMENT 2
INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS 3
PRODUCTION PLANNING & CONTROL 2
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5
INTERNATIONAL JOURNAL OF OPERATIONS &
PRODUCTION MANAGEMENT 6
DECISION SCIENCES 1
PRODUCTION & OPERATIONS MANAGEMENT 5
0 1 2 3 4 5 6 7
No. of articles
(Figure 1f)
Frequency of Publications
3 3
articles
2 2 2 2 2
No. of
1 1 1 1 1 1 1 1 1
1990 1995 1997 2000 2001 2002 2004 2006 2007 2010 2011 2012 2013 2014 2015 2016
Year
246
(Figure 1g)
Data sources employed for the studies
International Manufacturing Futures

Global Manufacturing Research Group
4%
4% Vision in Manufacturing
8%
16%
The International Manufacturing Strategy
4%
Survey
European Manufacturing Futures Survey
4%
40%
4% High Performance Manufacturing
4%
4% World-class Manufacturing
8%
Database (not specified)
Others (self administered questionairres)
(Figure 1h)
Figure 1: Descriptive data – (a) Country of first author, (b) Models investigated, (c) Explicit support found for
the models investigated, (d) Number of publications per method, (e) Type of measures used for key constructs
(cost efficiency, quality, delivery and flexibility, (f) Number of publications per journal, (g) Year of publication,
(h) Data sources employed for the relevant studies
4.0 Findings
Our study findings only explored a sub-theme of OS/MS. This sub-theme relates to ‘how
organisations treat and develop their operational capabilities’ (i.e., trade-off, cumulative/sand-
cone and integrated) and highlights some of the issues with data and measurement. The findings
revealed that this sub-theme is still an interesting topic that has been steadily generating
discussions over the years.
In the next sections, we discuss the studies that looked into this classic subtheme around the
issue of how firms treat and develop their operations capabilities. We also summarise the
various measures that these studies have employed when it comes to operational capabilities.
Every study has also made an effort to share some recommendations and these important
suggestions have also been captured. Table 1, 2 and 3 summarise the articles reviewed. Table
1 focuses on empirical studies and conceptual articles. Table 2 is a summary on the models
supported by the various studies. Table 3 is a summary of the measures adopted by the
individual study.
From Table 1, it is evident that the earliest study was that by (Ferdows & De Meyer, 1990) and
attempts to look at the manner in which capabilities are developed and to find support for the
trade-off and cumulative capability models. Their study along with various others as seen in
Table 2 show support for accumulation of capabilities. These studies in one way or another
have indicated that multiple capabilities do exist and there are also instances where the sand-
cone model is to some extent demonstrated. Quality, as the base capability is supported but
there are other variations that exist too (Flynn & Flynn, 2004; Noble, 1995).
However, these studies are cross-sectional in nature which means that it does not capture the
temporal element which is important in understanding how capabilities are treated and
developed over time. (Boyer & Lewis, 2002b) and (Safizadeh et al., 2000) are the only two
studies that have explicit support for the trade-off model however their studies also suffer from
247
methodological limitations. With respect to the integrated model, only three studies have
specifically looked at it in depth (see, Cai & Yang, 2014; Lapré & Scudder, 2004; Nand et al.,
2013). Table 2 is a handy summary of the papers that have respectively looked at exploring the
models of interest (trade-off, cumulative capabilities (including sand-cone) and the integrated
model).
The earliest study done on this topic is that by (Lapré & Scudder, 2004) and what is even more
interesting is that this was the first of its kind to incorporate the use of proxy measures and
metrics using longitudinal data. They generated their dataset guided by acceptable poxy
measures and metrics of cost efficiency and quality from various public sources. The study is
also different to all other studies in that it has focused on a very different industry to
‘manufacturing’ as had been done by majority papers. This study and that by (Nand et al.,
2013) have explicitly looked at the airline industry, however, in different country settings, USA
and Australia. Both have adopted similar type of measures for their specified capabilities and
generated longitudinal datasets from public documents available from the government and the
company itself. Table 3 captures the definitions that guided the studies in capturing maximum
information around the focal capabilities of cost efficiency, quality, delivery and flexibility.
Generally, all studies have somewhat similar definitions and adaptations of the four
capabilities. The perceptual studies therefore demonstrate incorporating multiple questions in
their measurement tool (i.e., questionnaires) on each of the capability. The objective studies
are distinctive in that they are longitudinal and captured the desired capabilities using industry
specific acceptable proxy measures and metrics. While they have captured the temporal
dimension, the major drawback is that they have used single measures for the capabilities in
question. This can be problematic especially for those capabilities that are rather
multidimensional in nature such as quality or may have measures that could also suffice
delivery (for example, on-time arrivals can serve as a measure of delivery as well as customer
satisfaction).
248
Author Journal Reason for study Findings Implications for future research
(Ferdows & De Meyer, Journal of This paper seeks explanations on whether They see multiple capabilities being Not distinctly stated
1990) Operations trade-offs are inevitable and can be avoided developed and question the very nature
Management of the trade-off theory
(Noble, 1995) Decision This study statistically tests the cumulative Her findings suggest that firms Not stated distinctly
Sciences model for the building of manufacturing demonstrated that they were competing
Journal capabilities on multiple capabilities
(Noble, 1997) International The study examines, at the plant level, the As evidenced by the patterning of the Although this study lends support
Journal of competitive priorities (manufacturing data, the manufacturing strategies of to the cumulative model, it does
Operations & capabilities) of 561 firms worldwide, the high-productivity firms are more not confirm it fully because it has
Production comparing the competitive strategies of high- supportive of the hypothesized not addressed the inherent
Management productivity firms with those of low- cumulative model than are those of the dynamism of the model. The
productivity firms from the perspective of the low productivity firms authors suggest more questions
emerging cumulative model for manufacturing addressing the strategy issues be
competitiveness looked at.
(Safizadeh et al., 2000) Production Authors examine aspects of the trade-offs Results shows that a trade-off between Use of multiple informants and
and concept, production competence paradigm cost and customization is the most longitudinal data is recommended
Operations transparent in making a process choice for more rigorous results
Management decision. The trade-offs between
manufacturing capabilities appear to be
both process choice and capability
specific
(Corbett & Clay International This study looks at the relationship between There is some evidence for the sand- Study suggests to find out reasons
Whybark, 2001) Journal of number and intensity of manufacturing cone theory however it is not that as to why a given set of practices
Operations & practices and firm performance strong may yield higher performance and
Production the same time consider other
Management factors and classification variables
that may account for differences
(Boyer & Lewis, Production This study investigates the need for trade-offs Their findings suggest that trade-offs Researchers must work to develop
2002b) and in operations strategy remain better methods of assessing
Operations competitive priorities in order to
Management provide clearer insights regarding
operations strategy.
249
(Corbett & Claridge, International This paper set out to examine the relationship Among firms with multiple This study used measures rather
2002) Journal of between key manufacturing capability capabilities, it does appear that quality than indices for the same variables
Production elements and business performance by seeking and delivery are the two capabilities as Ferdows and De Meyer (1990)
Research evidence for the sand cone model. achieved by many companies, but there in their original sand-cone theory
are many paper. The limited nature of
for which these capability elements these single measures as proxies
seem to come later. Without a for the multifaceted capabilities is
longitudinal study, a possible cause for the lack of any
the exact sequence cannot be evidence supporting the
determined. cumulative model in this study and
hence more work is suggested in
this area
(Flynn & Flynn, 2004) Journal of Their research sets out to test some yet Findings indicate differences in There was strong evidence of a
Operations unanswered questions from the literature on patterns of cumulative capabilities link between cumulative
Management cumulative capabilities, as well as addressing between countries and limited evidence capabilities and plant performance
some of the shortcomings in prior research on of industry differences. Cumulative however researchers suggest that a
cumulative capabilities capabilities were found to be related to longitudinal research would be
plant performance, with no difference more useful. Strategic initiatives in
in this relationship by industry. Support a firm can alter patterns and hence
for sequential progression of research on sequential
cumulative capabilities was not evident development of capabilities is
indicating the complexities that necessary
surround it.
(Lapré & Scudder, Production Their paper attempts to validate and describes Their analysis shows that better The suggestion is to use better
2004) and the performance frontier theory and explores performing airlines (in terms of cost- accepted proxy measures as well
Operations trade-offs quality position) in both groups as longitudinal data to plot
Management confirm the predictions of the sand improvement paths and determine
cone model when operating further how capabilities are developed
away from their asset frontiers, over time.
although trade-offs do occur when
operating close to asset frontiers.
250
(Rosenzweig & Roth, Production This study replicates and extends Ferdows and Their results, drawn from a sample of Future research should test the
2004b) and De Meyers’ observed‘ sand-cone’ model of high-tech manufacturers, provide CPT model at the plant level and
Operations cumulative competitive capabilities by means further evidence that on average, the carry out longitudinal research.
Management of Roth’s related competitive progression four operational capabilities are Future research should consider
theory (CPT) acquired both cumulatively and in the developing reliable and valid
sand-cone sequence multi-item scales for all constructs
such that measurement error can
be explicitly assessed
(Größler & Grübner, International The paper examines the relationships between Finds mostly cumulative effects Their paper is a snapshot of
2006b) Journal of strategic manufacturing capabilities, between the strategic capabilities. current industry practice, and
Operations & particularly whether they are cumulative or therefore makes the study a static
Production trade-off in nature one and more precise results are
Management encouraged using longitudinal type
of studies. This will also show if
capabilities support each other in a
causal way
(Amoako-Gyampah & International The paper tests the cumulative capabilities The evidence supports the cumulative It will be useful for future studies
Meredith, 2007) Journal of theory of manufacturing strategy against the capabilities theory. However, trade-offs to examine the relationship
Operations & capabilities trade-offs theory in a less- between the capabilities of quality, between capability development
Production developed economy. It also aims to test cost, delivery, and flexibility were not and firm performance. A study
Management whether the sequential development of found. The sequence of capability that incorporates a time lag
capabilities follows the same order prescribed development was found to be different between capability development
in the sand-cone model. from that in developed economies, with and performance would be
cost being second in importance after particularly useful as it will help
quality managers understand which
programs to
implement first in order to
improve performance.
(Rosenzweig & Easton, Production This is a meta-analysis study on trade-offs in The authors report majority papers do The authors suggest that future
2010) and manufacturing not find support for trade-offs and the research carried out in this area
Operations theory of performance frontiers may be need to develop more consistent
Management useful as an explanation measures and have consistent
terminologies when it comes to
capabilities, priorities. Also
suggested is to use more objective
measures and longitudinal data.
251
Manufacturers positions relative to
the performance frontier may be
useful also as an explanation
(Paiva, 2010) International The study evaluates the relationship between Results suggest that when management Future research to consider
Journal of manufacturing and marketing integration, is concerned with high performance in multiple industries and
Production managerial priorities and business multiple criterias there is greater performance measures for more
Economics performance integration for marketing and robust results
manufacturing
(Avella et al., 2011) International This study analyses the theoretical arguments It is observed that the predominant Their research does not consider
Journal of and the prior empirical evidence on the two strategic model in these firms is one of the viewpoint of performance
Production models, and proposes and tests an extended multiple, non-incompatible capabilities frontiers, an aspect that should be
Research sand cone model which includes the with cumulative effects according to addressed in future research.
environmental protection objective alongside the following sequence: quality, Objective data although difficult to
the four traditional ones. delivery, flexibility, environmental get can assist with more reliable
protection and cost efficiency. results as they can complement the
existing perceptual measures.
Future research should carry out a
longitudinal analysis of the link
between the various manufacturing
objectives, including
environmental protection, in order
to offer stronger empirical support
for the time process-model of
capabilities development.
(Demeter et al., 2011) International The paper present and test a new model for The hybrid model shows significantly Data used was cross-sectional and
Journal of competitive capabilities. Although appealing better fit with the data from the sample static in nature. The suggestion is
Operations & as a conceptual model, empirical testing has than the cumulative models suggested that longitudinal case studies
Production not been able to fully support the cumulative by previous literature. Empirical would allow for the examination
Management model. This paper acknowledges the need for support is found for the traditional of actual changes over time, which
a hybrid approach to managing capability perception that a high level of quality is would be most beneficial to the
progression. a prerequisite for a high level of study of capability progression.
252
delivery performance. However, cost
efficiency and flexibility do not exhibit
a cumulative pattern.
(Schroeder, Shah, & International Authors tests of the actual sequence of the They do not find universal support for The mixed results of the sand-cone
Xiaosong Peng, 2011b) Journal of sand-cone theory the sand-cone theory, since some plants sequence suggests that
Production appear to be following the sand-cone contingencies may be present and
Research sequence, while others are not. to need to explore alternative
theories and factors
(Sum et al., 2012) Production This paper examines cumulative capabilities The authors found evidence in support Cross-country and multiple
Planning & model in selected Asia-Pacific countries of the cumulative model and results respondents are recommended for
Control suggest that firms, after developing the more rigorous results
quality capability, move on to
simultaneously cultivate the delivery,
flexibility and cost capabilities
(Narasimhan & International They investigate competitive capability Their research confirmed the view that Authors suggest that future
Schoenherr, 2013) Journal of progression (CCP) using a repeated cross- the sand-cone model holds and can be research should employ multiple
Production sectional design, approximating the temporal replicated in a repeated cross-sectional methodological approaches to test
Research dimension inherent in the concept design. They found support for the the sand-cone model. Specifically,
implied change in path coefficients both path analysis/structural
across the two time periods confirming equation modelling and sequence
the development of re-enforcing tests should be employed.
cumulative capabilities over time. Longitudinal data is highly
recommended
(Nand et al., 2013) International The purpose of this paper is to test the The study provides some support for Multiple objective measures using
Journal of integrated model of operations strategy as the integrated model. Firms appear to secondary data and longitudinal
Operations & proposed by Schmenner and Swink to explain trade-off capabilities when their asset study is recommended to capture
Production whether firms trade-off or accumulate and operating frontiers are close to the temporal elements
Management capabilities, taking into account their positions each other. Firms show signs of
relative to their asset and operating frontiers. accumulation when the asset frontiers
are expanding significantly over time
253
(Cai & Yang, 2014) International The study aims to explore the connections They found that the operating frontier Researchers should examine
Journal of between business environments and firms' is affected by the asset frontier, as well development and sequence of
Production competitive priorities, which establish the as by environmental forces. The capabilities using longitudinal
Economics basis for manufacturing strategy. This study operating frontier affects competitive data, as well examine effects of
explicitly considers the effects of asset and priorities, such as cost, quality, and other countries
operating frontiers, as well as trade-offs across delivery. The asset frontier exerts
competitive priorities direct effects on delivery and flexibility
,but indirect effects on cost and quality,
through the operating frontier
(Nand et al., 2014) International This paper examines how firms compete using The results show support for the Not stated distinctly
Journal of their operational capabilities cumulative capabilities model and not
Innovation the trade-off model
Management
(Bortolotti et al., 2015) International This study examines the relationship between This research establishes a link It would be logical to test the sand-
Journal of bundles of lean practices and cumulative between the lean literature and the cone model using longitudinal
Production performance, as described by the sand-cone literature on cumulative performance, data. Future research may extend
Economics model. providing an alternative and these findings through longitudinal
complementary view for interpreting case studies, with the aim of
how sequencing bundles and lean collecting richer information
practices is related to cumulatively regarding a sand-cone of practices
improving performance. It and its relationship to cumulative
operationalizes fitness and proposes it performance. Also incorporating
as an explanation for the inconsistent other contextual and contingent
results about lean practices and the and newer criteria
sand-cone model of cumulative
performance in the prior literature.
(Singh et al., 2015) International Data is used to explore other models that firms Their analysis shows that, in practice, The study suggests that
Journal of are using in addition to the two predominant the trade-off model is not used, but the organisations pursue a more
Production models (trade-off and cumulative). cumulative capabilities model is used nuanced, multifaceted and much
Research extensively broader range of operations
strategies for generating and
maintaining competitiveness
however greater research is needed
in this area. Contextual and
contingent factors as well as
different industries can be studied
254
(Boon-Itt & Wong, Production The study conducts a comparative analysis by The study's findings provide new This is a cross-sectional study of
2016) Planning & testing various models of cumulative evidence for comparing the different cumulative capabilities, so the
Control capabilities. models of sequences and simultaneous temporal dimension of cumulative
progressions, establishes links between capabilities has not been tested and
cumulative capability and performance has been encouraged for future
frontier and uncovers new insights into research as well the inclusion of
the direct and indirect effects among other industries and contextual and
manufacturing capabilities. contingent factors
Table 1: Summary of findings and implications for future research
Operations Strategy Model Authors

Supported
Trade-off Model (Boyer & Lewis, 2002b); (Safizadeh et al., 2000)
Cumulative capabilities (including (Noble, 1995); (Amoako-Gyampah & Meredith, 2007);(Avella et al., 2011); (Boon-Itt & Wong, 2016); (Bortolotti et al., 2015);
sand-cone model) (Corbett & Claridge, 2002); (Corbett & Whybark, 2001); (Ferdows & De Meyer, 1990); (Flynn & Flynn, 2004); (Größler &
Grübner, 2006a); (Demeter et al., 2011); (Narasimhan & Schoenherr, 2013); (Nand et al., 2014); (Sum et al., 2012); (Rosenzweig
& Easton, 2010); (Rosenzweig & Roth, 2004a); (Schroeder et al., 2011a); (Noble, 1997); (Paiva, 2010); (Singh et al., 2015)
Integrated Model (Lapré & Scudder, 2004); (Nand et al., 2013); (Cai & Yang, 2014)
Table 2: Summary on the models supported by the various studies
255
Author Cost efficiency Quality Delivery Flexibility
(Avella et al., Reduce manufacturing cost, Improve conformance to design Provide fast deliveries, meet Make rapid design changes,
2011) increase labour productivity, specifications, offer consistent, reliable delivery promises and introduce new products quickly,
increase equipment or quality, provide high-performance products, commitments, reduce make rapid volume changes,
capacity utilization, cost offer durable, reliable products, manufacture manufacturing lead times make rapid product mix
efficiency, reduce inventory with consistently low-defect rates (reduce changes, offer a large degree of
level defect rates) product variety (broad product
line), adjust product mix
(Amoako- Reducing material costs, Using statistical process control methods; Providing faster deliveries; Speed of change of volume and
Gyampah & overhead costs; and reducing updating process equipment/technology; and mix
Meredith, inventory. improving product performance and
Perceptual measures
2007) reliability; obtaining quality certifications

such as ISO 9000; improving supplier
quality; developing new processes for new
products; and developing new processes for
old products.
(Noble, 1995) Includes chief areas of recent Quality control and assurance (such as Quick and reliable deliveries Frequency of occurrences of
productivity rework, inspection, wastage, machine 'up- for product lines product mix changes (such as
accomplishments (such as time' etc.) fluctuations, product lines,
materials, machine, WIP throughput time etc.)
inventory etc.)
(Boyer & Reduce inventory, increase Provide high-performance products, offer Provide fast deliveries, meet Make rapid design changes ,
Lewis, 2002b) capacity utilization, reduce consistent, reliable quality, improve delivery promises, reduce adjust capacity quickly, make
production costs, increase conformance to design specifications production lead time rapid volume changes, offer a
labour productivity large number of product
features, offer a large degree of
product variety, adjust product
mix
256
(Boon-Itt & Produce products with low High-performance products that meet Correct quantity with the right Able to rapidly change
Wong, 2016) costs, produce products with customer needs, produce consistent quality kind of products, deliver production volume, produce
low inventory costs, produce products with low defects, offer high reliable products quickly or short lead- customised product features,
products with low overhead products that meet customer needs , high- time, provide on-time delivery produce broad product
costs , offer price as low or quality products that meet our customer needs to our customers, provide specifications within same
lower than our competitors reliable delivery to our facility, capability to make rapid
customers, reduce customer product mix changes
order taking time
(Bortolotti et Unit cost of manufacturing Quality conformance On-time delivery Flexibility to change product
al., 2015) performance , fast deliveries mix and volume
(Cai & Yang, Reduce production and Performance quality, product durability, Delivery speed and Ability to introduce new
2014) inventory costs and reduce conformance quality, reduction of defective dependability products, volume flexibility,
costs by improving parts ability to make rapid design
productivity, capacity change, broad product line,
utilization and reducing ability to change product mix
production cycle time
(Ferdows & Unit cost efficiency Producing according to specifications On-time delivery performance, Speed of new product
De Meyer, delivery dependability introduction
1990)
(Flynn & Unit cost of manufacturing Quality of product conformance (process and On-time delivery and fast Flexibility to change product
Flynn, 2004) market based) delivery mix and new product
introduction
(Größler & Changes in labour Changes in manufacturing conformance, Changes in delivery speed, Changes in volume and mix
Grübner, productivity, inventory changes in product quality and reliability reliability and lead time flexibility
2006b) turnover, capacity utilisation,
overhead costs
(Demeter et Not stated Not stated Not stated Not stated
al., 2011)
(Narasimhan Production manufacturing Product features, performance and overall Delivery as promised and Flexibility to change product
& Schoenherr, costs and total product costs perceived product quality delivery speed volume and mix as well as
2013) delivery flexibility
(Nand et al., Manufacturing, product and Product features, performance and overall Delivery speed, order Flexibility to change output
2014) raw material costs perceived product quality fulfillment speed, on-time volume, product mix and new
delivery and delivery as product development time
promised
257
(Singh et al., Manufacturing, product and Product features, performance and overall Delivery speed, order Flexibility to change output
2015) raw material costs perceived product quality fulfillment speed, on-time volume, product mix and new
delivery and delivery as product development time
promised
(Sum et al., Improve capacity utilisation, Meet customer design and specifications, Meet delivery due date and Respond to volume change,
2012) increase labour productivity, offer good product design and performance, offer fast delivery product mix, customise products
produce at lowest unit cost offer durable and reliable products, have and introduce products quickly
reliable operations and execution systems
(Rosenzweig Manufacture products at Conformance quality Reliability of delivery times Ability to rapidly change
& Roth, lower internal costs than (on time) production volumes
2004b) competition
(Rosenzweig n/a n/a n/a n/a
& Easton,
2010)
(Safizadeh et Product cost Product performance , number of features on Dependability on delivery and Customizing product to
al., 2000) the product, durability, reliability, quality delivery time customer specification and
consistency and perception degree of product customisation
(Schroeder et Inventory turnover, cycle Product performance quality and On time delivery performance Volume flexibility, mix
al., 2011b) time, and unit cost of conformance to product specifications and speed of delivery flexibility and new product
manufacturing introduction speed
(Noble, 1995) Lower work-in-process Capability of the production system – such as Important product lines Frequency of product mix
inventories, reduction of production planning and control, materials compete in market place via: changes, fluctuation in monthly
overheads handling/logistics, etc. and not the quick delivery (short lead output volume (%), change in
dependability of the product itself times), reliable deliveries throughput time over past five
years, important product lines
compete in marketplace via:
product customization and
production rate flexibility
258
(Paiva, 2010) Manufacturing costs Product conformity to project specification Manufacturing lead time Capability for new product
reduction introduction
(Lapré & - - Traditional measure for unit Consumer complaints that were
Scudder, cost in the airline industry is filed with the US Department of
2004) cost per available seat mile, Transportation
calculated as operating
Objective measures*
expenses divided by available

seat miles as reported in airline
annual reports
(Nand et al., Cost per available seat Airline satisfaction surveys filled by On-time arrivals of flights as Airlines’ ability to provide
2013) miles/kilometres (cents/ASK) passengers collected by independent reported by the Australian maximum flight options. This
as reported in airline annual consumer body Bureau of Infrastructure, involves a combination of
reports Transport and Regional volume and mix offered by the
Economics airlines as reported by the
Australian Bureau of
Infrastructure, Transport and
Regional Economics
(Bortolotti et Manufacturing costs ($000) Percent of defective products returned Percent of orders shipped on Total cycle time from receipt of
Combination of measures**
al., 2015) time and average lead time raw materials until product is
received by customer (days)
(Corbett & Manufacturing cost as % of First-pass yield Percentage on-time deliveries Average total lead-time for new
Claridge, sales products
2002)
(Corbett & Unit cost of manufacturing Percentage reject rates, returns, scrap rates Percentage on-time deliveries, Flexibility to change output
Clay production schedule on-time volume
Whybark, completion rates
2001)
Table 3: Summary of measures adopted by the individual study. *These two studies specifically collected all their data from secondary sources using predetermined proxy
measures/metrics** These studies used a combination of perceptual and objective measures that were collected through questionnaire based surveys.
259
5.0 Discussions and future study areas
In this section, we will discuss the gaps in existing studies and propose some potential future
research paths. It is evident from our literature review that the empirical research on the OS/MS
subtheme is still an important growing area. Whilst there have been a number of studies done
over the years trying to resolve the debate on how firms treat and develop their operational
capabilities, these studies do suffer from limitations and this is where the potential lies for
future researchers.
As a start, the discussions started by (Skinner, 1969) on the whole notion of trade-offs sparked
a lot of interest amongst scholars. From the literature review, it is evident that researchers from
around the world began to test this notion and theory to determine the manner in which firms
treated and developed their capabilities. The most significant study that was carried out was
that by (Ferdows & De Meyer, 1990) who demonstrated that trade-offs were not necessarily
being practiced by firms. Through their study, they highlighted that firms (Japanese companies)
did not need to make any choices or preferences as such and that capabilities could in fact be
accumulated hence leading to the idea of the cumulative capability model (Nakane, 1986). The
majority studies that were carried out following (Ferdows & De Meyer, 1990) works sought
answers to this debate and did find support for the accumulation of capabilities with some
studies demonstrating that capabilities were being developed in a particular sequence
(Amoako-Gyampah & Meredith, 2007; Boon-Itt & Wong, 2016; Flynn & Flynn, 2004; Noble,
1995). While these studies do provide greater reinforcement to the cumulative capabilities
model, they all suffer from the very fact that they are merely cross-sectional studies. This is
perhaps the principal flaw in these studies as it contradicts the original assumptions of the
cumulative capability model. The cumulative capability model assumes that firms operate in a
very dynamic environment and hence are constantly developing their capabilities. This
suggests that for firms to be competitive they would be required to build and develop
capabilities over time. This temporal component is missing from many of these studies and
therefore it is impossible to ascertain that accumulation is being practiced and also if a
particular sequence to capability development (i.e., sand-cone model) truly exists. Therefore,
the first and outright suggestion to future researchers is to potentially revisit these models and
empirically test them however this time by using longitudinal data.
Second, our literature review shows that the majority of papers have actually resorted to
collecting data through questionnaire surveys. This means that the data collected through the
surveys were based on numerous perceptual measures. Whilst these measures were based on
commonly accepted definitions of operational capabilities as noted in Table 3, they are still
subjective in nature. The suggestion is that future researchers look at ways in which both
perceptual and objective measures can be employed for more robust results. Also evident in
the literature review is that there are quite a number of studies that have used data from pre-
existing databases (Corbett & Claridge, 2002; Corbett & Clay Whybark, 2001; Demeter et al.,
2011; Ferdows & De Meyer, 1990; Flynn & Flynn, 2004; Größler & Grübner, 2006b; Nand et
al., 2014; Narasimhan & Schoenherr, 2013; Noble, 1995; Rosenzweig & Roth, 2004b;
Safizadeh et al., 2000; Singh et al., 2015). A lot of these databases have been created by groups
of academics around the world and consistently maintained by frequently carrying out rounds
of surveys at various year intervals. Assuming that the questions pertaining to operational
capabilities has remained the same over the various rounds of surveys, it may be possible for
researchers to aggregate these data. This will allow researchers to capture the temporal
elements and intervals which is important in understanding how firms treat and develop their
operational capabilities. Such a study is non-existent in the OS/MS literature. There is also an
260
option to further supplement this aggregated dataset with objective data gathered through
secondary sources for the various years or intervals if practical.
Third, our literature review shows that as early as the 1990s, researchers were already
advocating for the use of objective data and longitudinal data for more robust results and also
empirical analyses. However, despite the majority papers noting these as clear limitations, only
two papers have taken these suggestions seriously. These are by (Lapré & Scudder, 2004) and
(Nand et al., 2013). While there is a significant gap between this two papers (9 years), the point
that is to be made is that such type of studies are possible. From their studies, given that both
are focused on the same industry, this being airline, the authors have very clearly detailed how
data in the form of predetermined proxy measures and metrics can be collected for a set time
period using secondary sources in their case industry, government reports and company annual
reports. These documents and publications are publically available and contain numerous
information which can be useful however they do require acceptable industry proxy measures
and metrics. This is not difficult as literature is abundant when it comes to acceptable measures
per industry and industry expertise and opinion can also be used to confirm these measures
where required. Another piece of valuable advice is that not all objective data will be available
in the form that is required hence some computations may be required to derive the desired
values/numerics representing the specific operational capability. As seen from the literature
review, authors have multiple measures for each capability and therefore this is also something
that researchers need to be mindful of. Having data on multiple measures for every capability
is advisable and will result in more robust results. This is the suggestion made by the above
authors who have in their studies used single measures (Lapré & Scudder, 2004; Nand et al.,
2013).
6.0 Conclusions
We conducted a systematic review of literature on the classic sub-theme of
operations/manufacturing strategy. This sub-theme related to ‘how organisations treat and
develop their operational capabilities’ (i.e., trade-off, cumulative/sand-cone and integrated)
and highlighted some of the issues with data and measurement. We identified 25 papers
published between the years 1990-2016 that were relevant to our review. Through our review,
we were able to identify potential gaps in the current study and propose suggestions for future
researcher that could bring more knowledge into the study area and enrich our knowledge in
understanding how firms treat and develop their operational capabilities.
This study makes several contributions. Unlike existing studies (Chatha & Butt, 2015; White,
1996), we only reviewed the studies that focused on OS/MS with a particular focus on the three
models (trade-off, cumulative capabilities and integrated). In addition, we also addressed other
relevant issues such as issues with type of data employed and measurement of the four
operational capabilities of cost efficiency, quality, delivery and flexibility. Based on our
review, we were able to recommend future research areas that will enrich our knowledge on
the topic. We hope our findings will help academics to do more research on the areas of OS/MS
and provide more plausible explanations as to how firms treat and develop their operational
capabilities in this very competitive times.
We have limitations in our study too. Although our sample size of 25 articles may not be a
large one, it shows the depth of study undertaken so far on the topic. As mentioned by
(Halldórsson et al., 2010), literature and research are continuously being published and added.
Therefore, we may have overlooked a few recent articles although, we have tried to make the
literature review as comprehensive as possible. Despite the limitations, our literature review is
261
able to shed light on a very useful topic that still remains important even today and is of value
to both academics and practitioners. Our review and future research areas illustrate that despite
the rich discussions on OS/MS, still more research is required to fill the gap and enrich the
body of knowledge.
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Using value stream mapping in the procurement and logistics function of a
healthcare organisation in New Zealand
Ram Roy (PhD)

Eastern Institute of Technology, Hawkes Bay, New Zealand
rroy@eit.ac.nz
+642102713556
Layeequlla Baig
Hawke’s Bay District Health Board, New Zealand
layeeq.baig@hawkesbaydhb.govt.nz
(Research paper)
265
Using value stream mapping approach in the procurement and logistics
functions of a healthcare organisation in New Zealand
Abstract
The main role of procurement and logistics department is to provide quality products to its
users efficiently, timely, and at the best prices from suppliers. This paper focuses on a
warehouse which plays a vital role in the working of a healthcare organisation in New Zealand.
The value stream mapping of a judiciously selected item revealed lots of wastes in the processes
of the warehouse, e.g., the delivery of item consists of about two hours in deconsolidating
packages, receiving, and repacking in different sized boxes to various cost centres for delivery.
This process was further analysed by ‘why-why-diagram’ which led to an EDI based solution
for the organisation.
Keywords: EDI, healthcare, lean, logistics, procurement, value stream mapping
Purpose - Identifying the wasteful activities in the procurement and logistics function of an
organisation using the value stream mapping (VSM) and other lean techniques can play very
important role in their mitigation. This paper helps in recognising the non-value added
activities (mudas) in the procurement processes and suggests alternatives to reduce them.
Research design/methodology/approach – To start with, a range of published articles in the
domain of VSM have been reviewed to get adequate background of the topic. Then, the general
procurement process for clinical and non-clinical items for a healthcare organisation was
studied from the perspective of VSM. The approach used in this paper include identifying the
steps in procurement process; selecting the items to be investigated by VSM; creating the
current VSM of the processes and detecting ‘mudas’ for improvement; using why-why diagram
for further analysis, and comparing the current and future VSM in terms of various key
performance indicators.
Findings, Relevance/contribution - The current VSM of the procurement process of
catalogue items was created and the areas of improvement identified with appropriate kaizen
bursts. Use of EDI was introduced and the outsourcing of such a service was recommended
due to various benefits that come with it. It also solves some of the issues identified by the
why-why diagram. Eliminating deconsolidation and the re-packing process do reduce the
workload of the warehouse employees who need to separate packages for the respective cost
centres supplied by the supplier. However, the solutions proposed may not be feasible to the
supplier as instead of one package for the order, more packages are being used. It might even
cost the supplier while paying for freight as more number of packages are being used and hence
more space. This needs to be negotiated with the supplier and arrive at a mutual understanding
if the supplier is not agreeable to the idea of packages for respective cost centres.
Limitations - More research needs to be done on EDI and its possibility of being outsourced
to other agency. This is because XYZ is a government funded organisation which needs to
follow various protocols before resorting to outsourcing any of its functions.
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1.0 Introduction
Lean is defined as a process of creating more values for customers with minimum resources.
Lean processes are focussed on the flow of products or services through the entire value stream
that flows horizontally across technologies, assets, other departments and ultimately to the
customer. The use of resources is minimised with high efficiency by identifying non-value
added activity (also known as muda in the Japanese language) and eliminating it. Muda could
be of two types: type 1 muda and type 2 muda. Type 1 muda is a non-value added activity
which seems to be essential and business processes need to be changed to eliminate it whereas
type 2 muda is unnecessary non-value added activities which need to be eliminated
immediately. Elimination of type 2 muda paves way for eliminating type 1 muda (Womack &
Jones, 2003).
Lean is most of the time implemented in an already ongoing process, either in manufacturing
or service. One of the foremost and important techniques while implementing lean is Value
Stream Mapping, which is the method of analysing the current state of the product or service
flow, identifying and eliminating the non-value added activities and designing an efficient
future state of the product or service. In regards to the project under study, the procurement
process of stationery consumables is analysed and the future state is developed with the flow
of product from one end to the customer.
Literature review
There are a significantly large number of research papers reported in the domain of Lean
principles and value stream mapping (VSM). Although the styles and symbolic representations
used by different researchers in the VSM are quite diverse, the underlying goals are the same,
which are to use VSM to identify the non-value added activities (the wastes), and to reduce or
eliminate them by using Lean principles. Womack and Jones (2003) state that ‘lean is all about
doing more with less and at the same time offer customers exactly what they want’. This means
using less human effort, equipment, time and space to increase the value and minimise waste
simultaneously.
The five principles of lean thinking are to (a) specify value from the customer point of view,
(b) identify all the steps in the value stream for each product family, eliminating whenever
possible the steps that do not create value, (c) make the value-creating steps occur in tight
sequence so the product will flow smoothly toward the customer, (d) let customers pull value
from the next upstream activity, and (e) repeat the process until a state of perfection is reached
in which perfect value is created with no waste (Womack & Jones, 2003).
In the next section, the literature review of some papers has been carried out in terms of what
is VSM, what the benefits are of using VSM, and what are some of the areas where VSM has
been applied as a tool.
What is VSM? Value stream mapping (VSM) is a tool to identify non-value added activities
or wastes in processes in order to remove them. VSM creates a visual portrayal of a bigger
picture of the value stream used in the production or service system. It looks at the value chain
holistically by taking into account various inputs, processes, and the outputs. According to
Plenert (2007), ‘VSM shows the linkages that exist throughout the system and challenges the
current state of all activities’. VSM, according to Klabusayová (2014), is a tested method to
record processes, material and information streams relating to products and it helps to
determine losses and waste. VSM enhances the visibility of the entire process stream, where
one can see when the value is being added or not added. It becomes easier to express the level
of waste in terms of the percentage of production cycle time. Gardner & Cooper (2003)
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emphasised the need to establish a strategic supply chain map in such a way that its information
content can be easily exchanged among the stakeholders. They also highlighted the need to use
universally acceptable and recognisable symbols in a VSM by citing the analogical examples
of symbols for restrooms, no parking, speed limits, etc. in the public service domain.
What are the benefits of using VSM? An innovatively created map can augment the strategic
planning process, ease dissemination of key information, facilitate supply chain redesign,
clarify channel dynamics, provide a common perspective, and enable monitoring of supply
chain strategy. A good map can alert planners to potential constraints in the system. While the
map itself cannot solve the problems in the system, it does attract the attention of managers to
the potentially serious issues. According to Klabusayová (2014), the expected benefits of using
VSM is decreasing production running time in the range of 20-50% during a very short time.
Other benefits include the simplification of management systems and reduction in wastes of
different types.
Areas of applications of VSM. Some of the areas where VSM and lean principles have been
applied include hospitality, healthcare, education, airlines, manufacturing, etc. Machado et al.
(2014) investigated the supply chain models in healthcare establishments from the perspectives
of lean systems which they thought have a role to play in providing health care to people
economically and with minimum wastes in budget constraints. They reported that the financial
costs in the supply chain of hospitals can be around 40 percent of its budget. Wahab et al.
(2014) used VSM and ARENA simulation software in an aircraft manufacturing company and
indicated a 20 percent reduction in the production cycle time based on a new layout. They also
encouraged companies to use the simulation technique in VSM for quick and easy evaluation
of the existing system.
Ben-Tovim et al. (2007) reported the development of Redesigning Care program at the Flinders
Medical Centre in Australia based on a lean thinking approach which has created considerable
benefits over the first 2.5 years of its implementation, making care safer and more accessible.
Redesigning Care has not been targeted at changing the specifics of clinical practice, but on
improving the flow of patients through the clinical and other systems. They (Ben-Tovim et al.
2007) emphasise that ‘lean thinking is not about influencing the content of the moments when
patients and staff are in interaction, but about giving more time for those moments, making
them easier to perform and less prone to error, by simplifying sequences, making what has to
be done more transparent, removing re-duplicative and unnecessary steps, and making hard-
to-perform steps easier to get right’.
1.1 Organisational background and description of problems
The goal of XYZ is to provide the community with high quality accessible healthcare to
improve their health. It is a publicly funded organisation based on the size and demographic
mix of its population, and their history of use of health services. The board members of XYZ
set the strategic roadmap for the organisation and monitor its performance. The objectives of
the XYZ from their website include: (a) improving, promoting and protecting the health of
people and communities, (b) promoting the integration of health services, especially primary
and secondary services, (c) seeking the optimum arrangement for the most effective and
efficient delivery of health services in order to meet local, regional and national needs, and (d)
promoting effective care or support of those in need of personal health services and disability
support’.
From this investigative study point of view, XYZ covers the New Zealand’s east coast districts
of Wairoa, Napier, Hastings, and Waipukurau. The procurement and logistics is one of the
critical departments of the XYZ and its main role is to provide efficient and effective
procurement of high-quality products at the best prices from the suppliers. The warehouse is
268
located 10 minutes away from the XYZ’s Hospital complex and plays an integral part in overall working
of XYZ’s Hospital and other health centres they serve. The approximate average spend of XYZ in
procuring clinical and non-clinical items from its 84 suppliers is about $17 million per year,
and the amount of goods being moved in and out of the warehouse over a year and on a day-
to-day basis is enormous.
Research design/methodology/approach,
The general procurement process for clinical and non-clinical items was studied from the
perspective of VSM. This has helped in identifying the non-value added activities, and kaizen
bursts in some places to highlight the areas of improvement. Kaizen burst is a symbolic tool to
indicate the areas on a VSM for improving the process (Womack & Jones, 2003). The
approaches used in this paper include the following:
• Identifying the various steps in the materials procurement process.
• Selecting items using the concept of Pareto analysis for creating VSM.
• Creating the current VSM of the procurement process and identifying non-value added
activities (mudas) for improvement. For better understanding and explanation, the current
VSM has been divided into different departments such as cost centre; purchasing
department; warehouse functions; supplier; and finance.
• Analysing two case items (one stock-item, and other catalogue-item) by using why-why
diagram.
• Creating the future VSM based on the analysis and identification of mudas.
• Comparing the current and future VSM in terms of various key performance indicators.
3.0 Data collection and analysis
Before initiating VSM, the products to be mapped were to be chosen. The money spent per
year in the procurement of clinical and non-clinical products is about $17 million. To categorise
a particular product and analyse the data by pulling the product lines from ‘Technology One’
(an ERP software) without a system crash was virtually impossible. Hence, for the purpose of
this paper, the procurement and consumption of office stationery consumables by XYZ was
focused. The total spend for office consumables by XYZ was extracted from ‘Technology One’
for the financial years July 2013-June 2014, July 2014-June 2015, and July 2015-March 2016.
The total spend pattern on stationery consumables has been illustrated in Figure 1.
Annual Estimated
Year
spend ($) spend ($)
Annual spend ($)
July’13-June’14 377,847 Annual spend ($) Estimated spend ($)
450,000
July’14-June’15 423,707 400,000
350,000
July’ 15-March’ 16 277,070 377,264 300,000
250,000
200,000
150,000
100,000
50,000
0
Figure 1Annual spend of the XYZ

Co.
From Figure 1, it is noted that for the financial year 2014-15, there has been more spend in
comparison to the previous year and the after year. The estimated total spend for 2015-16 is
indicated by the orange column. It could be inferred that around $355,000 are spent per annum
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in procuring the office stationery consumables which makes the process of procurement very
significant.
Selection of product for VSM
There are approximately 1,000 different types of office stationery consumables being procured
by XYZ, and they could be classified into two categories: (a) stock-items, and (b) catalogue-
items. The stock item is the inventory which is frequently ordered by the cost centre (customer)
and is stored in the warehouse at a certain prescribed levels and to be delivered immediately
when required. The catalogue item is the inventory ordered by cost centre from various online
catalogues of the suppliers but not to the level of quantity to store in a warehouse. To create
the VSM for all the 1,000 product types in the inventory would have been a waste of time or
muda. Hence, the data were tabulated based on their quantity and spend for the financial years
for stock- and catalogue-items separately. The average percentage quantity and the average
percentage spend for each item from the respective categories were calculated based on the
total number of quantities and total spend respectively. From the value obtained, the weighted
percentage average of the items based on their quantity and spend was calculated as shown in
Table 1 and Table 2. ABC classification was performed for each of the stock- and catalogue-
items, and the top 5 stock items and the top 5 catalogue items were selected for further analysis
using VSM.
Table 1: The top 5 Stock Items
Total Quantity (July 2013-March Total Spend (July 2013-March 2016)
2016) = 65,435 units = $780,475 %
Product
Quantity Spend ($) Weighted
number
2013- 2014- 2015- % Avg 2013- 2014- 2015- % Avg Average
14 15 16 qty 14 15 16 spend
1000984 3,400 4,440 10,013 27.28 69,700 88,095 9,480 21.43 24.36
1001026 1,347 1,648 1,188 6.39 29,992 36,354 18,871 10.92 8.66
1001025 1,480 1,575 1,126 6.39 19,582 27,613 13,243 7.74 7.07
1000085 139 196 94 0.66 29,992 36,354 18,871 10.92 5.79
1000764 37 44 34 0.18 0 0 36,366 4.66 2.42
Total % average spend for Stock items = 55.67%
Table 2: The top 5 catalogue Items

Total Quantity (July 2013- Total Spend (July 2013- March 2016)
March 2016) = 52,259 units = $34,2037 %
Product
Quantity Spend ($) Weighted
number
2013 2014 2015 % 2013- 2014- 2015- % Average
-14 -15 -16 Average 14 15 16 Average
1003482 225 980 865 3.96 139 641 577 0.40 2.18
2005250 690 704 630 3.87 490 521 445 0.43 2.15
1003472 470 549 437 2.79 1,161 1,357 1,122 1.06 1.93
1003640 359 456 350 2.23 962 1,222 1,196 0.99 1.61
1003626 329 370 288 1.89 1,119 1,258 1,204 1.05 1.47
Total % average spend for catalogue items = 3.92%
Table 1 displays the top 5 stock items listed with their product numbers, and the total average
spend of the top 5 stock items is about 56% which is reasonably good as per the Pareto’s
principle for analysis (Summers, 2007). Table 2 indicates the top 5 catalogue-items listed with
their product numbers. Similarly, the total % average spend of the top 5 catalogue items is 3.92
or 4% of the total items. Since the number of items in the catalogue category is larger, the %
of the top 5 items is less. These top 10 items (5 each from stock and catalogue) were selected
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for value stream mapping in their procurement process, but due to space constraints, only one
item will be included in the paper for illustrating the VSM.
4.0 Current VSM of the procurement process
The general procurement steps for items were listed and the current VSM is drawn accordingly
as shown in Figure 2. Using the current VSM, the non-value added activities were identified,
and kaizen bursts in places were used to highlight the areas of improvement. Kaizen burst is a
symbolic tool to indicate the areas on a VSM for improving the process (Womack & Jones,
2003). For the sake of better understanding and explanation, the current VSM could be divided
into various departments such as cost centre; purchasing department; warehouse functions;
supplier; and finance. Figure 2 shows that the cost centre is the customer from department or
sub-department of the hospital or other centres which XYZ serves. Request for purchase (RFP)
is raised from the respective departments. The procurement and logistics department has set up
specific timelines with over 84 suppliers where the RFPs could be consolidated before sending
them across to the supplier. In this case, for the purchase of office stationery consumables,
every Tuesday and Thursday at about 14:00 hours, the RFPs are consolidated by the purchasing
officer who also verifies the RFPs for any unusual orders. It is noted that this process is only
for catalogue items performed by the purchasing officer.
Insert Figure 2 here (see Appendix)
Identifying mudas (wastes): The stipulation of timelines in consolidating the data could be
regarded as type-1 muda, which is a necessity due to the size of requests for purchase (RFPs)
processed in a week. Another type-1 muda could be the location of the warehouse being 5-10
minutes away from the hospital. The reason for the warehouse not being inside the hospital
premises is because of the regulations related to the movement of heavy vehicles in and out of
the hospital with a school across the road and other state regulations. The only solution is in
having the warehouse away from the hospital premises to comply government regulations. A
minivan or truck is used to transport the goods from the warehouse to the hospital and this
could be termed as type-1 muda, which is essential. The truck timings are 8:00, 8:40, 9:30,
10:45, 11:45, 13:00 and 13:30 hrs. Any RFP received after 13:30 hrs is delivered the next day
because of the maximum number of hours stipulated for the employee to work. When the RFP
is placed by the cost centre, the decision process of stock- or catalogue- item is complete.
Procurement and delivery of stock item: If the item listed in the RFP is a stock item, then
the process adopted is as depicted in Figure 2. The RFP is received by the warehouse supervisor
who verifies and validates the order for any unusual keying before sending it to the floor. Once
the list of items is received, the employees at the warehouse pick the items in the aisles and
pack them. The items are then loaded onto a truck which either delivers at the landing area of
the hospital where it is unloaded and delivered to the specific cost centres within the hospital
premises or the truck driver delivers it directly to the cost centre which is easily accessible.
This process is seamless and without any instances of non-value activities. One of the main
principles of lean is empowering the employee which saves time and energy and improves
efficiency. This is clearly visible, where the truck driver is given the responsibility for the times
to be kept in choosing the fastest route and steps to deliver the items to the cost centres on time.
Likewise, the employees at the landing area are also empowered to take decisions to deliver
the items to the respective cost centres as quickly as possible, following the shortest and
quickest routes in the hospital.
Procurement and delivery of catalogue item: If the item listed in the RFP is a catalogue item,
then the following process takes place. The RFPs for the office stationery items get
accumulated over a period of time till Tuesday or Thursday when it is consolidated. The
purchasing officer consolidates the RFPs from various cost centres, validates and verifies them
271
and raises the purchase order with the supplier. The average processing time with the supplier
for the procurement of office stationery consumables has been 18 hours from the time the order
is placed by the purchasing officer to them.
Process steps at the supplier’s end. The order is received from the purchasing officer of the
XYZ in their own format, which is printed and keyed in computer using the supplier’s format.
The order is processed in the supplier’s warehouse, and the invoice is raised and sent to the
finance department of the XYZ simultaneously with the processing of the order. The order is
either sent to the freight company or picked up by the freight company which delivers the order
to XYZ’s warehouse. The warehouse then receives the order from the freight and receipt it.
The order is unpacked, deconsolidated for receipting, and the items are packed separately for
the different cost centres of XYZ. The items are then loaded onto the truck for delivery, which
is either done at the designated landing area of the hospital where it is unloaded and delivered
to the specific cost centres within the hospital premises or the truck driver delivers it directly
to the cost centre which is easily accessible. The copy of the receipt is sent to the finance
department for confirmation.
Finance operations: The finance department of XYZ receives the receipted copy from the
warehouse, and also receives the invoice of the purchase order from the supplier. The invoice
is printed, then scanned in a reading machine which picks up the required parameters such as
the product numbers and the quantity. The cross verification with the receipted copy is done,
and the payment for the invoiced items is made.
Kaizen bursts: Kaizen bursts are added to show the areas of improvement on the VSM. With
the help of current VSM, the non-value added activities (mudas) are identified in the
procurement process which need to be eliminated. There are five kaizen bursts (or event)
identified in the current VSM as depicted in Figure 3.
• The first event is in the deconsolidation of the items in the warehouse and repacking of the
items for the respective cost centres. This process takes on an average 2 hours as per the
warehouse supervisor. One could imagine similar activity and time taken for other products
supplied too. The 2 hours of receipting and deconsolidation process takes the wages of two
employees which needs to be considered.
• The second event is established on the supplier end of keying the order. The supplier
receives the order from the XYZ in a certain format which is not compatible with the
supplier’s format. Hence, the order is manually keyed to be processed and invoiced. This
could be considered for improvement.
• Similar to the second event, the finance department of the XYZ receives the invoice from
the supplier in a format not compatible with their format and hence prints the order.
• The next event is scanning the printed paper in a special reading machine to pick the
required parameters like the product numbers or the quantity numbers.
• The last kaizen bursts for the improvement is in the cross verification of papers done
manually, even though the receipting and invoice document are received. This could also
be considered for improvement.
Case Example of VSM
A case example of procurement of catalogue item has been discussed for the sake of illustration.
The following is the current VSM of one of the catalogue items listed earlier.
a) Current VSM of catalogue items (product no. 2005250)
Figure 3 represents the current VSM of the procurement of catalogue items. As stated earlier,
the consolidation of the RFPs occurs on Tuesday and Thursday of every week at about 14:00-
15:00 hrs. Thus, the RFP, raised on Monday, goes into consolidation the very next day and
272
the order is delivered within 18 hours. However, the RFP raised on Thursday (14th April’16)
goes into the consolidation phase only on the next Tuesday (19th April’16). The occurrence
of type 2 mudas (or events) in both the instances are indicated by kaizen bursts. While the
first event occurs in the deconsolidation and receipting steps which take about 60 minutes,
the other event occurs at the supplier’s end in keying the order, and with the finance
department’s printing and scanning of the invoice.
Insert Figure 3: Current VSM of catalogue item no. 2005250 here.
Why-Why diagram: The mudas identified in the current VSM of catalogue item (Figure 3)
were further investigated using the ‘why-why diagram’ which is an iterative interrogative
technique used to explore the cause-and-effect relationships in a particular problem. According
to Summers (p.116, 2007), the ‘why-why diagram’ organises the thinking of a problem-solving
group and illustrates a chain of symptoms leading to the true cause of a problem. Figure 4
indicates the root cause of waste in the deconsolidation and re-packing at the warehouse which
leads to various reasons from the supplier’s and purchaser’s perspectives. This analysis could
be extended with more information from the supplier. From the current VSM, it could be noted
how the time is wasted in keying the order manually because of the different formats used by
XYZ company and the suppliers. This is also one of the reasons why the RFPs are consolidated
by the purchasing officer before being sent to the supplier who considers the consolidated one
as a single order rather than segregating them into different cost centres.
A solution to this problem could be the use of electronic data interchange (EDI), which is an
exchange of business documents in a standard electronic format to be interpreted by the
receiver in the desired format. EDI comes in many types based on the size of businesses and is
basically a software which decrypts documents in any required format between businesses. The
requirements in setting up EDI is integrating it to back office systems of ERP or Technology
One at XYZ. This may lead to demand for internal resources to maintain EDI and an investment
in the IT infrastructure to accommodate EDI in XYZ’s day-to-day procurement functions.
Exploring the option of outsourcing EDI could be better as the benefits are greater and cost
effective.
Figure 4: The why-why diagram technique

b) Future value stream map
By applying the EDI in XYZ, the future VSM of procuring catalogue items could be created
as in Figure 5 which is an improvement over the current VSM of Figure 3.
273
Insert Figure 5: Future VSM for catalogue item no. 2005250 here (see appendix)
From Figure 5, it is obvious that using EDI can eliminate the total waste (muda) of about 70
minutes. EDI can reduce the need for printing and scanning invoices in the finance department
not for just one supplier, but all the suppliers it deals with. Eliminating deconsolidation and re-
packing can save about an hour of wages for two employees as discussed in (b). The benefits
are also at the supplier’s end where the non-value added activity such as keying in the orders
manually is eliminated.
By using EDI, the supplier can pack the items for respective cost centres rather than combining
all the orders in one package. The average wage for inwards employees at the warehouse is
about $16 per hour. The deconsolidation and the re-packing process takes place twice a week
for the office stationery consumables. Thus, the amount which could be saved per annum is
$3,072 approximately. This is just for one supplier and XYZ deals with nearly 84 suppliers,
hence the benefits could be much higher (approximately $196,608 per year). The use of papers
at the finance department of XYZ and at the supplier’s place is also reduced. Further benefits
are also realised at the supplier’s end where the manual keying of order is eliminated.
Table 3 Comparison of current and future VSM of catalogue item
Current VSM Future VSM
Value-added activity Avg (min) Value-added activity Avg (min)
Request for purchase 10 Request for purchase 10

Consolidation of orders 10 Consolidation of orders 10
Receipting 60 Receipting 60
Load in truck 10 Load in truck 10
Delivery 20 Delivery 20
Non-value added activity
Deconsolidation of orders 60
Printing & scanning of invoice 10
Activity Ratio = NVA/VA = 70/110 = 0.64. It means the current VSM has got 64 percent non-
value added activities which is quite high. This has been reduced drastically in future VSM by
using EDI which has eliminated 70 minutes of non-value added activities. This has resulted in
a saving of $3,072 per annum per supplier.
Conclusions
The selection of items for value stream mapping was done from various clinical and non-
clinical products, and office stationery consumables were chosen finally. The weighted average
approach and Pareto principle were used in choosing the specific products to perform the VSM
upon them.
The current VSM of the procurement process of catalogue items was created and the areas of
improvement identified with appropriate kaizen bursts. Use of electronic data interchange
(EDI) was introduced and the outsourcing of such a service was recommended due to various
benefits that come with it. It also solves the various issues which were identified by ‘why-why’
analysis technique in the report. Eliminating deconsolidation and the re-packing process does
reduce the workload of the inwards employees of the XYZ’s warehouse who need to separate
packages for the respective cost centres supplied by the supplier.
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The solutions proposed may not be feasible to the supplier as instead of one package for the
order, they will need more packages. It might even cost the supplier while paying for freight
as more number of packages are being used and hence more space. This needs to be negotiated
between XYZ and the suppliers to arrive at a mutual understanding if the supplier is not
agreeable to the idea of packages for respective cost centres.
More research needs to be done on EDI and the possibility of outsourcing it as XYZ being a
government funded institution, various protocols need to be followed before implementation.
More analysis is required in collecting the data of orders from other suppliers which will help
in conducting the cost-benefit analysis of implementing EDI at XYZ.
Acknowledgements
The authors acknowledge all the support by XYZ Limited for making their operational data
available for value stream mapping and analysis. The authors also expresses sincere thanks to
Eastern Institute of Technology, Hawkes Bay, New Zealand for encouraging research activities
with all the support. Local firms from Hawkes Bay can get a good perspective from this lean
principles based analysis, and should feel encouraged to get more of such analysis done for the
optimal use of their resources too.
References
• Ben-Tovim, D. I; Bassham, J. E; Bolch, D.; Martin, M. A. (Feb. 2007). Lean thinking across
a hospital: redesigning care at the Flinders Medical Centre. Australian Health Review;
31(1), 10-15.
• Gardner, J. T; Cooper, M. C. (2003). Strategic supply chain mapping approaches. Journal
of Business Logistics; 24(2), 37-64.
• Klabusayová, N. (2014). The possibilities for increasing production processes efficiency
by utilising the Lean manufacturing principles. Applied Mechanics and Materials. 693,
483-488.
• Machado, C; Scavarda, A; Vaccaro, G. (2014). Lean healthcare supply chain management:
minimising waste and costs. Independent Journal of Management & Production 5(4), Oct-
Dec 2014.
• Plenert, G. (2007). Reinventing Lean: Introducing Lean management into the supply chain,
Elsevier Inc. USA.
• Summers, D. C. S. (2007). Six Sigma basic tools and techniques: Pearson education.
• Wahab, M. S., Sidek, A. M., Yahya, M S., Ahmat, M. M (2014). Production Improvement
in an Aircraft Manufacturing Company Using Value Stream Mapping Approach, Applied
Mechanics and Materials, 660 (1038-1042), 2014.
• Womack, J. P. & Jones, D. T. (2003). Lean thinking: Simon & Schuster.
Legends
Electronic information flow for stock-item

Electronic information flow for catalogue item
Electronic information processing in the finance department
Physical movement of the item or info in the warehouse
Physical movement of the item or information at the supplier
Processing Cost centre
Kaizen burst Decision process
275
Figure 2 Current VSM of the procurement process with lots of kaizen bursts
276
(19 April, 14.50 hrs)
(18.4.2016, 8.09 hrs) Is product a stock/ 10 min
Cost centre 10 min catalogue item. Consolidation of orders
from diff cost centres by Supplier
(Internal Customer) Request for purchase It’s a catalogue item Purchasing officer
5 min
Current VSM (Value Stream Mapping)
Cross verify & pay
to supplier Product no. 2005250
Keying order
Product name: Paper thermal roll 57x40 mm
4 Total lead time = 3270.6 min = 54.31 hrs
2
Items Delivered
15 April 13.50 hrs
Delivery truck 5
on the move 10 min 60 min
Scan invoice in Processing order
reading machine Finance prepare invoice, Receipting
60 min
10 min Deconsolidation & Warehouse

packing Freight company
20.4.2016, 11.07 hrs
Loaded in truck 1
(20.4.2016, 13.30 hrs)
Figure 3: Current VSM of catalogue item no. 2005250 (Paper thermal roll 57x40 mm)
277
278
FULL PAPER SUBMISSION
Optimising holistic supply chain designs

through decision analysis modelling
Danny Samson and Marianne Gloet

Department of Management and Marketing
The University of Melbourne
Parkville, VIC 3010 AUSTRALIA
TEL: +61 3 8344 5344
Email:
d.samson@unimelb.edu.au
marianne.gloet@unimelb.edu.au
Abstract
Supply chain design is a complex and relatively poorly structured process, involving many
decisional parameters and consideration of numerous sources of uncertainty. Many conventional
processes of supply chain design involve a deterministic approach, using point estimates, on
important measures of supply chain effectiveness such as cost, quality, delivery reliability and
service levels. This paper describes an approach that combines the intellect and experience of the
supply chain designer with the power of evaluation provided by a Monte Carlo simulation model,
which uses decision analysis techniques to explicitly incorporate the full spectrum of uncertain
quantities across the set of alternative supply chain designs being considered. This novel approach
to fully integrating performance and risk elements of supply chain designs is then illustrated with a
case study.
279
Introduction
Supply chains, particularly from a resource-based theory perspective, have the potential to
represent a source of sustained competitive advantage (Barney, 2012). Moreover, supply
chains are increasingly viewed as a significant source of value, rather than simply a means
of providing inputs, goods or services (Hammervoll, 2009). Modern supply chain
management (SCM) is a field that is undergoing major changes, characterised by business
practices that have become strategic rather than tactical in approach, thus increasing the
challenges for managers (Melnyk et al., 2009). In a globalised business landscape, markets
become more turbulent and competitive as life-cycles shorten, thus creating greater
uncertainty and potential risk. As supply chains become increasingly lengthy and complex,
the strategic potential of effective supply chain management has never been greater (Von
Masson and Canbolet, 2014; Melnyk et al., 2010; Schoenherr, 2010; Allesina et al., 2010;
Rajesh et al., 2015). Yet the complexity of cross-border flows of goods, services,
investment, as well as intellectual and human capital that characterises the concept of
‘supply-chain trade’ (Baldwin and Lopez-Gonzalez, 2014), is still poorly understood by
policymakers, economists and managers alike.
Although the development of a theory of SCM is still in its nascent stages (Carter et al.,
2015), the strategic management of the supply chain and its potential to deliver value to
customers and other stakeholders is widely recognized. While many definitions of SCM
abound, we adopt the following for the purposes of this paper:
"Supply Chain Management is a set of approaches utilised to efficiently

integrate suppliers, manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the right quantities, to the right
locations, and at the right time, in order to minimize system wide costs while
satisfying service level requirements." (Simchi-Levi et al., 2008:1).
The many components of every supply chain comprise decisions that can be made about
the supply chain design, which are intimately connected to the sources of uncertainty that
relate to these choices. Successful supply chain design involves the deployment of assets in
ways to enhance profitability and deliver value to stakeholders. Designing an optimal
supply chain network involves decisions such as facility location, capacity, technology and
many others, which must be connected to uncertain quantities such as demand uncertainty,
supplier reliability, quality of inputs, and equipment reliability. To design supply chains
that effectively deliver to a business strategy and market requirement, an integrated
approach is required that simultaneously considers choices about supply chain design
parameters and these sources of uncertainty. In this study, we propose such an approach,
outlining the choices and sources of uncertainty on sixteen elements of supply chain design,
along with the accompanying uncertainty elements. We then propose an iterative method
for fully accounting for these complex elements, involving human judgment and Monte
Carlo simulation as an evaluation approach. Whereas simulation has been used in the past,
monte Carlo approaches are superior for decision support that explicitly accounts for risk
and return (Samson,1990).
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Modeling supply chain risk and performance: decision analysis
The purpose of this paper is to develop a decision analysis based framework for
formulating supply chain strategy. Decision analysis is based on the axioms of expected
utility theory, which is a long standing paradigm, often used for normative and practical
decision making, particularly on strategic matters involving risk and return. These
theoretical contributions were used by Von Neumann and Morgenstern (1947), and further
refined by Keeney and Raiffa (1993), and bring together in a single comprehensive
measure, the probabilistic view of uncertain outcomes with the decisions and choices that
managers make, when applied to unique or strategic decisions. Theories such as the
resource based view have largely ignored the uncertainty elements inherent in markets,
technologies and organisational processes, or at best they have not explicitly considered
them and integrated such considerations into a comprehensive framework that fully brings
performance and risk together.
A burgeoning literature has developed in the past decade that specifically examines
operations and supply chain risk (Chen et al., 2016; Kumar et al., 2016; Nickel et al., 2012;
Claypool et al., 2014; Heckmann et al., 2015; Manning and Soon, 2016; Kilubi, 2016;
Huang and Goetschalckx, 2014; Aqlan and Lam, 2016; Chiu and Teng, 2013; Goetschalckx
et al., 2013), which aims to identify sources of risk and evaluate such issues, then to
determine ways to mitigate against such downside events, either in terms of reducing their
frequency or severity, or both. This approach is born from the traditional risk management
field where people in roles such as risk managers take on responsibility for protecting the
organisation from adverse events, traditionally attending to safety, insurance and other
related aspects of risk reduction. The eleven key articles referred to above, mostly recent,
all examine only a subset of the whole supply chain and the full integration of risk and
performance, for example one of these examines how the capacity decision impacts on risk
and performance (Goetschalckx et al., 2013), while others examine product range
complexity. In general, those who design and operate supply chains and those who are risk
managers in many businesses have been separated within organisational structures,
mirroring the separate frameworks and theoretical underpinnings of these functions.
Most of the supply chain risk literature has examined supply chain disruption, and has
done so separately from those studies that focus on optimising supply chain design and
performance, such as might be measured by return on supply chain investments. This
schism is problematic from both a theoretical and practical perspective, because returns on
investment- in this case in supply chain assets and resources, always come simultaneously
with risk; hence an integrated approach will take the professional practice of supply chain
design and operation considerably forward. The best way to do this is to consider the full
spectrum of probabilities of outcomes, from negative to positive, associated with the
sources of uncertainty inherent in a supply chain design. For example, consider a choice
between a well-known, proven technology, and a new and more advanced technology. The
new technology might promise higher levels of performance yet there might be uncertainty
about its reliability and durability. The decision analysis framework considers this full
spectrum of upside and downside possibilities in a single integrated framework, in which
281
the expected utility of all the outcomes, positive and negative are taken into account. The
manager can then apply their risk attitude or approach (often considered as a degree of risk
aversion or indeed loss aversion) to the options and compare the full risk/ return profiles of
alternative choices in a rational way. While the decision regarding a choice between two
machines or technologies as referred to above is well understood and easily structured, the
design of a supply chain involves a much larger set of decisions and interacting parameters,
and the full consideration of such parameters, that comprehensively considers all upside
and downside risky outcomes, is an important and practical problem that has not been well
specified to date.
A further aspect of complexity in supply chain design that we address in this study is the
silo mentality that pervades both the research literature and some aspects of professional
practice of supply chain design and operational management. There are many aspects of
supply chain design- we identify sixteen, and these are often treated as separate elements by
both researchers who study and model these aspects and by some professionals who design
and operate them. For example, many scholarly publications exist in which inventory
models are created and effective inventory policies are derived, yet the connections
between inventory optimisation and technology, procurement, transformation processes,
material composition of products and numerous other factors are assumed away. While
these localized optimisations do provide insights, the integrative effects that occur across
the categories of a supply chain design are often under-accounted for or ignored in such
approaches. Our study is a first principles conceptualisation of the decision variables and
the sources of uncertainty for the major categories of a supply chain design, piece by piece,
and then we acknowledge and integrate the interactions of the risk and performance
impacts of these elements in considering a holistic view of supply chains. This involves
accounting for a good deal more complexity than for studies that do not account for the
synergies and interactive impacts across supply chain design elements. The unique
contribution of this study is the articulation and illustration of this integrated approach,
based on the rigorous axioms of decision analysis, and made practical through Monte Carlo
risk analysis approaches. It fully accounts for both performance and risk aspects of supply
chain design.
The rest of this paper is organised as follows: we first review the concepts of supply
chain design, identifying the main elements of supply chain choices. For each of these, we
then use the decision analysis approach to identify the generic choice variables and the
main sources of uncertainty that pertain to those elements. This is the first step in decision
analysis, of decomposing the opportunity into its main constituent elements and identifying
choice variables and source of uncertainty. Then we consider supply chain interactions and
build a methodology for iterative supply chain design, followed by the case study.
Business Strategy/Model and Supply Chain Strategy Design
Many researchers have now developed frameworks for articulating supply chain strategy as
an important aspect of an organisation’s overall business strategy, and to highlight the need
for strong links and alignment between the two. Generally the theme is that if the supply
chain strategy is aligned with the central mission, competitive advantage will result.
Strategic SCM is likely to be a superior approach to more haphazard approaches that occur
when various SC decisions are made in isolation rather than across a range of SC activities.
282
While the field of supply chain management is informed by various theoretical perspectives
including the resource based view of the firm, transaction cost economics, social capital
and organisational learning theory, there are strong links between SCM and strategic
management in general (Hitt 2011).
Our approach was to study the literature in supply chain design approaches, and ensure
that we had a balance between having a strong conceptual base and real world validity, as
was expressed by Platts (1993). Throughout the development of our new approach, we
engaged closely with a number of supply chain and business executives who were facing
the challenges of designing international supply chains, in industries as diverse as
confectionery, beef, iron ore, financial services, fruit/ vegetables, automotive and wool
industries. These engagements involved a range of activities including presentations,
workshops, case studies and consulting assignments. Platts (1993) argued for a strong
conceptual base, sound empirical work and real world relevance, which we took even
further, in these deep engagements and applications that brought together research-based
and analytical rigour with actual problem solving. One of those deep case study
engagements is reported later in this paper.
While there is a considerable amount of supply chain strategy ‘content’ literature, there
is far less literature that speaks to the SC strategy development ‘process’. Given the
complexity of modern supply chains, there is a compelling argument to be put in favour of
developing a range of decision models and decision support tools to support a strategic
focus and processual approach. The potential of the supply chain to add significant value
lies in the manner in which it is structured and the decisions made by managers as to the
structure, flow and stakeholders involved. Decisions can affect not only the cost of a
product or service, but also an organisation’s ability to respond to market changes, to
innovate and to develop new offerings. Those who do it well gain competitive advantage
that leads to sustainable and long-term business performance advantage.
The supply chain is at the heart of Porter’s (1985) Value Chain Model. The Value Chain
Model portrays the various activities performed within a firm, and value chain analysis
provides an overview of its strengths and competitive position. Value chain analysis
evaluates the value added to products and/or services through each particular function or
activity of the organisation. Porter’s model is based on the premise that organisations are
not just a random combination of tangible and intangible resources; indeed, these resources
will only add value if they are arranged in a systematic manner, and organisations that
manage the linkages across various activities will achieve greater levels of competitive
advantage.
Figure 1. Porter’s Value Chain
Porter’s Value Chain Model makes a distinction between primary and secondary
activities, where primary activities are mainly focused on the creation or delivery of a
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product or service, with secondary activities providing support. Porter groups primary
activities into five main categories: inbound logistics, operations, outbound logistics,
marketing and sales. Secondary or support activities include procurement, technology
development, human resource management and infrastructure. Depending on how well an
organisation manages these activities, the greater their capacity to extract higher margins of
profit and hence value. The margin referred to in Porter’s model represents the difference
between the costs incurred in the production and delivery of a product and/or service, and
the final price paid by the customer. It is generally unlikely that individual firms would
undertake all the activities depicted in Porter’s model; rather, most organisations are part of
a value system or supply chain. Depending on the structure of the value system, the manner
in which the margin is spread between various stakeholders such as suppliers, producers,
distributors and customers will differ (Porter, 1985). Porter’s approach is conceptually
useful in designing supply chains, from which we build the design heuristic that the direct
or primary choices should be made first, and then the infrastructural (indirect support)
elements can be fitted to those primary decisions. Porter’s model is arguably the best
known approach, but is far from the only one to this key area of value creation and
modelling: Treacy and Wiersema (1997) provided a useful approach to consider market
positioning and business model design, that then relates to resources, investments and
supply chain design priorities.
Aspects of value and supply chain management
Babin and James (2010) explore the concept of value as an essential element of
managerial strategy because of its capacity to deliver value to customers. Yet in a business
context, value has often been superseded by concepts such as quality and customer
satisfaction. The recent rise of service economies, particularly in the developed world, now
means that value creation for the customers is a major imperative. In a service economy,
supply chain management is largely driven by end user customers and delivered through
complex value networks (Basole and Rouse, 2008). The extent to which organisations can
harness this value will determine the level of their success in creating sustained competitive
advantage. The strategic management of supply chains can create value for customers and
other stakeholders (Estampe et al., 2013). Yet the studies mentioned above have articulated
their positions about value as if the world was fully deterministic, and that risk was not
pervasive, or that risk even existed as a consideration in supply / value chains.
Decision Models and Supply Chains: the risk-performance integration imperative
Simchi-Levi et al. (2008) stress that the supply chain represents a complex and dynamic set
of interactive activities and processes, often characterised by conflicting objectives in
various parts of the supply chain network. As such, supply chain component decisions
cannot be effectively developed in isolation, as effective strategies need to be integrated
across the entire supply chain. Echoing this view, Bellamy and Basole (2013) view supply
chains as complex adaptive systems that are continuously evolving to reflect the many and
varied inter-organisational interactions that take place. While traditional operations
management modelling approaches have in the past focused primarily on technical issues,
they advocate the use of network analysis to study supply chain systems, consisting of a
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focus on network structure, network dynamics or behaviour, and network strategy. They
regard this dynamic, integrated network approach to be more appropriate in designing,
managing and studying supply chain systems.
Fine (2000) advocates that SC design should take into account both product design and
production system design as part of an effective SC strategy. Lyons and Ma’aram (2014)
suggest that close alignment between business strategy, SC strategy and market
requirements is needed in order to gain competitive advantage from a firm’s SC
configuration. In order to achieve maximum value, making decisions based on a SC
strategy linked to the overall business strategy requires integration and a holistic
perspective, and a growing body of literature speaks to the need for such linkages (Ivanov,
2010; Von Massow and Canbolet, 2014).
For Melnyk et al. (2014), supply chain management can only deliver value when it is
based on planning and is closely aligned to an organisation’s strategic priorities. Decisions
must be made with regard to all aspects of the supply chain, from procurement to logistics
and through to the customer. Besides considering the external business and political
environment, design decisions include social, behavioural and structural elements of the
supply chain, as well as those relating to inventory, transport, capacity and technology. All
these aspects of supply chain management need to form part of a decision making
framework in order to maximise value. In presenting five different supply chain decision
models, Narasimhan and Mahapatra (2004) emphasise that no matter the analytical
approach taken, the capacity for integrative decision making is essential to supply chain
management success, particularly in a global context.
Indeed, there is no shortage of decision models or frameworks for guiding supply chain
design and decision making, particularly under uncertainty (Von Massow and Canbolat
2014; Azaron et al, 2008; Klibi et al., 2010; Pishvaee, et al., 2012; Claypool et. al, 2014;
Govindan and Fattahi, 2015). A study by Yildiz et al. (2015) attempts to reconcile and
integrate the dual (and often conflicting) objectives of minimising costs and maximising
reliability in the context of supply chain design formulation. Based on an extensive review
of existing literature, Farahani et al. (2014) advocate the use of supply chain network
design to determine the structure of the supply chain and make decisions regarding facility
location and size, inventory management, distribution and transport.
Ivanov’s (2010) conceptual model emphasises the interlinked connections between
supply chain strategy, design, planning, and operations, and advocates decision alignment
as a core principle. Other decision models developed for supply chain management focus
on specific measurable criteria, for instance, such as length of lead time and quantity
flexibility to aid responsiveness in the supply chain (Pereira et al., 2009). Gosling et al.
(2015) develop a set of principles for SC design in engineer-to-order environments, where
it may often be difficult to bridge the gap between customisation and the application of
holistic frameworks for SC design and operation. Huang and Keskar’s (2007) model
attempts to quantify certain aspects of business strategy in order to compare suppliers is
based on metrics linked to a firm’s strategic priorities. Birchall et al. (2011) suggest ways to
measure innovation performance across a supply chain. No matter which parameters are
utilised, there is no doubt as to the challenges of developing models that assist the decision
making process across complex supply chains in a global setting (Allesina et al., 2010). Yet
while some of these approaches have considered an integration across supply chain
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decision categories, even the best of them have ignored the integration of risk management
and performance management: a major shortfall in both theory and practice.
Supply Chain Decision Elements
Global SCM involves a complex interaction of various supply chain elements that, if
effectively managed, can deliver value across a number of dimensions including cost,
quality, delivery, flexibility and innovativeness. In a business context, these value
dimensions translate into sales, market share, cash flow and profitability (see Figure 2). The
chosen strategy or approach to product design, including the level of quality, flexibility,
degree of customisation and product complexity will have implications for the supply
chain. In developing a supply chain strategy, various decisions must be made across the
length and breadth of the supply chain, including a range of supply chain decision elements,
including capacity; technology; process choice; location; push v pull; procurement;
sustainability; raw materials; HRM; customers; quality; and inventory management. These
decisions should preferably be made in a manner such as to achieve fit between them, and
this coherence should be aimed at achieving the best overall outcome, of specific business
strategy and advantage.
Following Figure 2, each of these elements have certain decision variables that need to
be taken into consideration when designing a viable supply chain, and various sources of
uncertainty also need to be evaluated. Each of these supply chain elements are
interconnected and interrelated, so decisions relating to one element will most likely have
an impact on other supply chain elements.
COMPETITIVE DECISION SOURCES SUPPLY CHAIN OVERALL

STRATEGY VARIABLES OF OPERATING BUSINESS
UNCERTAINTY VALUE VALUE
PARAMETERS PARAMETERS
Examples of decisions • Capacity Examples are: • Cost • Market share
are: • Technology
(Process and • Cost • Quality • Cash flow
• Market Product) uncertainty
segment • Process Choice • Service Levels • Profitability
choice • Make or Buy • Quality
• Facility Location assurance • Delivery • Business
• Country market • Push v Pull Performance value
choice • Procurement • Delivery
• Raw Materials reliability/ • Flexibility
• Product range • Sustainability disruption
complexity • Inventory • Innovativeness
Management • Demand
• Distribution uncertainty
(Customers, Last
Mile)
• Quality
• HRM
• Info Systems
• Traceability
• Relationships
Figure 2. Structural Decision Influence Flow Diagram
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Trade-offs and uncertainty in SCs
Inevitably, certain trade-offs occur when decisions are taken concerning the adoption of a
particular operational and supply chain strategy. These trade-offs can impact a number of
value elements including cost, quality, delivery, flexibility or customisation. For example, a
study by Safizadeh et al. (2000) found that process choice is a factor that exacerbates the
trade-off between cost on the one hand, and customisation on the other. A practical
example is that now that McDonald’s has begun a customised hamburger offer, known as
‘Create Your Own’, speed and cost performance are reduced relative to when they operated
a standardised push system. In a study conducted across three cities in China, Qi et al.
(2011) found that the external environment had significant moderating effects on the
relationship between overall business strategy, supply chain strategy and business
performance. Certain trade-offs occurred as a result; for instance, firms with a strong
differentiation focus also tended to demonstrate an agile supply chain strategy. Those firms
focusing on cost tended to pursue both lean and agile supply chain strategies, but would
rely more heavily on an agility strategy in volatile environments. In a study of international
manufacturing joint ventures, Taps and Steger-Jensen (2007) explores how firms in
developing regions select manufacturing strategies that result in a trade-off between cost
advantage and product innovation. Wieland (2013) suggests that trade-offs occur when
decisions are made regarding the implementation of various supply chain strategies,
including those featuring attributes such as agility, robustness, resilience and rigidity.
Salvador et al. (2004) found that high levels of mass customisation of products resulted in a
trade-off that negatively impacted firm performance.
A growing emphasis on environmental sustainability has placed pressure on firms to
reconfigure their supply chain structure and operations, which often entail trade-offs
between economic viability and longer term environmental and social concerns (Wu and
Pagell, 2011). Pereira et al (2009) found that high levels of responsiveness and adjustment
capability can be used as a form of trade-off against the bullwhip effect in supply-chains
based on pull, push and hybrid ordering methods. Revilla and Villena (2012) found that a
knowledge integration strategy based on processes of joint sense meaning and joint
decision making in buyer-supplier relationships can balance out the tension associated with
making trade-offs between efficiency and innovation.
The context and level of uncertainty will differ across the various decision elements
relating to supply chain strategy. Similarly, different trade-offs will apply across these
elements. Examples of uncertainty include demand uncertainty and cost uncertainty. Supply
chain reliability can also be best expressed in terms of measures of uncertainty. These
disparate elements that illustrate the connectedness of supply chain decision categories and
their relatedness to sources of uncertainty, involving both primary and secondary elements,
illustrate both the richness and the complexity of integrating an end-to-end supply chain
design. Such a challenge cannot be effectively modelled with a highly structured
mathematical programming approach, nor can a decision tree work in practice because of
the number of parameters involved. Monte Carlo risk analysis methods bring the strength
of being able to explicitly combine decision parameters with sources of uncertainty, and
take in managerial judgements about those parameters, as inputs. Risk analysis simulation
methods bring the best of the decision analysis philosophy to address large and complex
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problems, in circumstances such as whole of supply chain design, when as Harvey Wagner
(1969) famously asserted, “When all else fails”.
Decision variables and sources of uncertainty
This section describes and discusses each of the individual decision elements for
international supply chain design, which are depicted in Figure 3. The discussion in this
section provides a comprehensive overview of supply chain elements, decision variables,
value context, sources of uncertainty and possible trade-offs for each. This follows the
conventional decision analysis approach (Samson, 1990) of structuring decision elements
into a decomposed format and separately considering those variables that the decision
maker (in this instance the supply chain designer) controls, and those that are uncertainty
factors. Following this decomposition and specification of each decision category elements
depicted in Figure 3, the connections between categories can be created.
TECHNOLOGY
CAPACITY (PROCESS AND PROCESS CHOICE MAKE OR BUY
PRODUCT)
FACILITY LOCATION PUSH V PULL PROCUREMENT RAW MATERIALS
DISTRIBUTION
INVENTORY
SUSTAINABILITY (CUSTOMERS,LAST QUALITY
MANAGEMENT
MILE)
HRM INFO SYSTEMS TRACEABILITY RELATIONSHIPS
Figure 3. Elements of Supply Chain Design Decisions
Overview of Core SCM Decision Elements
We have summarised these core SCM decision elements, their key sources of uncertainty,
goals and some trade-offs into Figure 4, that illustrates the richness and complexity of end-
to-end supply chain design, and illustrates the depth to which uncertainty pervades those
decision categories. To ignore or separately manage the sources of uncertainty from the
performance related value elements is far from optimal.
SC DESIGN DECISION SOURCES OF VALUE TRADE-OFFS SUPPORTING

ELEMENT VARIABLES UNCERTAINTY LITERATURE
CAPACITY Scale, size, Demand volume Goal is to match Volume vs cost; Wu et al., 2010
tons/year, units overall (by SKU) supply capacity to fixed vs variable;
Can it be flexible? Product mix (by demand exactly, cost of extra
At what cost? SKU) anything else capacity vs
compromises stockouts (service
value levels)
TECHNOLOGY Level of Pace of Does customer Integrated Davenport, 2013
technology; technological value the technology
automation; change; demand infrastructure
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(PROCESS AND product (including for technology technology (greater product
packaging); (product features); features/benefits? mix flexibility) vs
PRODUCT) process cost of future less sophisticated
(production, technology; technology (more
logistics technology limited products
performance, range)
reliability,
durability
MANUFACTUR- 5 basic processes Outcomes of these Differs across Cost vs flexibility, Olhager and
(project; job shop; process choices; market segments customisation Rudberg, 2015;
ING PROCESS
batch; line flow; process Voss, 1995; Inman
CHOICE continuous flow; performance and Blumenfeld,
or combination of 2013
these
MAKE OR BUY Make (insource) or Control – supply Cost; quality; Fixed cost vs Xu et al., 2013;
Buy (outsource); reliability; ROI of delivery; flexibility variable cost; Seyedhosseini et
degree of make decision? assurance of al., 2012;
investment in Cost of outsourced supply Sundquist et al.,
knowledge and items (inflation); 2015
technology for supplier reliability
each element of
products and
services across the
supply chain
FACILITY Where to locate Political Costs across Costs (materials, McIvor, 2014;
every step of the uncertainty; cost different rent, labour, Ellram, 2013;
LOCATION
SC (proximity to uncertainty; countries/regions; energy, etc.) vs Rodrigue, 2012;
market; raw labour/skill responsiveness (if quality – e.g. China Ellram et al., 2013
materials; labour; availability; closer to market) vs Europe, USA,
expertise) demand by region Australia; cost vs
delivery speed and
flexibility
PUSH VS PULL Push to forecast Accuracy of Related to cost Cost vs Kim et al., 2012
OR pull to actual forecasting (push achieves customisation and
orders OR hybrid (especially with scale economy); responsiveness
approach perishable responsiveness;
products) less waste
PROCUREMENT Single vs multiple Who takes risk? Cost; quality; Cost vs Kirytopoulos et al.,
sourcing; long vs Cost plus vs fixed delivery (in stock) customisation, 2010; Lawson et
short term price, quality risk safety al., 2009;
contracts; green vs (food safety)
non-green; buying
criteria (purchase
price, quality, total
cost of
ownership);
centralised
procurement or
not
RAW Price; availability; Global availability; Cost; quality Cost vs quality; Ho et al., 2010;
capacity; pricing; politics; assurance; safety cost vs higher Schmidt and
MATERIALS
environmental or consistency assurance specification Tomlin, 2012
social (quality); short (customisation /
considerations term vs long term special orders)
(green supply or contracts; safety
‘fair trade’)
SUSTANABILITY How much? (Nil, Stakeholder Efficiency; Short vs long term; Carter and Easton,
minimal, reactive, acceptance; return reputation (licence financial vs non- 2011;
proactive)? Which on investment to operate); financial outcomes Brandenburg et
sustainability (ROI); regulatory market share al., 2014
practices (green, and legal changes
social)?
INVENTORY How much to Technological Buffer against Cost vs efficiency, Nasiri et al., 2010,
store (buffer obsolescence; uncertainty; flexibility Leutschner et al.,
MANAGEMENT
inventory, safety changing cost of relationship
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stock); where in SC capital; reliability capital (SC supplier 2014; Kumar et al.,
to store inventory; (e,g, of cold chain) relationships); 2014
how to schedule service (in-stock
production; levels)
whether to use
3PL and criteria for
choosing
DISTRIBUTION Logistics of Demand; Service; lower cost Service (delivery Askin et al., 2014
delivery options; customer availability) vs cost
(CUSTOMERS,
different acceptance and profit
LAST MILE) requirements and
logistics options in
Tier 1, 2 and 3
cities, rural areas,
O2O etc.
QUALITY Approach to Quality problems; Better quality Short term cost vs Agus and Hajinoor
quality (TQM’ Six rework, recalls control pays cost savings vs (2012)
CONTROL and
Sigma’ QA, QC, (cost of quality) through lower cost quality
LEAN SYSTEMS Business of waste,
Excellence), use of improved
SPC, Lean reputation,
consistency, trust/
reliability
HRM (SKILLS Skills; capabilities; Availability of People as ‘the Cost vs skill levels Teller et al., 2012;
knowledge labour/ skills; most valuable McAfee et al.,
AND
required; Establish cross-cultural resource’; 2002; Lengnick-
CAPABILITIES) a high- issues reputation in Hall et al., 2013
performance market; quality
culture (requires and service levels
investment) or
not?
INFORMATION Visibility; how Accuracy/reliabilit Better information Better information Teller et al., 2012;
much openness? y of information as quality (timely, systems costs Xu, 2011; Basole
SYSTEMS
How intensively to a basis for accurate, relevant) more up front and Rouse, 2008;
(MEASURING, measure? decisions; system leads to better Qrunfleh and
REPORTING, Financials vs security informed Tarafdar, 2014;
EVALUATION Balanced decisions; risk Zhou et al., 2014;
Scorecard; KPIs? mitigation through Giannakis and
info/ knowledge; Louis, 2011; Liu et
integration of al, 2013; Zhan et
value networks al., 2014
through IS
TRACEABILITY Extent of track and Quality of Quality assurance; Cost vs quality; Ortega et al.,
trace (e.g. one information; lack safety; safety; cost vs safety 2012; Aung and
back, one of integration in customer trust; Chan, 2014;
forward); anti- food logistics market share Epelbaum and
counterfeiting management; Martinez, 2014
measures (such as quality and
packaging) strength of
regulations and
standards
RELATIONSHIPS Criteria for Cross cultural Relationship Time vs Ramanathan and
developing context may lead capital; trust relationship Gunesakaran,
partnerships; to strength (guanxi) 2014;
extent of misunderstandings Hammervoll,
collaboration 2009; Wu and
required Barnes,
2014;Weigel and
Bamford, 2015;
Barnes et al., 2011
Figure 4. Overview of Supply Chain Design Elements, Decision Variables, Sources of Uncertainty,
Value and Trade-offs
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Supply Chains and Uncertainty
As product and supply chain life cycles shorten, it becomes difficult for businesses to
sustain slow moving logistics pipelines, especially in a world market increasingly
characterised by turbulence and volatility. A growing body of literature examines the issue
of uncertainty and risk under such conditions, and how decision models may assist in
mitigating supply chain risk. In analyzing supply chain risk management, Tang and Musa
(2011) note the growth of proactive measures to managing supply chain risk, often utilising
a systems perspective. Their research suggests that information flow is one area that still
carries significant risk levels. Oehman et al. (2009) assert that systematic management of
potential incidents such as supplier failures and unexpected demand changes can lead to
competitive advantage; they propose a system-oriented model of supply chain risk
management. Quantitative models often dominate the range of approaches used to measure
and mitigate levels of uncertainty and risk in supply chains.
In examining supply chain risk management from a holistic systems thinking
perspective, Ghadge et al (2012) discuss strategic changes in the field, such as recognising
the complexity and interlinked nature of today’s supply chains and understanding that a
single risk reduction strategy can have an impact on other risks inherent in the supply chain.
Tse and Tan (2012) suggest that better visibility of risk in supply chains could enhance
product quality and minimise the threat of product harm. Vilko and Hallikas (2012) have
developed a framework and simulation to identify and categorise risk driver factors and
their overall impact on supply chain performance. However, Wang et al (2014), in
investigating supply chain uncertainty and risk in third party logistics (3PL), suggest that
given the high variability of circumstances surrounding 3PL, it may not be possible to
develop a standard approach for mitigating risk. They suggest that developing strong
logistics capabilities may be the best way to respond to problems and deal with uncertainty.
Yet they examine risk from a ‘downside’ perspective only, not integrating such
considerations with ‘upside’ performance opportunities.
Our approach is to respond to these challenges with a comprehensive ‘decision and risk
analysis’ approach, fully integrating upside and downside aspects of uncertainty, and
capturing the connecting influences that the many primary aspects of supply chain design
(see Figure 3) have on each other. Ultimately the design of a supply chain boils down to
combining the many and various aspects of decisions shown above, such as to maximize
value created at minimum levels of, or at least acceptable levels of risk. We take up this
matter and suggest a supply chain design and evaluation methodology in a later section of
this paper.
Supply Chain Agility and Flexibility
Christopher and Holweg (2011) argue that while traditional SCM approaches of the past
have assumed stability in the internal and external environment, the current climate is
turbulent, and will likely be more so in the future. Therefore, structural flexibility should be
built into modern supply chains. Given such uncertainty, as well as the intense competitive
pressure in the global marketplace, organisations need to develop agility in their supply
chains in order to compete effectively, to provide uninterrupted service and value to
customers (Braunscheidel and Suresh, 2009). Their research found that both a market
orientation and a learning orientation can positively affect an organisation’s capability to
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adapt and respond to changes in a speedy manner, thus improving supply chain agility.
Research by Chiang et al. (2011) indicates that sstrategic sourcing and flexibility also have
a direct impact on supply chain agility. Gosling et al. (2010) regard sourcing and vendor
flexibility as key precursors to achieving general supply chain flexibility, while Pearson et
al (2010) develop a decision making model to support agility in volatile and fast moving
supply chains in the fashion industry.
Designing and evaluating supply chain options: integrating risk and return
Designing a supply chain, whether greenfield or brownfield, involves fitting a series of

decisions together from the categories described above, so as to achieve the best overall
result. The optimal result is defined in business strategy terms, and should be specifically
responsive to business strategy and goals, including market positioning, brought together
across the various building blocks of supply chain design. Many approaches can be used to
achieve an effective design: these range from purely intuitive methods to using
mathematical programming. The supply chain design should reflect the business and
market priorities, and effectively respond to those requirements, in terms of the expected
utility of the whole spectrum of upside and downside possible outcomes. Anything less
than this is a sub-optimisation.
The design of a whole supply chain is unlikely to be suited to ‘hard’ structured
mathematical programming approaches. Mathematical programming techniques are best
suited to subsets of supply chain design, such as well-structured transport system
optimisations. For international supply chains, there are many and varied disparate sources
of uncertainty, which cannot be easily programmed into mathematical optimisation models.
The value space is also complex, being multidimensional in nature. In this section, we
argue for a semi-structured approach to supply chain design, fitting to the strategic nature
and degree of complexity of the supply chain design ‘problem’. We now qualitatively
describe the supply chain design challenge, then propose and illustrate a methodology for
evaluation and decision making.
Integrating supply chain components

Consider for example the production and distribution of a food product such as
confectionery, being produced in one country and aimed at markets in another. One could
begin with the general sense of the market, market positioning at one end of the supply
chain, and of the sourcing and raw materials at the back end. From this it is possible to
examine some aspects of facility location, transport and logistics, including the ‘last mile’.
Should the processing points (factories) be located near the raw materials, or near the
markets, or somewhere else? This issue intersects aspects of cost, quality, service levels,
and the push versus pull decisions, or hybrids thereof. If the product is perishable, or
sensitive to temperature, this might impact on location decisions, inventory conditions and
facility location and distribution. A further key consideration is whether the product range
will be simple or complex, and of the market segment being targeted. This set of logical
connections is usually deduced as a set of purely intuitive considerations or in some
instances, managers use heuristics.
Sources of uncertainty across these supply chain design parameters relate to demand
quantity, costs, quality, and supply reliability risk factors. These aspects of complexity,
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coupled with the discrete choices innate to the various decision parameters point to a
solution that is not easily approached using an optimisation / mathematical programming
method, but can be evaluated using Monte Carlo simulation, as an effective way of
evaluating probabilistic statements of outcomes across the multi-variable space. A supply
chain design logic flow diagram (Figure 5) shows some of the primary parameters that
underpin this decision framework. From this diagram, it is possible to create and then
evaluate a shortlisted set of supply chain designs. In this framework, the main difference
between a greenfield and a brownfield supply chain is simply that in a brownfield, some of
the parameters would be considered as already fixed, although such an assumption (such as
an existing factory location) could always be challenged, with cost and other consequences
being adjusted. And in the long run, nothing is fixed.
SUPPLY CHAIN DESIGN LOGIC FLOW
Business Strategy and

Market Positioning
Facility Location Capacity

and Distribution
Direct
Elements
Make versus Buy
Procurement
Product Raw Materials Inventory

Specification Management
Process Push/Pull
Choice
Technology Transport and

Logistics
Sustainability
Human Resource
Management
Quality
Support
Elements
Information Traceability
Systems
Relationships
Figure 5. Supply Chain Design Logic Flow Diagram
Similar to the classification in Porter’s value chain, we propose that supply chain design
is composed of direct and support components. Further, these direct components of design
can be considered as primary in nature, whereas the support activities, whilst important, can
be fitted secondarily to the primary design parameters. In terms of design process steps, the
first step is to take into the design process the organisation’s business strategy and its
marketing positioning intent (Figure 5). For example, is the intended supply chain going to
be supplying a highly differentiated market segment or a mass (middle) market or ‘no frills’
segment? This will determine priorities and decisions in the supply chain. What are the
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competitive order winning priorities in the market segment, chosen usually from cost/ low
price, quality, service, flexibility, innovation, customisation, delivery performance and
other potential priorities? From these desired outcomes, and the desired market place or
space, the supply chain can then define its goals (see Figure 1). At the other end of the
supply chain, decisions need to be made about raw materials and other inputs. Once these
bookends of the supply chain are considered, namely the inputs and the market, then the
other elements can be considered and shortlisted, including facility location, capacity,
processing, storage and transport options.
As defined in Figures 2 to 5 above, there are many sources of uncertainty within the
decisions that comprise supply chain design. These range from cost uncertainty, supply
chain component uptime reliability, demand uncertainty, quality risk factors, and raw
material availability. The ‘art’ of supply chain design lies in bringing together the key
decision parameters, the sources of uncertainty, and the desired and prioritised performance
outcomes, that drive the organisation’s ultimate goals, be those profits or other outcomes,
such as environmental or social outcomes. The fully explicit inclusion of these sources of
uncertainty brings risk and performance aspects of supply chain design fully into an
integrated approach. The approach of using a combination of human, expert judgement and
data with a risk analysis approach brings the tradeoffs and connecting influences into an
explicit mode, rather than potentially missing out on such important considerations. It also
fully integrates risk management within supply chain management with the primary supply
chain design process, which is a large step forward from most common approaches in
practice.
This supply chain design process cannot be fully programmed into a precise
mathematical formulation that is amenable to an optimisation routine, because it is
relatively unstructured. It requires lateral thinking inputs, and the distinct choices within
each element are discrete and categorical variables, which are different in every instance.
We propose a staged process in which the steps comprise shortlisting of candidate supply
chain designs, evaluated with Monte Carlo simulation procedures, in an iterative process. A
supply chain design process that fully integrates risk and performance management aspects,
and further that takes in the many interactive effects and influences across the sixteen or so
supply chain decision categories, can be specified as a human – machine combined process.
There is too much detail and complexity for the human brain to do it unaided, as if it were a
pure or black art, and there is not enough structure and too many first and second order
interactions to specify a fully automatable optimization routine. Hence we propose a
combined approach. Ultimately it is likely that artificial intelligence will be able to play a
connecting role between the human and the algorithmic inputs in this problem area. We
specify below the foundational framework and approach to integrated supply chain design,
comprehensively including explicit uncertainty considerations that are ‘end-to-end’.
Step 1 is to specify the business strategy and market positioning, customer profile and
prioritised performance goals. This also assumes a known product/service design offering
(see Figure 5). Step 2 is to generate options for connecting the supply chain components,
including the physical locations and flows of materials, information and money, and to
consider the business model that underpins that supply chain, for each option. For example,
there might be three shortlisted options for locating a factory, and transport options might
be by truck, rail, sea or airfreight. There are choices about storage of inventory, such as
how much and where, and these will be impactful on outcomes such as cost and service
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levels (see Figure 5). Step 3 is to construct a Monte Carlo simulation model and to specify
the main sources of uncertainty as part of that. To begin with, a base case can be built
assuming deterministic parameters, followed by relaxation of this assumption to take into
account the key sources of uncertainty. Step 4 is to iterate the evaluation using the Monte
Carlo model with fine-tuning and further option generation of the many and various supply
chain components (Figures 3 through 5), until a solution is designed and evaluated that is
considered to be the best one available. This might take much iteration in a complex supply
chain design instance. Such a ‘decision aided’ process has the potential to substantially
improve on purely intuitive approaches to supply chain integration and explicit uncertainty
consideration.
Case study: applying the comprehensive supply chain design approach to a complex
choice process
In the Australian beef industry, a group of growers was dissatisfied with the arrangements
with the local abattoir, and decided to investigate exporting their premium quality product
to Chinese high-end markets, or else to use another local or overseas processor. This would
be a potentially greenfield supply chain. After conducting market research, they faced the
task of designing the supply chain. The market research gave them the confidence that the
exports would command premium prices, if a supply chain could efficiently provide
delivery to those markets of their premium quality beef cuts. Major decision parameters,
see Figure 5, were the market and business strategy, followed by the core supply chain
decisions regarding assets and sizing the market and supply response, and deciding where
to do the processing and storage. This included choices of whether to do all the processing
near the farms, near the Chinese markets, or to split them and do some processing in
Australia, with bulk carcasses or ‘quartered’ product being sent to China for final
processing and packaging. Chilled or frozen beef supply chains were possible. These
choices would have major influences on quality, cost, service and inventory levels and, in
turn, facility location. Demand uncertainty was high, as was the achievement of high levels
of quality, responsiveness, and supply chain and transport reliability, particularly if low
cost Chinese processing was to be preferred to higher cost processing in Australia.
Choices of where to do what level of processing relate to service levels for clients, and
immediately raises the issue of inventory, meaning where it should be stored and what
levels will be required to achieve reliable supply. The intended market was for high-end
hotel chains, restaurants and elite supermarkets, hence supply reliability was a critical order
winner, as was quality. It was also considered that a ‘direct to consumer’ channel could be
valuably created using one of many options for solving the ‘last mile’ challenge in Chinese
cities. After extensive consideration of alternatives and qualitative evaluation of many
alternatives, and risk factors, an initial shortlist of five alternatives of capacity, facility
location, transport, distribution and inventory options was created, as was a list of the
uncertainties in performance, demand, supply reliability, quality and cost associated with
each one of those. A deterministic model was first created and validated. This was done
with the human decision makers conducting both qualitative discussions, analyses and
iterating with spreadsheet analyses which used point estimates only. Initially, risk analysis
was not used in early screening processes.
Probabilities were assessed for these sources of uncertainty under each major scenario.
Choices of process and technology were then considered, being to use chilled versus frozen
295
beef transport and logistics, and to ship all product, versus air-freighting some high value
beef cuts. Relevant elements of uncertainty were cost, quality and lead times, for which
probability distributions were assessed, in the light of all relevant information that could be
gathered. Push versus pull systems were also considered, for example a finished goods
inventory in three major Chinese cities could be a pivot point that was the interface
between upstream push (into it), and downstream pull (from it to customers), yet this
design parameter interfaced the technology choice (frozen versus chilled), and the customer
volume requirements, and hence the capacity offered. There were other options of course,
for storage. Three supply chain designs were ultimately shortlisted, for full evaluation in a
Monte Carlo simulation environment.
In summary, these shortlisted ‘scenarios’ were:
Option 1: - full processing of the beef into finished product near the source in Australia,
and direct shipping to partner wholesalers in China for sale and distribution. For this
option, cost uncertainty was relatively low, product quality was able to be adequately
controlled (including important considerations of counterfeiting of the supplier’s branded
beef products), yet it was considered that counterfeit product risk (an element of quality)
was medium to high once the product got into or past the wholesale stages. Delivery
reliability, which is of high importance to high end hotel chains and retail outlets, was
assessed as potentially unreliable. An important point was that while cost uncertainty was
low, levels of cost were quite high, impacting quite significantly on profit margins. As is
possible with the iterative human- modelling approach proposed here, this option was
refined to become option 1A, whereby not all of the beef products would be exported, but
that the low value cuts of beef would remain in Australia for local retail markets, with the
premium (high price) cuts going to China. This refinement led the supply chain modelling
approach to effectively inform the whole of business strategy: the business model itself.
This set of refinement steps is a core strength of the ‘human to model’ interaction process,
with the use of the model providing insights from which the human judges and decision
makers can iterate to new and more innovative decision options.
Option 2: - This would involve early stage processing of the beef, such as ‘quartering’,
near the Australian farms, then transport of these to Chinese markets for further and final
processing and packaging, aiming principally for lower costs and higher responsiveness
levels than Options 1 and 1A. This option was fully evaluated, and costs were indeed lower,
yet a deterministic analysis would not have identified with any precision the quality and
delivery risk factors of this option. Challenges with quality control in particular, with the
likely outsourcing of downstream processing posed a significant risk to the value of this
supply chain and business model, and indeed the brand. A key insight coming from this risk
analysis approach was to intensify the understanding of just how pervasively the supply
chain decisions were connected to marketing and whole of business strategy factors. This
was in addition to understanding the interactions between pure supply elements and risk
factors thereof. The trade-off of low cost levels and high responsiveness to market swings
against quality assurance factors came sharply into focus through the Monte Carlo approach
that required explicit assessment of these.
Option 3: - Fully (chilled) carcass shipment to destination processing facilities was the
lowest cost option, with almost no cost uncertainty also, but with least flexibility, and even
higher quality risks than option 2. However, this supply chain was also found to be the least
profitable one, because some cuts of beef are very lowly priced in China, while others are
296
highly priced, so while the low cost outcomes were reasonably expected, as per the model
outcomes, the business outcomes were not effective, and the risks were high. It was highly
instructive to translate the supply chain outcomes from the combined human- model
process into the business model outcomes as in Figure 2.
Extremely useful insights were created through this process that influenced the real
world decisions: option 1A was chosen although it was of highest expected cost, because it
was also of lowest uncertainty. A low uncertainty approach, still bringing solid profit
margins was preferred to other potentially higher margin options, which would incorporate
significantly higher uncertainty levels, and indeed be high in their levels of uncontrollable
factors. Moreover, it became apparent that if a largely deterministic approach had been
taken, a different option would likely have been chosen, and that the riskiness of the chosen
option would have been under accounted for. This in itself fully justifies the approach of
explicitly taking a probabilistic approach, and of applying this methodology to an end-to-
end design evaluation.
In summary, the Monte Carlo analysis was used to combine the design variables and the
probabilistic assessments, and these were able to combine the shortlisted designs, and
separately create input and then output probability distributions for cost, quality and
delivery performance. From the first cut of such analyses, it was then possible to iteratively
fine tune the design parameters, and check the sensitivity of the output distributions to input
choices and to changes in the assessed uncertain quantities. Further elements were also
considered as in Figure 5, such as the ‘last mile’ distribution issue and the indirect/ support
elements within Figure 5. The iterative process and the probabilistic Monte Carlo models
provided many benefits to the supply chain designers/owners, particularly coming from the
explicit consideration of interactive effects of the various supply chain elements, and the
explicit assessment of sources of uncertainty using probabilities. Without such an approach,
uncertainties are usually under-accounted for, or risk is separately considered as a purely
operational matter (for example supply chain disruption risk only), rather than as a strategic
design input. This approach allowed the supply chain design process to fully consider the
full gamut of possible outcomes, limited only by the quality of the inputs and assessments.
It fully integrated the risk and performance aspects of supply. This approach was
considered to have effectively integrated human elements of judgement and decision
making, with the power of the risk analysis approach. It was considered likely that if the
combined human judgement and risk analysis approach had not been applied, that a
different option would likely have been chosen, that may well have under-accounted for the
riskiness of some options. The case study illustrates the practicality and decision making
power of how a risk analysis approach can support human judgement to effectively
combine performance and risk aspects of supply chain design.
Conclusions
This study has focused on current literature surrounding supply chain design and modelling
with a view to outline and explain the complex and multifaceted decision elements that
need to be taken into consideration when designing a complex supply chain, particularly
when the full spectrum of sources of uncertainty are explicitly included. The techniques for
best integrating risk and performance aspects of operations and supply chain are of decision
and (Monte Carlo) risk analysis, which are justifiably the most useful approach for fully
taking into account the whole range of probabilistic outcomes of all relevant sources of
297
uncertainty. Decision science techniques including decision trees and Monte Carlo
simulations have more usually been applied in the past to single issue decisions or
strategies, often with great effect. This approach overcomes the oft-used separation of risk
considerations and performance management. It is possible and useful to consider the
whole supply chain design in this context, by combining human intellect and risk
consideration with the computing power of the Monte Carlo approach. Through
acknowledging the many categories of decision variables associated with any supply chain,
we can then provide a sensible sequence of how those decisions can be framed and
connected, and specify the uncertainty factors as in the probability distributions within the
Monte Carlo model. Through changing a subset of the decision variables and adjusting the
probability distributions as needed to reflect these changes in decision variables, the supply
chain manager can see quite precisely how the choices made in supply chain design impact
on the whole probability distribution of the key outcome variables. This is an effective way
to integrate risk and performance management in this domain of supply chains designs. The
case study reported in this study showed the decision-makers the value of this approach,
which was two-fold: integration of decisions was achieved through considering whole of
supply chain designs as alternative decision options, and a fully probabilistic (risk analysis
approach) provided for the complete integration of considerations of riskiness and
performance of those alternative options.
Further Research
The conceptual effectiveness of using the decision analysis approach to supply chain design
and the Monte Carlo simulation technique in particular has been developed and illustrated
within the present study. While the approach and model is demonstrably powerful and
useful in tackling the complexities of supply chain design, many refinements are warranted.
Further work can involve building templates for the Monte Carlo approach that can be
developed for various scenarios, then tested and validated for their effectiveness and
robustness. Probability distributions can be validated using real world data. The impacts of
interactions between various decision parameters in various supply chain types and
configurations should be developed. Similarly, the correlations between sources of
uncertainty deserve further research. Empirical research is warranted on the effectiveness of
using decision and risk analysis models, via deep case studies and then larger studies of
applications, across numerous supply chain types. Once this body of knowledge grows,
then practice will further develop, and both the research and knowledge, as well as the
professional practice of supply chain design and management will become more effective.
In addition, the relationship between supply chain designs and business strategies can be
further refined. Once a holistic approach to supply chain design is achieved that fully and
effectively accounts for decision interactions (as in Figure 5 and the beef case study),
combining human intellect and judgement with the model, then it can create refined options
that influence the whole business model. This approach takes much further the relationship
between marketing parameters and business strategies, that ultimately can be overlaid and
integrated with the supply chain options and sources of uncertainty, explicitly and
holistically.
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Caught when failing to meet environmental standards: The case of
the automotive industry
Rikki Smith1, Lincoln C. Wood2,3, Jason X. Wang4
1. Department of Marketing, University of Auckland Business School, Auckland, New Zealand

2. Department of Management, University of Otago, Dunedin, New Zealand
3. Logistics Research Cluster, Curtin University, Bentley, Western Australia, Australia
4. Department of Business Information Systems, Auckland University of Technology, Auckland, New Zealand
Abstract
This research documents that automotive firms’ failures to meet environmental standards are
associated with a statistically significant negative stock market reaction. The results are based
on a sample of 41 environmental standards failure announcements made from 1984 to 2016.
On the days of the announcements, there was a mean stock market reaction of -1.02%, with
61% of sample firms experiencing a negative reaction. There is no difference in stock reaction
for firms that fail to meet voluntary standards. If the firms offer compensation as a remedy for
the failure, this results in a more negative stock market reaction. While the impact of failures
has, in general, been associated with a more positive stock market reaction in more recent years,
events occurring following the Volkswagen Dieselgate event are associated with a more
negative stock market reaction.
1. Introduction
In an era where more consumers are becoming increasingly concerned about the environment,
businesses are finding ways to communicate their environmental performance to both
consumers and other firms. Commonly, this is achieved through advertising, where a firm
makes ‘green’ claims about their business, but also frequently through the more credible means
of gaining environmental certification, such as eco-labels. This has been a popular area of
research for many scholars, with topics of interest being whether eco-labels increase demand
for products (Sammer & Wüstenhagen, 2006; Testa, Iraldo, Vaccari, & Ferrari, 2015), whether
they generate price premiums (Blomquist, Bartolino, & Waldo, 2015; Carlson & Palmer,
2016), the motivations behind adopting voluntary environmental standards (Prajogo, 2011;
Prajogo, Tang, & Lai, 2012), and their connection to sustainable supply chain management
(Darnall, Jolley, & Handfield, 2008; Iles, 2007).
However, much of this literature focusses around how firms can ‘do good’, and the benefits
they receive from doing so, rather than explicitly discussing how to ‘avoid bad’ outcomes (Lin-
Hi & Müller, 2013) and what influences the magnitude of these undesired outcomes. As such,
this study is more interested in investigating the implications of firm’s failing to meet the green
claims and environmental standards that they set for themselves and communicate to others.
Thus, discussions around greenwashing (e.g. Delmas & Burbano, 2011), and the symbolic
adoption of eco-certification (Aravind & Christmann, 2011; Christmann & Taylor, 2006), are
of relevance. Along with voluntary standards, regulatory environmental standards can also be
failed, and in doing so, firms bring attention to their bad environmental performance, as all
firms are assumed to be in compliance with such standards. For example, Volkswagen (VW)
used illegal means to hide the fact that their vehicles did not meet emission levels required by
the Clean Air Act; this September 2015 event has been dubbed ‘Dieselgate’ (Nunes & Park,
2016). VW gained much negative media coverage over the incident and lost millions of dollars.
This study aims to empirically investigate how the stock market reacts to such publicised
failures of environmental standards, like that in Dieselgate. Using an event study methodology,
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with a sample of 41 negative environmental events in the automotive industry, we will calculate
the abnormal returns of the firms involved on the days the announcements were made. As
Laplante and Lanoie (1994) state, it is a common notion that the reductions in stock prices have
some deterrence effect on firms. Thus, in the event that there is a negative effect, it would
provide a good deterrent to firms to avoid failing such standards and an incentive to ensure that
they meet or even exceed the environmental standards required of them, and that they hold
themselves to. Few similar studies have tested the effect of negative environmental events on
firms stock prices, and of those, the results have been mixed (Jones & Rubin, 2001). This study
hopes to provide evidence to support the theory that a firm is financially harmed when it fails
environmental standards.
This research is important as while the VW case was significant, it is questionable whether
this was a ‘one-off’ or whether firms are able to undertake similar schemes with impunity. The
theory is clear that this type of event is undesirable but there is little empirical evidence of this.
Therefore, we seek to add empirical evidence to the debate and determine whether such
situations are detrimental to shareholder wealth and what circumstances alter or modify that
impact. The research therefore supplements existing research that shows that the impact of
Dieselgate spread to other U.S. automotive firms (Nunes & Park, 2016).
The rest of this report is structured as follows. Section 2 provides an extensive literature
review around eco-labels and voluntary certification programmess and the issues and themes
commonly discussed in the literature. With reference to automotive sector specific literature,
hypotheses are developed. Section 3 then covers the methodology used, including the
collection of our sample, the evaluation of themes and the type of analysis used. The calculation
of abnormal returns is discussed in Section 4 and then Section 5 outlines the results of the
study, and explains the significance of the results. This is followed by a conclusion and
reflection on future research opportunities in Section 6Error! Reference source not found..
2. Literature Summary
In this section, we undertake a literature review of the key concepts and the associated points
within the automotive section. As we progress, we develop the key hypotheses that we test in
subsequent sections.
2.1. Eco-labels and certification to influence consumers
Eco-labelling is designed to inform or signal consumers about certain characteristics and
environmental attributes of their products (Bratt, Hallstedt, Robèrt, Broman, & Oldmark, 2011;
de Boer, 2003; Delmas & Grant, 2014). From a firm’s perspective, eco-labels can communicate
the superior environmental performance of a product compared to non-labelled products,
differentiating the product and creating a competitive advantage (Bratt et al., 2011; Brécard,
Hlaimi, Lucas, Perraudeau, & Salladarré, 2009; de Boer, 2003). From a consumer’s
perspective, eco-labels enable access to information about a product’s environmental pedigree,
revealing the more sustainable players in the market (Brécard et al., 2009; de Boer, 2003;
Delmas & Grant, 2014; Harbaugh, Maxwell, & Roussillon, 2011).
Due to the increasing consumer awareness about environmental issues, firms adopt eco-
labels to capitalise on these trends and benefit from the increased demand for environmentally
friendly goods (Brécard et al., 2009; Delmas & Grant, 2014). This assumes that consumers will
prefer labelled products to non-labelled. There is evidence that eco-labels do have an influence
on consumers’ green consumption, and can guide consumer purchasing decisions(Horne, 2009;
Sammer & Wüstenhagen, 2006; Testa et al., 2015). Likewise, Bratt et al. (2011),
acknowledged the potential of eco-labels to steer both consumers and producers in a more
sustainable direction. As labels make it easier to decipher which products are more sustainable,
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consumers have the ability to “buycott”, where they only choose goods that have been
produced sustainably or have been certified (Gulbrandsen, 2006). This green demand is
determined by intrinsic customer motivation, consumer preferences (i.e., for green products),
and customer constraints such as income and available information (Brécard et al., 2009).
However, eco-labels only have a significant influence on consumers green purchasing habits if
they are fully informed and understand the meaning of the label (Testa et al., 2015). However,
as labels get more confusing, consumers are willing to spend less time learning about them and
figuring out which are credible, and therefore do not make the effort to engage in green
consumption (Madurah, Reiners, & Wood, 2016; Young, Hwang, McDonald, & Oates, 2010).
The consumer trust of the lable is also crucial, with Darnall, Ji, and Vázquez-Brust (2016)
noting that credibility of the lable can be boosted through the use of third-party certification.
The use of multiple practices to build this credibility and provide assurance to the consumer
also builds trust in the governance of the eco-label (Castka & Corbett, 2014). Stronger
governance mechanisms are associated with wider adoption, indicating the practical
importance for firms and eco-labels to address governance issues (Castka & Corbett, 2016).
The most popular way to address these issues of consumer perception is considered to be
increasing customer awareness through more information and education about eco-
labels (Harbaugh et al., 2011; Madurah et al., 2016). Although as Grolleau et al. (2016) state,
more behavioural approaches should be used, such as making sustainability issues feel closer
to the consumer. To decrease customer confusion and fix the attitude-behaviour gap, Young et
al. (2010) suggest simple, single-issue labelling that makes it easy for consumers to identify
how a product performs on a certain environmental aspect. Horne (2009) criticizes simplicity
as a solution and found it does not ease inter-product comparisons and undermines label
efficacy. They found, however, that independence and stakeholder involvement are critical and
mandatory labels are more successful. Such solutions aim to reignite the role of eco-labels, and
ensure they enable consumers to make informed decisions and firms to reap the benefits of
sustainable operation.
2.2. Price premium
Despite the theory, the practical question of whether or not eco-labels generate a price premium
has been a dominant concern. Because eco-labelling can be quite a costly process, firms want
to be assured that investing in certification programmes will offset the costs of certification and
pay off for their business (Delmas & Grant, 2014). If price premiums exist for eco-labelled
products, it creates an incentive for producers to become certified and adopt sustainable
practices, promoting sustainability along the supply chain (Roheim, Asche, & Santos, 2011).
However, the literature has largely been divided on the existence of such premiums; while
there is evidence for price premiums (Blomquist et al., 2015; Roheim et al., 2011), others find
limited evidence (Carlson & Palmer, 2016). In the case of eco-labelled fish, they were only
found to be effective at the retailer level, suggesting that any profit margin made on sustainably
sourced fish does not actually make it back to the producer (Blomquist et al., 2015). Likewise,
it has been found that at the retailer level, stocking more eco-labelled products leads to the
retailer being perceived as more ethical, which in turn increased patronage (Bezençon &
Etemad-Sajadi, 2015).This questions the likelihood of price premiums being an incentive to
operate sustainably at the production level, as producers themselves may not actually be
benefited, as the benefits appear to stop at the retailer level (Blomquist et al., 2015). Carlson
and Palmer (2016) however, argue that while price premiums for eco-labelled products may
not be guaranteed to producers, there are other less tangible benefits that may justify the costs
of certification; such as environmental learning, increased governance, community
empowerment, and reputational benefits.
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2.3. Stock market reaction to certifications
The relationship between the positive benefits of certification and the stock market reaction
has been widely studied. In general, research indicates that the stock market reaction appears
to be more positive to ISO 9000 announcements than it is to ISO 14001 announcements, where
the results are more mixed.
In general, the relationships seem to indicate that certifications, such as ISO 9000 (quality
certification) appears to have a positive impact on operational performance as well as financial
performance of the firms (Castka & Corbett, 2016). Corbett et al. (2005) note that U.S. firms
experience a strong gain in performance relative to control groups three years following
certification. Similar results are reported by Pinar and Ozgur (Pinar & Ozgur, 2007) in the
Turkish market, noting that certification leads to higher means and less variance in financial
performance. Broadly, N & S report that certification relates to improved financial performance
of Spanish firms (Nicolau & Sellers, 2002); a later study by McGuire and Dilts (2008) indicates
that the impact is less clear-cut and suggests that the effect is stronger for smaller firms and
that firms announcing ISO9001:2000 implementation.
The implementation of ISO14001 has also been shown to improve firm performance. Treacy
(2015) found that firms that fully integrate the standard in their operations were able to improve
both financial and operational performance. The overall profitability of firms may improve
following certification, but Lee et al. (2017) find no evidence of operational performance
improvements. However, the findings from Cañón-de-francia and Garcés-ayerbe (2009) and
Paulraj and De Jong (2011) indicate that announcements of certification actually decreases the
short-term financial performance of the firms. Paulraj and De Jong posit that certification this
may be seen as providing parity rather than advantage in a competitive marketplace.
Internationalised firms and those that are more polluting have even further negative financial
performance on certification (Cañón-de-francia & Garcés-ayerbe, 2009).
2.4. Motivations (internal vs external)
There has often been a lack of consensus as to how and if such standards affect firm-level
performance. As identified by Prajogo (2011), a multitude of studies have presented conflicting
findings on how the ISO 9000 certification standard impacts a firm’s performance, and the
same can be said for other standards. Motives (Prajogo et al., 2012) and the quality of the
implementation (Aravind & Christmann, 2011) affects performance. Prajogo (2011) puts these
two factors together to determine how both motives and implementation of a standard affect
performance. A common theme among such studies that comes to light is the importance of
internal and external motives in explaining the adoption and implementation of a certification
standard and the performance outcomes (Prajogo, Castka, Yiu, Yeung, & Lai, 2016; Prajogo
et al., 2012; Prajogo, 2011).
Internal motives tend to revolve around establishing internal capabilities and resources
through the use of the certification standards (Prajogo et al., 2012). Firms who are internally
motivated often are interested in meeting the triple bottom line, and are looking to use
certification programmes such as ISO 14001 as a strategic tool in improving their
environmental performance, their operational efficiency, and synergising their management
systems (Prajogo et al., 2012). The goal of such firms is to achieve high quality outcomes,
rather than attaining the certification itself (Prajogo, 2011). Firms may also experience positive
benefits from green production (Ergün, Uludağ-Demirer, & Kasap, 2013).
Externally motivated firms however take a different approach. External motives are the
social and environmental forces that a firm responds to by becoming certified; these can be
coercive (stakeholder pressure), mimetic (imitating competitors), or normative (certification as
necessary in a market) (Prajogo, 2011; Prajogo et al., 2012). Although external pressures force
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compliance with certification standards, they do not always ensure that they are fully
implemented and integrated within the business (Aravind & Christmann, 2011; Castka &
Prajogo, 2013; Prajogo et al., 2016), as the goal of such firms is merely to receive the
certification itself in response to stakeholder demand (Prajogo, 2011). This is evident in the
many firms that become certified but do not improve their environmental performance (Froese
& Proelss, 2012; Hadjimichael & Hegland, 2016; Prajogo et al., 2016).
Only firms with internal motives for certification gain all environmental, social and
economic benefits, and are satisfied with the certification (Prajogo et al., 2016; Prajogo, 2011,
2011). In contrast, externally motivated firms are likely to be unsatisfied with the certification,
and gain less benefit. Aravind and Christmann (2011) found evidence that firms that
implement their certification standards to a low quality had no more environmental benefits
than uncertified firms. This suggests that to gain the full benefits from certification, an
internally focused approach is required, rather than simply trying to satisfy external stakeholder
demand.
2.5. Fuel economy standards in the automotive sector
Little research has been done in regard to how firms are affected if they fail to meet the
environmental standards that they claim to have, or that are required by law. In this respect,
little research has been undertaken on ‘avoiding bad’ in corporate social responsibility and
surrounding areas, with most research focusing on ‘doing good’ and the associated
benefits (Lin-Hi & Müller, 2013). However, Downing and Kimball (1982) noted that it was
rare for violations of pollution control laws, such as emissions standards, to result in court
action. Many violations are resolved non-judicially, which is evident in the number of
voluntary or forced recalls undertaken when auto manufacturers fail to meet emission
standards, as the EPA have the authority to require a manufacturer to issue a recall of vehicles
that do not conform to regulations (US EPA, 2016b). Many firms undertake voluntary recalls
at the request of the EPA however, as the negative publicity that occurs from refusing such a
request is substantial enough to ensure compliance (Jackson & Morgan, 1988). In support of
this, Levy and Levenson reported that at least 75% of vehicles repaired under EPA guidance
are recalled voluntarily, and only 25% of recalls were EPA-ordered (as cited in Jackson &
Morgan, 1988). Some research has been done on the effect of product recalls in the automotive
industry (Rhee & Haunschild, 2006; Rupp, 2001); with Rhee and Haunschild (2006) finding
that more reputable firms suffer from more market penalties, and Barber and Darrough (1996)
finding that recalls negatively affect a firm’s shareholder value. However, such studies do not
focus solely on sustainability or environmental issues or recalls due exclusively to emission
faults. Hence, there is a gap in the literature around such matters.
A deterioration in reputation is not the only challenge facing a firm from failing to fulfil the
claims on an eco-label. Some of the firms identified to be performing below certification
standards, were subsequently de-certified or had their certifications suspended until they
improved their performance (Christian et al., 2013; Froese & Proelss, 2012; Gutierrez et al.,
2012). Loss of certification has further disadvantages and can cause firms to be excluded from
vital markets that only trade with certified firms (Lallemand, Bergh, Hansen, & Purves, 2016);
retaining certification is therefore critical for holding market position. As access to markets is
a main motivator for getting certified (Hadjimichael & Hegland, 2016), this should provide
incentives to firms to avoid failing to meet standards.
2.6. Hypotheses
We develop the hypotheses, based on the review of the literature.
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2.6.1. The stock market reaction to a failure announcement
The automotive industry has one of the largest impacts on the environment and therefore plays
an important role in the sustainable development of society and the reducing of
emissions (Günther, Kannegiesser, & Autenrieb, 2015; Koplin, Seuring, & Mesterharm, 2007).
Much of the literature around sustainability and the automobile industry looks at the effects of
regulation and manufacturers’ ability to meet them. Gerard and Lave (2005) examine how
government regulations and policies, such as the 1977 Clean Air Act (CAA), can force car
manufacturers to conduct sustainable innovation and adopt more sustainable technologies.
They found that these technology driving policies and institutions like the Environmental
Protection Agency (EPA), were pressures that indisputably lead to significant technological
advances and environmental improvements. This supports the argument that regulatory
pressures are among those external forces that influence firms’ adoption of more sustainable
practices (Hall, 2000; Seuring & Müller, 2008).
As a part of the CAA emissions certification programme, every passenger car or light truck
sold in the U.S. has a government fuel economy rating sticker aimed at providing consumers
with reliable information they can use to compare vehicles (Greene et al., 2017). However,
these ratings can differ greatly from the estimated amount and in reality cars have a much lower
fuel economy (Greene, Goeltz, Hopson, & Tworek, 2006; Greene et al., 2017; Mintz, Vyas, &
Conley, 1993), with Schipper and Tax (1994) saying that automobile fuel economy tests
understate fuel use by 15-25%. Greene et al. (2006; 2017) find this estimation gap particularly
large for hybrid vehicles, which is concerning considering the advertising for hybrids is built
around them being more sustainable and economical. Wernle and Nelson (2014), iterate this in
regards to Ford having to lower their fuel economy ratings for a number of their hybrid vehicles
and how such actions undercut their advertising, which revolves around fuel economy.
Similarly to the way the collective reputation of an eco-label or certification body can be
harmed when a single firm fails it (Hamilton & Zilberman, 2006), the variation in
estimates, “reduces the value of fuel economy information by diminishing confidence in the
accuracy of the fuel economy ratings” (Greene et al., 2017, p. 158). As such, it is acknowledged
that although fuel economy tests are useful for indicating the relative difference in efficiency
of new cars, the tests themselves are a poor measure of actual fuel usage (Schipper & Tax,
1994). This is due to a number of factors such as driver behavior, the testing formulae
underrepresenting real life driving situations, and test values not actually representing the cars
sold, i.e., through optimisation of the tested vehicle (Schipper & Tax, 1994). The last point
raises a matter of interest; do car manufacturers knowingly manipulate emissions tests to get
favourable ratings? Or are the variations purely down to reasons beyond the manufacturers’
control, such as how people drive the car? Shiau, Michalek, and Hendrickson (2009) identified
that when fuel economy standards, namely Corporate Average Fuel Economy (CAFE)
standards, get too high, automakers no longer adhere to the standards when designing vehicles,
but violate them and pass the costs of the CAFE penalty along to the consumer. They found
that the likelihood of violation depends on the penalty for the violation, thus to prevent these
from occurring, the penalties need to increase along with the environmental standards. This can
be explained by Wu who states, “environmental violations can be well explained by standard
economic theory: a firm will choose to violate an environmental standard if the expected
penalty for the violation is smaller than the expected cost of compliance” (2009, p. 3364).
However, not only can automakers violate economy estimates, but it is often found that they
have also misreported their emission levels. The most significant example has been dubbed
Dieselgate, where VW was publicly vilified when it was discovered their vehicles were not
only emitting far more toxic fumes than legally allowed, but that they were aware of it and
covering it up (Nunes & Park, 2016; Siano, Vollero, Conte, & Amabile, 2017). Earlier, both
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Honda and Ford were also involved in a similar implication when they were fined by the U.S.
government for tampering with emission control devices that caused emissions to increase
beyond regulated levels (Mokhiber, 1998). Their actions, and the failure to report them, led to
a violation of the CAA, and resulted in million dollar civil penalties. The issue of fraudulent
emission reporting is thus evident in the automotive industry. Journalists Hakim and Bradsher
(2015) also noted this after Dieselgate, highlighting that automakers in the U.S. conduct their
own emissions tests, and in Europe automakers hire private companies to conduct them;
questioning the wisdom of allowing automakers such sway in how air pollution standards are
enforced. They also bring to light that these private testing companies can find ways to obtain
the lowest possible emissions levels, and may do so to secure contracts with the carmaker.
Given the economic consequences of this type of event, plus existing studies showing that
there is a ‘spillover’ from Dieselgate, we hypothesise that:
HYPOTHESIS 1. The announcements of failures to meet environmental standards will have a
2.6.2. Failing to meet voluntary standards

Firms have been publicly recognised for failing to meet voluntarily self-imposed standards or
having their actual environmental performance be below that of the certification standard. Two
main groups stood out. These groupings are not specific to the automotive industry. 
The first group is firms that are environmentally certified such as with an eco-label, and/or
claim that their environmental performance is superior to other firms. This could be defined by
what Kirchhoff (2000) explains as voluntary over-compliance; firms that voluntarily operate
at a level above the legal environmental standards (or at least claim they do). These firms are
then held to higher environmental standards than other industry operators. As such, when it is
found that their actual performance is below these standards, they are displayed and vilified in
the media. Included in this category are ‘greenwashers’, those firms that may or may not be
eco-labelled, but promote themselves as sustainable or green when their performance or
products are not as environmental as they say they are (Delmas & Burbano, 2011). They have
therefore also made the claim that they are operating at a higher environmental standard than
regular firms, and as such when their actual operations do not reflect these claims, they are
publicly sanctioned. An example of a case from this category, is the event in which a consumer
report found that two Ford hybrid vehicles fell short of their fuel economy claims (Harlin,
2012). As such, the company had miss-reported the efficiency of their vehicles and in reality
they were not as environmentally friendly as they were claiming.  
The second group are firms that do not claim to be environmentally superior, through
certification or other means, but are found to have failed environmental standards that they are
assumed to have been meeting i.e. legal environmental requirements. Such firms are held to a
higher standard than their actions actually are. In trying to explain why some firms violated
environmental standards when others over comply, Wu (2009), found that costs and risks of
implementing sustainable practices, along with market forces, facility characteristics, and
managerial values all contributed to why a firm would decide to violate environmental
regulations. When a firm’s environmental performance is below that of even the legal
minimum requirements, they’re likely to be held accountable in the media, and are subject to
more legal repercussions. For instance, in America (and similarly in many other countries) all
vehicle and engine emissions are required by the CAA to meet certain pollution standards, and
all new vehicles are required by CAFE to meet certain fuel economy standards. These standards
are enforced by either the EPA or the National Highway Traffic Safety Administration
(NHTSA) (Shiau et al., 2009). All new vehicles and engines are also required to have EPA-
311
issued certificates of conformity and emissions labels (US EPA, 2017). The EPA may seek
civil penalties for violations of the CAA, which can be taken through the courts, and violators
can be subject to fines of up to US$37,500 per noncompliant vehicle or per day for violations
in reporting, as well as fines of up to US$3,750 per tampering event or per sale of a defect
device (US EPA, 2016a). The NHTSA also issues fines for violations of CAFE standards,
which have been set at US$55 per mpg per vehicle (Shiau et al., 2009). One example in this
group is DaimlerChrysler who were fined US$1m and ordered to spend a further US$95m on
improving their emission controls after the EPA and the California Air Resources Board
(CARB) found them to have violated the CAA through excess emissions. In this case,
consumers purchasing Chrysler vehicles would assume that the car met all necessary conditions
for it to be legal and road-worthy, where in reality the vehicles were emitting illegal levels of
toxic emissions. This is an illustration of how a company can be heavily punished for having
such disconnect between their assumed and their actual environmental performance, and the
extent of these fines shows the potential for financial harm to firms who fail legal
environmental requirements, and therefore why investors may have interest in such events.
The failure of a firm to reach a self-imposed standard, higher than the minimum, government
mandated level, can therefore be perceived as a loss of competitive advantage in the
marketplace. We hypothesise that failure to meet a stringent and self-imposed standard will be
treated more negatively by investors than the failure to meet required standards, and therefore:
HYPOTHESIS 2: The stock market reaction to announcements of failures to meet voluntary

fuel standards will be more negative than failure to meet mandated standards.
2.6.3. The impact of a refund as remedy to the problem

However, a similar question as before must be asked. Are all car manufacturers purposely
trying to cheat the system, or is failure of environmental standards in some cases merely due
to an inadvertent oversight of the company? Just as cases like Mitsubishi and VW illustrate the
unethical practices of automotive firms when it comes to emission standards, other firms can
also fail these standards and face the same repercussions, yet do so with no wrongful intent.
For instance, Kia Motors Corp. were ordered by the CARB to recall over six thousand vehicles
and make an estimated US$451,000 in repairs due to the firm falling short of state emission
standards (DJNS, 1999). Kia then voluntarily extended the recall to over 32 thousand vehicles
to repair the defective part in the emissions system that was leading to excessive pollution; a
move that cost them an estimated US$1.7 million. In such cases where the failure occurred due
to mechanical defect rather than any deliberate intent, firms have the ability to protect their
corporate reputation with voluntary recalls and by being proactive to avoid negative publicity
(Jackson & Morgan, 1988). Thus, how firms respond to accusations that they have failed
environmental standards, whether deliberately or not, is also of interest. In the likes of
Mitsubishi and VW, some firms admit that they have violated regulations and settle any
accusations or lawsuits without argument. Others deny the allegations but still settle, as in the
case of Nissan who was accused of manipulating emission tests by the Korean government and
ordered to recall certain vehicles and pay a US$280,000 fine (DJIN, 2016). Nissan denied the
accusation but in the wake of Dieselgate, agreed to recall the vehicles (although later sued the
government and won). Yet other firms deny accusations and fight any legal action against them
until a conclusion, positive or negative is reached. In this category is the likes of SsangYong
Motor Company, who refrained from taking any action to compensate customers after
overstating fuel efficiency until after the court verdict (Nam, 2014). Although a firm’s reaction
to such allegations does not prove their ethical or unethical behavior, it gives an indication of
their defensive nature or sensitivity to such issues. Past research has indicated that
312
compensation, as a remedy, is treated as a more expensive option than other remedies, and
leads to a more negative stock market reaction (Ni, Flynn, & Jacobs, 2014). Therefore, we
hypothesise:
HYPOTHESIS 3: The stock market reaction to offers of compensation will be more negative
than for other remedies.
2.6.4. The changing perception of the importance of meeting standards

Some automotive firms do take measures to internalise sustainability into their practices and
there are examples of implementation of sustainable strategies in
the automotive industry. Sukitsch et al. (2015) evaluates the implementation of sustainable
strategies and practices in automobile companies through looking at their sustainability reports.
They note that the automotive industry is aware of the significance of corporate sustainability
activities, yet the majority of implementation appears to be defensive rather than proactive. As
such, it is argued that some firms like Ford have successfully overcome allegations of
greenwashing and become celebrated for their green practices (Mitchell & Harrison,
2012). This trend has been increasing over time and influences firms’ internal practices.
Furthermore, firms can demand suppliers adopt more environmentally friendly practices,
pushing environmental concern up the supply chain in the automotive sector (González, Sarkis,
& Adenso‐Díaz, 2008; Vanalle, Lucato, & Santos, 2011) and in other sectors (Rogers, 2016;
Wang, Petkova, & Wood, 2014; Wang & Wood, 2016). Gunther et al. (2015) highlight the
importance of looking at the end-to-end supply chain process as well as reverse supply chain
activities, and Koplin et al. (2007) emphasise the importance of adding environmental
standards into purchasing processes. They also acknowledge that the consumer facing firm can
often get blamed for environmental failures at any point along the supply chain,
which “represents a significant risk to a company's public reputation and its attractiveness on
the sales market, because it has to take the responsibility for its suppliers in front of the media
and critical non-governmental organisations (NGOs)” (Koplin et al., 2007, p. 1053). This point
alludes to the fiscal and other risks of failing environmental standards, and provides some
reasoning as to why firms have invested in greening their entire supply chain.
Given the significant growth in firms’ awareness coupled with the strong consumer
awareness of environmental issues, firms have increasingly worked to capitalise on the
trend (Brécard et al., 2009; Delmas & Grant, 2014). Therefore, with the passage of time, we
hypothesise that:
HYPOTHESIS 4: The stock market reaction to recent announcements of failures to meet

environmental standards will be less negative than for older announcements.
2.6.5. The change in reaction following Dieselgate

The influence of a large and recognised event, such as the Dieselgate, can have wider
ramifications on the business community. Mansouri (2016) identified the reasons behind
Dieselgate, examined the impact on VW stakeholders and how such an event should be dealt
with, and how it can be prevented from happening again. Klier and Linn (2016) state that
Dieselgate illustrates the tradeoff between controlling vehicle emissions under regulation and
improving vehicle performance to meet consumer demand. Cârstea (2016) faults the consumer
for wanting high performance cars despite the environmental impact these types of vehicles
have through excessive pollutants. This is possibly one of the reasons why VW may have acted
in such an unethical way in manipulating their vehicles emissions, as they made the decision
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to do so when the EPA released even tougher emission standards in 2005; engineers facing
pressures from upper management to meet the new standards, and working in such an
autocratic, performance based culture, may have perceived rigging the emissions system as the
only feasible solution (Mansouri, 2016). One of the largest consequences of the scandal was
the loss of consumer confidence in car manufacturers that affected not only VW, but the entire
automotive industry (Cârstea, 2016).
Lack of consumer faith in VW caused loyal customers to switch brands and sales fell
dramatically (Mansouri, 2016). However, consumers were not the only stakeholders to drop
VW, shareholders also lost confidence and VW’s shares plunged, wiping billions of dollars in
value from the company (Mansouri, 2016). This illustrates how cheating environmental
standards can damage firms, and in an attempt to prevent such events from happening again,
discussions were sparked as to how to improve the gap between emissions testing and real
world observations, and both the U.S. and the E.U. regulators adjusted their approaches to fuel
economy (Klier & Linn, 2016). Following Dieselgate, further attention will likely be given to
firms that fail to meet standards, and we can expect a stronger stock market reaction. Therefore,
we hypothesise that:
HYPOTHESIS 5: The stock market reaction to announcements of failures to meet
environmental standards after Dieselgate will be more negative than other announcements.
3. Methodology
3.1. Sample Selection and Description
The sample in this study consists of announcements made about firms in the automotive
industry who have failed to meet their environmental commitments. Often these
announcements are made when the government, or some other party such as the EPA in the
U.S., discovers certain vehicles violate environmental standards, i.e., with excess emissions,
when a recall is announced due to emissions flaws, or when a firm has been found to have
overstated the efficiency/economy claims of their vehicles.
To generate our sample, we first undertook an initial search with preliminary keywords. As
we identified announcements, we developed a more comprehensive set of keywords. Through
an iterative process of identifying, evaluating, and adding commonly used keywords in such
announcements, a final set of keywords was created. The search terms used related to a
sequence of synonyms for “certification” for automotive firms (e.g., ecolabel* or certif* or
Clean Air Act) within five words of a synonym for misrepresentation (e.g., fals* or mislead*
or greenwash* or fraud* or unsustainab* or misrepresent*) were used to identify relevant
events, along with verbs located near the keywords to ensure the events were of interest to the
study; the broad set of keywords limits the possibility of missing any important
announcements. These keywords were then used to search for and download the full text of
announcements from the Dow Jones Institutional News, Global Newswire (U.S.) and The Wall
Street Journal (All sources) for the period 1980-01-01 to 2016-12-15.
This search resulted in over 17,000 articles. The articles were scanned for relevance to the
failure of environmental standards. Of those deemed relevant, the full text was scanned. All
articles not concerning environmental performance of automobile manufacturers were
excluded, along with multi-event announcements. For example, a firm announcing two
separate recalls, one due to an environmental failure and the other a safety issue, would be
excluded as the effect of the environmental failure could not be isolated. This process yielded
approximately 50 events. To ensure that the first announcement and therefore the true date of
the event was identified, more targeted searches were undertaken on each event, and only the
earliest announcement was retained in the database (Park, Park, & Zhang, 2003).
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The final event sample of 53 was gathered. In these additional specific searches, any
subsequent developments relating to the main event were also recorded as sub-events, as often
the ramifications and coverage of these events extended over months and even years, with each
development and subsequent article published having the potential to cause further damage to
the firm’s stock prices. The event and sub-event sample thus totals 136 with approximately 25
different automotive firms (although some belong to the same parent group).
Two additional checks were undertaken to determine whether there were other confounding
events and to ensure there were sufficient stock returns data, enabling the event to be considered
in further analysis. First, a confounding event check was undertaken on the event sample of 53
cases to ensure the event had an isolated effect on the firm’s stock price. The impact of an event
under study cannot be determined if any other financially relevant events have also occurred
during the event window (McWilliams & Siegel, 1997). Thus, a three day event window (the
date before and after the initial announcement) was analysed for each firm, and confounding
events, if any, were recorded and thus excluded. This process also accounted for the time-zone
differences. Second, the stock returns data available were checked and collected using
Datastream. In some instances, a firm was not yet publicly listed and so had to be excluded
from the analysis. After checking for and removing cases where there were confounding events
or no stock returns data, the final sample size was 41 events.
4. Estimating abnormal returns

To determine the stock market reaction to the failure of firms to meet environmental standards,
we used the event study methodology to calculate abnormal returns. This is a process for
evaluating the difference between the return on a given stock (related to the events in our
sample) relative to an appropriate benchmark. Careful selection of the benchmark enables a
control for several other factors that might explain changes in the stock returns. Therefore, after
controlling for these factors, the remaining unexplained variation is considered to be the
abnormal return that is then connected to other influences – in this case, the influence of the
events under study.
4.1. Estimation windows and time period when measuring abnormal returns
The normal return parameters were estimated through an ordinary least squares approach with
an estimation window of 200 trading days, separated from the event day by a 10-day isolation
period. This provided an estimation window of (-211, -11), and is similar to previous event
study research (Hendricks, Singhal, & Zhang, 2009).
4.2. Model for estimating abnormal returns
While there are many methods that may be used to calculate the abnormal returns, we opted to
use the commonly used market model. This is generally accepted to provide an effective
estimate of abnormal returns by relating the normal returns to the returns of market portfolio
(Brown & Warner, 1985; MacKinlay, 1997). Using the market model, the abnormal return ARit
for firm i on day t was estimated as:
𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − (𝛼̂𝑖 + 𝛽̂𝑖 𝑅𝑚𝑡 ) + 𝜀𝑖𝑡 (1)
where Rit is the return on the stock of firm i on day t. Rmt is the normal return calculated with
reference to the market portfolio of stocks on day t. 𝛼̂𝑖 and 𝛽̂𝑖 are market model parameters,
estimated using ordinary least squares.
Since the final sample firms are listed in different indices from six countries, local indices
are applied to estimate market movement for individual stocks, as suggested in the finance
literature for multi-country event studies (Campbell, Cowan, & Salotti, 2010; Corrado &
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Truong, 2008; Meric, Ratner, & Meric, 2008; Samitas, Kenourgios, & Zounis, 2008). The
selected local indices are presented in Table 1.
Table 1.
Local Market Index and proportion of each sample coming from each country
Country Local Index Sample % of sample
Germany CDAX_GERMANY 6 14.63%
France SBF_120_FRANCE 1 2.44%
Japan NIKKEI_225_JAPAN 9 21.95%
U. S. S&P_500 19 46.34%
Korea KOREA _SE 5 12.20%
U. K. FTSE_UK 1 2.44%
4.3. Hypothesis testing and cross-sectional analysis

We used cross-sectional regression to determine how the impact of the announcement was
related to the firm and characteristics of the failures in question (Kothari & Warner, 2007). We
used the following regression model:
𝑨𝒃𝑹𝒆𝒕𝒊 = 𝜷𝟎 + 𝜷𝟏 𝑹𝒆𝒄𝒂𝒍𝒍𝒊 + 𝜷𝟐 𝑭𝒊𝒓𝒎𝑺𝒊𝒛𝒆𝒊 + 𝜷𝟑 𝑽𝒐𝒍𝒖𝒏𝒕𝒂𝒓𝒚𝒊 + 𝜷𝟒 𝑪𝒐𝒎𝒑𝒆𝒏𝒔𝒂𝒕𝒊𝒐𝒏𝒊 (2)
+ 𝜷𝟓 𝑹𝒆𝒄𝒆𝒏𝒄𝒚𝒊 + 𝜷𝟔 𝑷𝒐𝒔𝒕𝑫𝒊𝒆𝒔𝒆𝒍𝒈𝒂𝒕𝒆𝒊 + 𝜺𝒊
, where ARi is the abnormal return for firm i in the given event period.
4.3.1. Variables to represent hypotheses
Whether the failure related to voluntarily high levels of performance was addressed with the
variable Voluntary. This was evaluated by examining the announcements to determine how
the event was described. The predicted sign of the coefficient was negative.
What compensation method, if any, was used by the firm (Compensation). This was
evaluated by classifying the remedy outlined by the firm. While there were several types, the
primary focus here was a classification of compensation offered vs other remedies. The
predicted sign of the coefficient was negative.
Whether the effects of more recent events were milder than older events (Recency). This
was evaluated by calculating the number of years from the start of the sample (1984) to the
year of the current event. Therefore, more recent events have a higher value. The predicted sign
of the coefficient was positive.
Events occurring following Dieselgate (PostDieselgate). This variable was calculated by
taking the date for Dieselgate and classifying whether the event occurred before or after the
date. The predicted sign of the coefficient was negative.
4.3.2. Control variables
Our first control variable relates to the size of the firm (FirmSize). We used the logarithm
transformation of the net sales or revenues of the firms involved in the event at the time the
announcement was made. This determines whether the size of the firm, as indicated by
revenues, has any effect on the abnormal returns. Larger firms have a greater ability to cover
costs associated with an adverse event (Jones & Rubin, 2001), and thus the size of the returns
may be influenced by the firm size.
316
Our second control variable relates to whether or not a recall was announced (Recall), which
tests if the involvement of a recall in an announcement affects the observed returns as there is
strong evidence that recalls have a negative impact on abnormal returns.
4.4. Model diagnostics for influential observations and homoscedasticity
An analysis of the influence of each observation indicated that no observation was greater than
three times the average hat-value, which is the point in a smaller sample where there would be
a concern that the observation was unduly influential (Fox, 2002). We also tested for skewness
in the data. In general, the departure from a normal distribution is generally accepted to have
minimal impact on results when using the market model to estimate daily stock returns (Brown
& Warner, 1985). Due to the small sample size, we used studentized Breusch-Pagan test
(Breusch & Pagan, 1979) and the results indicated a level of heteroscedasticity (12.186, df =
6, p-value = 0.05795). Therefore, we used robust standard errors in our analysis (White, 1982).
We used the Heteroscedasticity consistent (HC) estimator recommended by Cribari-Neto
(2004), as it provides robust performance with small samples and influential observations
(Kleiber, 2008).
5. Results and discussion

We found that on the day of an announcement about a failure to meet environmental standards
(Day 0), there is a mean negative abnormal return of -1.02%, which is statistically different
from zero at the 5% level with a two-tailed test (using the Boehmer et al. adjusted test statistic
(Boehmer, Masumeci, & Poulsen, 1991), the Corrado Rank test (Corrado & Zivney, 1992), and
the Patell Z test (Patell, 1976)). 61% of the firms experienced a negative return.
These results indicate that an announcement of an environmental failure does have a
negative financial impact on the firm involved, and firms that fail to meet their advertised or
assumed environmental performance have adverse stock market reactions. To further
understand what contributes to the abnormal returns found, explanatory variables were
regressed against the abnormal returns as the dependent variable. The results of this cross-
sectional regression analysis are presented in Table 2.
Table 2.
Results of hierarchical regression analysis (n=40; 1 case excluded due to missing data)
Independent Model 1 Model 2
Variable Coefficient Robust std Coefficient Robust std VIF
Error Error
Intercept 0.0597* 0.0367 0.0207 0.0434
Recall 0.0076 0.0079 0.0062 0.0141 2.54
FirmSize -0.0037** 0.0020 -0.0018 0.0019 1.51
Voluntary -0.0218 0.0248 2.99
Compensation -0.0548*** 0.0221 1.35
Recency 0.0014* 0.0011 4.21
PostDieselgate -0.0564** 0.0314 2.22
F 2.6 9.306
Significance .08775 .000
R2 .1232 .6285
Significant levels (one-tailed tests): * 10% level, ** 5% level, *** 1% level
The variance inflation factors (VIF) are all below 10.0, providing evidence of low
multicollinearity (Hair, Black, Babin, & Anderson, 2014). Model 1 includes the two control
variables (presence of a recall and the firm size). The variables used to test the hypotheses of
interest were added to generate model 2, which can be used to investigate whether they added
significantly to the abnormal returns. With an R2 of 12.32% in model 1, on their own, recalls
and firm size (revenues) were unable to explain any variance in the abnormal returns. However,
by adding further explanatory variables in Model 2, the R2 increased substantially to 62.85%,
317
indicating this model is accurate in explaining the variation in the abnormal returns observed
on Day 0 of an environmental failure announcement.
Model 2 provides some support for our hypothesised relationships. The hypothesis relating
to the voluntary standards is not significant. The remaining hypotheses are significant with
compensation statistically significant at the 1% level, the recency of the events is significant at
the 10% level, and the occurrence following Dieselgate is statistically significant at the 5%
level.
While we had predicted that failure to reach a voluntary standard would be more negative,
there is no evidence to support this. As predicted, the estimated coefficient relating to the
breach of a voluntary standards is negative but the robust standard error is large and therefore
we cannot say conclusively whether a difference exists when the standard breached has been
voluntarily set.
The estimated coefficient for the indicator variable that compensation was used as a remedy
is negative and statistically significant at the 1% level in a one-tailed test. This indicates that
there is an additional penalty on the firm if they elect to use compensation of customers. A key
implication of our results is that firms will pay a higher price if they use compensation. The
negative economic impact should encourage the firms to examine other options that may rectify
the situation without the adverse impacts.
While we predicted that the coefficient relating to the recency of the event would be positive,
the estimated coefficient was only marginally positive and significantly different from zero at
the 10% level in a one-tailed test. This indicates a very weak pattern whereby more recently
occurring events are less economically damaging to the firms. The coefficient is also of a
smaller magnitude than the others, indicating a weak and small effect.
In contrast, the estimated coefficient relating to events occurring post-Dieselgate was
negative, as predicted, and significantly different to zero at the 5% level in a one-tailed test.
This indicates that the added scrutiny on firms, their behaviours, and failures in the post-
Dieselgate economy has led to a sharper stock market reaction to failures. A key implication is
that managers should increasingly pay attention to the implications of failing to meet the
environmental standards in the contemporary era.
In the case of the control variables, the coefficients for firm size and the presence of recalls
are insignificantly different to zero. While the coefficient relating to recalls is insignificantly
different from zero, it is positive. This may indicate that a recall in conjunction with the
announced environmental failures is perceived as being marginally positive, perhaps indicating
that the firm is prepared to take more substantive action to remedy the problem.
The results (Table 3) indicate that while Dieselgate has ‘grabbed headlines’, this category
of failure is consistently considered ‘negative’ by the stock market. Therefore, while Dieselgate
resulted in a loss of stockholder wealth for VW (Mansouri, 2016), this category of event is also
negative for other automotive firms. Our results are broadly consistent with the findings of
Nunes and Park (2016), which documented that the impact of the Dieselgate was contagious to
other U.S. automotive sector firms (the competitors). Similarly, we find a temporal effect,
insofar as while Dieselgate increased immediate suspicion of the other firms, the negative
abnormal returns post-Dieselgate also increased in magnitude.
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Table 3. Results of the hypothesis testing
Hypothesis Predicted Result

direction
HYPOTHESIS 1. The announcements of failures to meet environmental
standards will have a negative stock market reaction. - -1.02%a
Not
HYPOTHESIS 2: - significant
HYPOTHESIS 3: The stock market reaction to offers of compensation will
be more negative than for other remedies. - -0.0548***
HYPOTHESIS 4: The stock market reaction to recent announcements of
failures to meet environmental standards will be less negative than for older + 0.0014*
announcements.
HYPOTHESIS 5: The stock market reaction to announcements of failures to
meet environmental standards after Dieselgate will be more negative than - -0.0564**
other announcements.
Significant levels (one-tailed tests): * 10% level, ** 5% level, *** 1% level
Significant levels (two-tailed test for the abnormal return): a 5% level
Our finding relating to the fuel standards is that identified breaches of fuel standards leads
to more negative abnormal returns. In some ways, this contrasts with the theoretical perspective
where we might expect substantive efforts made by the firms to reach voluntary targets to be
more significant. However, that theory relates to the underlying operational performance.
When we consider ‘fuel standards’ as an ‘order qualifier’ instead, the failure to attain this
standard is clearly strategically problematic for the companies involved as it may lead to direct
penalties or ‘removal from the market’; in contrast, failure to hit a voluntary target leaves them
‘in the market’.
4.1 Implications
Our results are firstly explained by the finding that when the firm is told to compensate
consumers for the failure in the announcement, the abnormal returns are more negative. This
suggests that when compensation is involved, investors perceive that the costs of the failure
will be greater to the firm. This finding is important for businesses to note, as it highlights the
fact that providing compensation may not be the best way to remedy an environmental failure
(financially, in any case). We recommend that perhaps other forms of compensation such as
extended warranties or free repairs may be a more viable option. However, if monetary
compensation is most practical, another suggestion could be to avoid mention of compensation
in the initial failure announcement, and instead notify consumers privately so as to not concern
shareholders.
Secondly, the significance of abnormal returns being more negative after the VW scandal
suggests that public scrutiny of automotive firms failing environmental standards have largely
increased after this event. Due to the large losses VW faced in the wake of cheating their
emissions tests (Mansouri, 2016), subsequent environmental violations saw shareholders react
with increased alarm at potentially similar disastrous losses. In a post-Dieselgate world,
automotive firms should therefore be increasingly concerned with maintaining their
environmental standards, and ensuring that they are meeting the required environmental
regulations. This increasingly negative impact of adverse events occurring post-Dieselgate
could be transferrable to other industries, and the negative impact on abnormal returns could
exist for other types of failures. Thus, after an industry experiences a major shock event, like
Dieselgate, investors could become increasingly sensitive to any similar reoccurrences, even if
they are not on the same scale. However, this phenomenon would require further research to
ascertain its existence.
319
Our findings overall suggest that firms are punished by the market when they are publicly
announced to have failed certain environmental standards. We hope that these findings serve
as a deterrent to those firms who try to get away with minimal compliance, those which benefit
from inflated environmental performance claims that differ from reality, and those who try to
evade the legal environmental requirements completely, as in the case of VW.
While these results are derived from the automotive sector, this is merely a context for the
study. Similar early studies in product harm literature also focused on automotive recalls
(Haunschild & Rhee, 2004; Rupp, 2001), and yet the results have been broadly similar for other
product recalls. As a result, we assume that the results would be generalizable to other sectors
as well. Some of the key results indicate that managers should take care following major events
and monitor to ensure that their own firms will not ‘fall foul’; our results indicate that investors
have become increasingly risk averse following the Dieselgate scandal in our sample, with
following cases experiencing a more severe stock market reaction. Similarly, if there is a major
event in another sector, the competitors should monitor their own performance following the
event as the implications will be treated more severely afterwards.
6. Conclusions
Based on our analysis of 41 announcements made by publicly traded automotive firms from
1984-2016, we have documented that the announcements are associated with a statistically
significant negative stock market reaction. Using a single-day event window, the mean stock
market reaction is -1.02% and the percent of cases experiencing a negative reaction is 61%.
We find that more recent announcements resulted in a less negative stock market reaction than
early announcements; however, a failure to meet fuel standards, the announcement occurring
after Dieselgate, and the offering of compensation as a remedy, are all associated with a more
These findings are important as they indicate that announcements about firms failing
environmental standards in the automotive industry, do have a negative impact on stock returns
on the day the announcements were made. This finding also warns firms of the risks of
advertising or marketing the environmental performance of their products without the
commitment to meet their claimed sustainability; while our results were not statistically
significant there is an indication that this may lead to a negative stock market reaction.
Shareholders thus appear to have an adverse reaction to such announcements, possibly in the
expectation that firms will subsequently incur large costs in remedying the publicised failure.
These results provide evidence that these failures are more closely monitored and can be more
significant following a bellwether event, such as VW’s Dieselgate scandal. Our results also
indicate that while the Dieselgate episode was a major event, this category of event is also
important and can result in a meaningful adverse stock market reaction.
We have identified five directions for future research. First, it could be valuable to examine
in more detail whether there are different drivers for the failures and examine whether the
abnormal return varies by these different drivers. Second, it would be useful to broaden the
research to other industry sectors and examine whether organisational or operational
characteristics of the announcing firms have an impact on the abnormal returns. Third, not all
firms in the sample experienced a negative stock market reaction to the announcement – the
development and testing of a range of hypotheses to explain this result may shed more light on
the market reaction. Fourth, the interaction between recalls and failures may require additional
exploration as our estimated coefficient for the use of recalls was positive although not
significantly different to zero. Fifth, our research examined the financial performance of the
firm in relation to failures to reach standards and therefore leaves aside the question of whether
a firm striving to reach more stringent voluntary standards will gain operational performance
320
benefits. Further analysis on similar samples might indicate whether these failures to maintain
voluntarily set standards have any impact on the operational characteristics of the firms
involved.
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The Use of Long Endurance Remotely Piloted Aircraft Systems to Transport
‘Medical Maggots’ to Provide Wound Care in Remote Communities
Abstract
Whilst there is a growing body of research which discusses the use of Remotely
Piloted Aircraft Systems (RPAS) (otherwise known as ‘drones’) to transport medical
supplies, almost all reported cases employ short range aircraft. This paper draws on
interviews with individuals who either have experience and expertise in the use of
Long Endurance RPAS or in the provision of healthcare to remote Aboriginal
communities in Western Australia to consider the advantages and challenges
inherent in their use to support the provision of medical supplies to remote locations
– specifically ‘medical maggots’ that are used in maggot debridement therapy wound
care.
Key Words
Remotely Piloted Aircraft Systems; Unmanned Aerial Vehicle; Unmanned Aerial

System; Drone; Maggot Debridement Therapy; Humanitarian Logistics
1. Introduction
The State of Western Australia (WA) is extremely sparsely populated with isolated
communities frequently located at some distance from the single North/South
highway. Thus, for example, the Federal Constituency of Durack (which covers much
of the North of the State) has an area of some 1,629,858 sq km – approximately the
area of France, Germany, Spain and Portugal combined (or the States of California,
Texas and Montana) – but has only just under 100,000 registered electors (AEC,
2016).
WA is also home to the third highest number of Aboriginal Australians, and of these,
41% live in remote areas (Shahid et al., 2016). Furthermore, Aboriginal Australians
living in rural and remote communities are far more likely to suffer from injury, skin
infections and chronic disease, than non-Aboriginal Australians (AIHW, 2014; 2016).
Thus, the timely and efficacious treatment of wounds presents an ongoing challenge
for which Maggot Debridement Therapy (MDT) is one potential solution.
MDT is the use of fly larvae for the treatment of problematic wounds that contain
dead tissue and/or are infected as a result of trauma or chronic inability to heal. MDT
was widely used in the 1930s and 40s, and in recent decades it has enjoyed a
revival as an efficacious therapy in modern clinical wound care (Kruglikova and
Chernysh, 2013). In particular, MDT is a highly attractive approach for austere and
remote community wound care because, as distinct from surgical debridement, it can
be performed by nurses, making it suitable for tele-medicine treatment. Likewise, in
the case of disasters where the patient burden is overwhelming, it can free up
physicians to treat more demanding injuries (Stadler et al., 2016).
However the application of MDT requires temperature controlled transport of medical

maggots between 6o and 25oC, and subsequent application to the wound within 48
hours of dispatch (Čičková et al., 2014). This is clearly challenging to achieve in a
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timely and cost-efficient manner in the case of remote communities that are poorly
serviced by conventional transport infrastructure.
In parallel, there have been considerable recent advances in the use of Remotely
Piloted Aircraft Systems (RPAS) (otherwise known as Unmanned Aerial Vehicles
(UAVs), Unmanned Aerial Systems (UAS), or ‘drones’) as a means of delivering
supplies in both a commercial and humanitarian context (Tatham et al., 2017). Whilst
much of the publicity has related to companies such as Amazon and Domino’s
(Amazon, 2016; Domino’s, 2016), a number of case studies relating to the
movement of medicines by RPAS have recently been published by Swiss Mine
Action (FSD). These reports are part of a two year project to determine if, how, and
under what circumstances RPAS can add value to humanitarian operations in
disaster areas (Soeliso et al., 2106).
Indeed, the delivery for time- and temperature-critical medical goods such as
medicines, blood, vaccines and pathology specimens is exemplified in a recent
report in which RPAS were used to deliver snake bite anti-venom and blood samples
to a remote region of Peru. This was achieved in 35 minutes, compared with the 6
hours that are normally required to access the remote community of Pampa
Hermosa (Mosur, 2016). Thus, in the context of remote area wound care it is highly
relevant to investigate whether Long Endurance RPAS (LE-RPAS) – aircraft with a
flight duration measured in hours rather than minutes – can also provide the
transport medium through which medical maggots can be supplied for MDT.
2. Aim
With this introduction in mind, the aim of this conceptual paper is to review the
benefits and challenges inherent in the use of LE-RPAS to transport medical
maggots for the treatment of wounds in remote communities.
In doing so, the paper will integrate three lines of investigation: Firstly, the benefits
and challenges relating to the use of MDT in disaster, development and remote area
medicine. Secondly, the potential for the operation of LE-RPAS (as distinct from
RPAS in general) in the provision of humanitarian aid. Thirdly, a qualitative case
study exploring the feasibility of using LE-RPAS to make emergency medical
deliveries to the Aboriginal community of Bidyadanga in the North West of WA.
To achieve the above aim, the next section will provide an overview of the use of
MDT, after which Section 4 will summarise the current status of RPAS. Section 5
contains a summary of the relevant literature, after which Section 6 draws on a
series of interviews to discuss the benefits and challenges of the use of RPAS as the
delivery mechanism for medicines in remote Western Australia. Section 7 migrates
the learning from the case study to the broader disaster response/development
context, before the final sections consider the steps that would be needed to
operationalise the use of RPAS to support MDT.
3. Maggot Debridement Therapy
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MDT (otherwise known as Larval Debridement Therapy) typically employs the larvae
of the green bottle fly Lucilia sericata to remove dead or dying tissue from a patient’s
wounds, thereby controlling infection and stimulating regeneration and wound
healing (Parnés and Lagan, 2007). Although MDT was very popular in the 1930s
and 40s, the convenience of modern antibiotics led to a post-second world war
decline, and subsequent demise, in its use. However, since the late 1980s the
situation has been changing with the United States, United Kingdom and Germany
leading the renaissance (Whitaker et al., 2007). This has resulted in maggot
production facilities being developed in various countries including the US, Europe,
Africa and Australia.
From a clinical perspective, there is clear evidence of the efficacy of MDT in the
treatment of wounds from a broad number of causes (Sherman et al., 2007) but, in
addition, MDT has a number of non-medical benefits as a treatment regime. In
particular, it can be applied and managed by nurses, thereby allowing surgeons and
physicians to focus on other tasks – a key consideration in the aftermath of a
disaster when the number of patients vastly exceeds the assistance that is available,
or when the distances are such as to limit the ability for doctors to visit their patients
on a regular basis (Stadler et al., 2016).
The maggots themselves are bred in sterile conditions and then transported in
sealed containers at a temperature that must be maintained between 6-25oC. Two
dressing technologies are used to retain maggots on the wound. In the first (also
referred to as ‘free-range’ application), the maggots are applied directly to the wound
and retained via a securely fastened netting (Steenvoorde et al., 2005). The
alternative is the application of medical maggots sealed inside porous mesh bags
that permit feeding but retain the maggots within, thus making the treatment more
convenient (Grassberger and Fleischmann, 2002). After use the maggots must be
disposed of in line with local environmental health/waste management and/or World
Health Organisation (WHO) guidelines.
It is a prerequisite for the use of MDT that the treatment is acceptable to patients on
emotional, cultural, social and religious grounds. In relation to the general
acceptability of MDT, research by Petherick et al. (2006) and Spilsbury et al. (2008)
indicates that there is no evidence of wide-spread patient resistance toward MDT.
Moreover, if there is a need for halal or kosher medical maggots there are production
methods that cater for such niche markets.
Finally, and importantly in the context of this research, trials undertaken by the
Walter Reed Army Institute of Research indicate that medical maggots are able to
withstand conditions found during military evacuation and transfer flights (Peck et al.,
2015), and thus there is no a priori reason why they should not be transported as
part of the payload of an RPAS mission.
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4. Remotely Piloted Aircraft Systems
Firstly, it should be noted that the use of the terminology ‘Remotely Piloted Aircraft
Systems’ (RPAS) reflects the nomenclature adopted by the International Civil
Aviation Authority (ICAO), and also emphasises the end-to-end nature of such a
system. RPAS is, therefore, preferred to alternatives such as ‘Unmanned Aerial
Vehicles’ (UAVs) or ‘Drones’ as these tend to focus on the flying vehicle rather than
the system as a whole. Thus, when referring to the aircraft (as distinct from the
overall system), the acronym RPA (or RPAs) will be used.
RPAs themselves range from small rotary wing platforms that cost around US$2,000
(DJI, 2016) to high end aeroplanes such as the USAF Global Hawk that is the size of
a small executive jet and has a unit cost of >US$130M (GAO, 2013). However, their
key feature is the ability to be flown by an operator who remains on the ground at a
distance from the aircraft itself. Although such RPAs can be operated with a payload
that includes video or still cameras, in the context of this research the core capability
is that of transporting a removable payload such as medicines (Mosur, 2016).
RPAs can employ either fixed or rotary wings (or a combination thereof), and be
powered by fuel or battery driven engines – as a result their endurance varies from
minutes to hours, with a summary of three exemplars shown in Table 1. However,
and as will be explained in greater detail in Section 6, this paper will review the
potential use of the class of platforms referred to as ‘Long Endurance RPAS’ (LE-
RPAS) which are typically able to fly for some 8-15 hours.
Rotary Wing RPA Fixed Wing RPA Hybrid RPA

Exemplar DJI Inspire Aerosonde Mk 7 Latitude HQ -160B
Endurance 15-30mins 10+hrs 15hrs

Cruising Speed 70-80kph (40-45kts) 90-110kph (50-60kts) 70kph (40kts)
Ceiling 4,500m (14,750ft) 4,500m (14,750ft) 4,268m (14,000ft)
Wingspan 0.559m (1.63ft) 3.6m (5.6ft) 3.81m (12.6ft)
Overall Length 0.559m (1.63ft) 1.7m (5.6ft) 2.44m (8ft)
Max gross take-off wt 4.6kg (10.14lb) 25kg (55lb) 43kg (95lb)
Max payload weight 1.7kg (3.74lb) 4.5kg (10lb) 5.44kg (12lb)
Launch Vertical Catapult or from roof of a Vertical
4*4 driving at an
appropriate speed
Landing Vertical Belly landing or catch net Vertical
Table 1. Hybrid, Rotary and Fixed Wing Exemplar RPAS
Sources:
Latitude: https://latitudeengineering.com/products/hq/
DJI: http://www.dji.com/inspire-1/info#specs
Aerosonde: http://www.uavglobal.com/aerosonde-mk-4-7/ and
http://www.textronsystems.com/what-we-do/unmanned-systems/aerosonde
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5. Literature Review
Given the potential benefits of using RPAS to transport medical maggots over long
distances where the terrain is unsuitable for regular road traffic, a review of the
literature was undertaken based on Kunz and Reiner’s (2012) methodology in which
the following databases were searched: ABI/INFORM Complete (ABI), Business
Source Complete (BSC) and Web of Science (W of S) for academic journals.
5.1 Use of RPAS in Disaster Response
The review was carried out in two phases, the first of which was focused on the use
of RPAS in a disaster response, and the second in respect their potential use in
support of medical activities. To simplify the analysis, these will be presented
separately, thus the first search used the keyword and Boolean operator string:
(“unmanned aerial vehicle” OR “UAV” OR “unmanned aerial system” OR

“UAS” OR “drone” OR “remotely piloted aircraft system” OR “RPAS”) AND
(“disaster response” OR “emergency response” OR “humanitarian logistics”)
in the time frame 2005-2016.
The starting point for the search timeframe was based on the first reported use of
RPAs in a humanitarian context which took place in the aftermath of the 2005
Hurricane Katrina (Tatham, 2009).
The results of this review (Table 2) were used to update an earlier review by Tatham
et al. (2017) which discussed the general operation of RPAS in support of the logistic
response to disasters. Each of these papers was examined and, notwithstanding the
search string, 41 were found to be not directly relevant.
Subject Area ABI BSC WofS Total
Technical operation of RPAS sensors and/or 5 1 12 18

communications systems
Use of micro/mini RPAS in disaster response 10 10
Ethics/control of RPAS operations 7 7
Use of drones for mapping 5 5
Development of ‘dextrous RPAS’ that incorporate 4 4
manipulation devices
Use of RPAS for post-disaster evaluation of 1 3 4
buildings and structures
Use of RPAS for environmental analysis 2 1 3
Use of macro RPAS in disaster response 3 3
Safety/risk management in RPAS operations 1 1
Use of RPAS for detection of fires 1 1
Use of RPAS for search and rescue 1 1
Not relevant 32 2 7 41
Total 48 6 44 98
Table 2. Analysis of the database search for ‘RPAS’ (etc) and ‘Disaster Response’
(etc)
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As will be seen from Table 2, a significant proportion of the literature is devoted to
the actual operation of the RPAS and their associated sensors. These consider
ways in which the RPAS capabilities could be improved through, for example, the
use of particular mathematical algorithms. However, given the focus of this research
into the ways in which LE-RPAS might support the transport of medical supplies at a
conceptual level, these papers are considered to be out of scope.
Unsurprisingly given the growth of micro/miniature RPAS, a significant element of

the literature is related to their operation. Examples include their use in a post-
earthquake response (Nedjati et al, 2016) and their potential application in a civil
engineering context (Liu et al., 2014). Whilst such research is clearly of importance,
they are again deemed to be outside the scope of this paper which focuses on the
use of Long Endurance RPAS to provide medical support to remote communities.
More relevant contributions were found within a number of papers which will be
considered in more detail. Firstly, the paper by Tatham (2009) was an early
contribution to the debate in which the author discusses the suitability of RPAS to
support the initial needs assessment in the aftermath of a rapid onset disaster, and
in which he argues that such systems do, indeed, have potential to support this
process. Whilst this paper did not specifically, include the use of RPAS as a
transport mechanism, arguably it represents the first discussion of their use in a
humanitarian logistic context.
Secondly, OCHA (2014) is one of a series of discussion papers that are designed “...
to serve as a basis for promoting discussion and policy analysis…” (inside cover).
The paper surveys the recent use of RPAS and its analysis suggests that: “One
promising area is delivery of vaccines or other small medical supplies…” (p. 8).
However, it goes on to note that “… the range limits on small UAVs (perhaps 40km)
would make them unviable where villages are too widely spaced like much of the
DRC [Democratic Republic of the Congo]” (p. 8).
This latter observation captures an important theme that emerges from the literature
in which, as far as the authors have been able to ascertain, discussion around the
use of RPAS in a humanitarian context generally, and in relation to their potential
use for the delivery of medical supplies, only considers small RPAs similar to the DJI
Inspire (the capabilities of which are summarised in Table 1). This perspective is
reinforced by the reports of Mendelow (2015) and Kuo (2016) who describe the
potential for the use of such small RPAS to transport medical supplies.
A more detailed example is was found in the final FSD report which describes a
project that took place in Papua New Guinea (PNG) in which Médecins Sans
Frontières (MSF) together with the commercial company ‘Matternet’ used multi-rotor
RPAs (similar to the DJI) to collect tuberculosis sputum samples and transfer them to
a central testing laboratory (Soeliso et al., 2016). Further details are contained in the
case study of this trial (FSD, 2016) but, in particular, it should be noted that the
distance of the furthest clinic was some 40km (25mi) from the base hospital.
However, given that the particular RPA being employed has a range of only 25km
(15mi) it was necessary to fly to an intermediate location and undertake a battery
swap on both the outbound and return legs.
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This was noted as a significant constraint and as a result, the report from this trial
recommended that “…platforms should be hybrid designs, automatic and very simple
to use with a range minimum of 60 km and a minimum payload capacity of 1 kg.”
(Soeliso et al., 2016, p. 37). On the positive side, the actual transit time by RPAS
(including battery exchange) was some 55 mins versus 4 hours by car – a journey
prone to delays due to bad weather and/or degradation of the roads (FSD, 2016).
The American Red Cross (2015) undertook a comprehensive review of the potential
of RPAS in a disaster response context. Their report concludes that: “Aerial drones
[RPAS] are one of the most promising and powerful new technologies to improve
disaster response and relief operations. … When a disaster occurs, drones may be
used to … deliver needed supplies and equipment … among many other potential
applications.” (p. 4). The report goes on to analyse previous cases where RPAS
have been used and, in particular, suggests (p.7) that one of appropriate tasks to be
‘Supply Delivery’, and the report suggests a number of ways in which RPAS could
provide such a capability in a medical context – with a particular emphasis on the
use of large payload RPAs.
The final important source is the website of the UAViators organisation

(www.uaviators.org). This supports a community of practitioners who are striving to
develop improved ways of using RPAS to support those affected by disasters. Not only does
this website contain a large number of case studies (including those found in Soeliso et al,
2016), but it also provides a set of Operational Guidelines (UAViators, 2016) which are
currently under consideration by the UN, IFRC and NGO communities, and which are
recommended for use by OCHA (2014).
A particularly important theme emerging from the literature is discussion of the

ethical operation of RPAS and the general implications of the restrictions imposed by
various national aviation authorities. Whilst multiple agencies are actively engaged
in developing regulations that provide a balance between concerns related to safety
and privacy versus the potential benefits of RPA operations, it is clear that the
current legislative environment severely restricts their use. As will be discussed
further in Section 7, this is a significant aspect that will need to be overcome if RPAS
are to become part of the normal mechanism for the provision of medical support to
remote communities.
A further key consideration is found in the discussion of the ethical aspects of the
use of RPAS which reflects their migration from their original role as a military
weapons (i.e. armed ‘drones’), and the resultant ethical issues surrounding their use.
This element of the challenge is summarised by Soesilo and Sandvik (2016) who
offer the results of recent research on the perceptions and applications of RPAS in a
humanitarian context.
This research consists of a survey of humanitarian organisations, donors, UN

agencies, national governments, private business and other respondents. Whilst the
response rate is not provided, the survey is reported to have elicited 194 inputs
during the period 15 Nov 2015–15 Jan 2016. The results of the research can be
summarised in the authors’ observation that: “A majority of survey respondents
[66%] expressed confidence that drones have the potential to strengthen
humanitarian work, and that drones can greatly enhance the speed and quality of
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localized needs assessments, while a significant minority [22%] viewed the use of
drones in humanitarian work unfavourably.” (Soesilo and Sandvik, 2016, p. 3).
Whilst the authors of this report fully acknowledge the limitations of their work (p. 4),
they nevertheless argue that it provides a baseline against which future trends can
be determined.
In particular (on the positive side), the survey respondents emphasised the ability of
RPAS to support various logistic processes including needs assessment and
material delivery; whilst on the negative side, the core concerns were related to their
association with military applications and their potential to increase the ‘distance’
between the beneficiaries and the aid workers. Survey respondents also underlined
the need for clear/improved guidance, whilst the development of a dedicated RPAS
service for humanitarian operations received considerable support (61%).
5.2 Use of RPAS in Medical Response
As indicated above, the second phase of the literature review focused on the
potential use of RPAS in a medical context and, again using Kunz and Reiner’s
(2012) methodology, the following databases were searched: ABI/INFORM
Complete (ABI), Business Source Complete (BSC) and Web of Science (W of S) for
Academic Journals using the following keyword and Boolean operator string:
(“unmanned aerial vehicle” OR “UAV” OR “unmanned aerial system” OR

“UAS” OR “drone” OR “remotely piloted aircraft system” OR “RPAS”) AND
(“medical”) in the time frame 2010-2016.
The time used for this element of the review reflected the relatively recent indications
of the use of RPAS for transport that emerged from the initial review (Section 5.2).
ABI BSC WofS Total
Total 195 11 24 230
Table 3. Reponses from the database search for ‘RPAS’ (etc) and ‘Medical’
In the case of the ABI data-base, notwithstanding the large number of papers
identified, in practice only one was relevant. Similarly, of the eleven papers returned
by the BSC search, only one discussed the issues at the core of this research. In
respect of the WofS search, it returned 24 papers, of which six were relevant, and all
of these will be summarised in the following paragraphs.
At the macro level, the paper by Schroeder and Meier (2016) discuss the whole area
of the potential impacts of automation in a humanitarian context. In particular, they
envisage a scenario in which trained medical workers identify the needs in remote
communities and arrange for the supply of appropriate medicines etc. by RPAS, with
commensurate savings of time and cost. This, as will be seen in Section 6, is
precisely the arrangements that have been studied in the field element of this
research.
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A similarly relatively strategic discussion is offered by Sachan (2016) who
summarises the current use of RPAS for the delivery of medicines etc., although the
author cautions that the movement of such materials must reflect their relative
fragility. This paper makes mention of a ‘proof-of-concept’ trial undertaken by the
United Nations Population Fund (UNPFA) in which contraceptives were delivered by
RPAS to a remote part of Ghana (UNPFA, 2016) using short range RPAs.
The paper by Haidari et al. (2016) reviewed the economic and operational value of
RPAS to transport vaccines in low and middle income countries. These authors used
a simulation model of the World Health Organisation’s immunisation programme in
Southern Mozambique. Whilst the actual RPAS on which the research was based
has not been specified, it was stated to be battery powered, with a range of 75km
and capable of carrying 1.5Li of vaccines. By implication, therefore, it is similar to
the DJI RPA described in Table 1. Based on their simulation, the authors indicate
that not only did the use of an RPAS (rather than the traditional multi-tiered land
transport system) improve the availability from 94% to 96%, but it also reduced the
cost/dose by 20%.
Thiels et al. (2015) address the potential use of RPAS to transport medical products,
including blood samples and derivatives to hospitals, mass casualty events and
offshore locations in the event of critical demand. The authors’ US-based research
provides a conceptual analysis of the associated benefits and challenges but,
although acknowledging the existence of LE-RPAS, it uses a short range multiple-
rotor RPA as the exemplar aircraft. The research concludes that “the use of UAVs
would be a viable mode for the transport of medical products in times of critical
shortage” (Thiels et al., 2015, p.108), and that the costs are likely to be significantly
lower than those of conventional medical transport. Importantly, these authors also
stress the need for appropriate packaging to minimise the risk of exposure and/or
tampering during transit.
5.3 Summary of the Literature
In summary, there is an emerging cannon of academic literature that discusses the

use of RPAS to support humanitarian logistic activities, but that related to the specific
use of such systems to transport medical supplies is limited. Importantly, the
existing evidence would indicate that the humanitarian assistance community is
generally supportive of the use of RPAS, notwithstanding their roots as military
weapons. However, the literature is clear that further work is needed to ensure
community engagement and understanding of the benefits, challenges and
implications of the use of RPAS as an element of a medical supply chain.
Although the literature is almost entirely focussed on the use of short range RPAS
(such as the DJI), the discussion around the relative benefits of RPAS (when
compared to alternative transport means) emphasises this as a key reason for their
use – especially in remote locations and/or those where the road networks have
been disrupted. Unsurprisingly, there is no consideration in the literature of the use
of RPAS for the distribution of medical maggots. Not least, this reflects the overall
reality that there has been very little effort to identify the need, feasibility and supply
chain solutions for MDT in compromised healthcare settings (e.g. Peck et al., 2015).
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In summary, it is also clear from the literature that the whole field is, as yet, in its
infancy and so the next section of this paper is designed to support the development
of thinking in this area through a small case study that researched the potential for
the use of LE-RPAS to support the treatment of patients in a remote geographic
location in Western Australia.
6. The Medical Supply Chain to Support an Indigenous Australian Community
6.1 Overview of the Case
The case study described in this section of the paper was designed to support the
move from theory to practice by considering how LE-RPAS might mitigate the
challenges posed in the timely provision of medical care to members of the
Aboriginal community of Bidyadanga (Lagrange). Whilst the focus of this study was
related to the use of LE-RPAS as the transport medium of medicines, the insights
gained from engagement with healthcare providers and LE-RPAS experts has been
used to inform the assessment of the feasibility for LE-RPAS to deliver medical
maggots to remote communities.
Bidyadanga is the largest Aboriginal community in Western Australia. It is located

1,590km from the WA State Capital (Perth), and 180km by road from the nearest
town with a hospital (Broome), although the direct distance to Broome is only 90km.
The community has a population of some 750, and the local health clinic has 10 staff
(1 manager, 5 Aboriginal health workers and 4 registered nurses (RN)). In addition,
it is supported by twice weekly visits by general practitioners who fly to the
community by plane. The clinic also operates a bus service that takes patients to
Broome on a daily basis, and this bus is also used to collect medicines as required.
The regular journey time is 1.5 hours each way, but the route is both unreliable and
extremely dangerous in the wet season due to flooding and road degradation. In the
event of an emergency, the Royal Flying Doctor Service (RFDS) provides air lift
support, but response times are dictated by weather conditions and service demand
pressures.
The scenario used to ground the case study was that of a patient suffering a medical
condition in which rapid treatment and administration of medication (< 2 hours) is
necessary to improve the chance of survival and/or to minimise long term effects.
Thus, the overall concept envisages an initial assessment of the patient’s condition
at the clinic, after which the medicinal requirements are transmitted to Broome
Hospital. An RPA is then programmed with route data and despatched by a qualified
operator, received at the clinic in a designated landing zone with support as required
from a trained operator located at the clinic site. An RN unloads the RPA payload
and administers the medicine to the patient. The RPA then returns to Broome
Hospital.
As discussed in Section 4 (above), existing RPAs cover a spectrum of capabilities

that reflect a balance between weight, endurance and the mode of control. However,
the case study scenario requires that the RPA is able to fly some 180km (round trip)
plus a safety margin. This results in the need to employ an LE-RPAS such as the
fixed wing Aerosonde Mk 4.7 (speed 100kph; range 1,000km; payload 4.5kg) or the
hybrid Latitude HQ i60B (speed 75kph; range 1,125km; payload 5.5kg).
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The key differentiators between these two exemplars are as follows:
a. Aerosonde. A faster transit speed together with either launching from

the roof of a 4*4 or via a catapult, plus belly landing or a catch net
versus
b. Latitude. Vertical take/off and landing (VTOL) together with a slightly

slower transit speed, but a slightly larger payload.
Given the context of a remote community with limited availability of technical aircraft
handling skills, it is argued that the latter presents a less risky option as it minimises
the infrastructure requirements. Furthermore, the ability of the Latitude to operate
VTOL (it requires a clear area of diameter 5m) would increase the operational
flexibility whilst minimising the airfield to hospital/clinic transit times. The Latitude
also has a greater payload, and has thus been selected as the exemplar platform for
the purposes of this case study.
Figures 1 and 2: Latitude HQ-i60B RPA.
Source: http://latitudeengineering.com/products/hq/ (with permission from Latitude

Engineering)
6.2 Interview protocol
The research underpinning this element of the paper was undertaken in mid-2016
and consisted of 11 semi-structured skype-based interviews, the details of which can
be found in Table 4. The interviewees and organisations were selected based on
the identification of specific areas of focus surrounding the research topic. Thus,
information and views were sought from Australian organisations that currently
provide commercial RPAS services in order to explore opportunities for, and
limitations on, their use. Operations personnel from the emergency services sector
were selected in order to gain insights into how the use of RPAS technologies are
being, or might be, used as part of their response to a disaster. Regulatory impacts
are an ongoing concern for the RPAS industry, warranting discussions with an
interviewee directly involved in the development of such regulations. Other vital
sources of information for this paper came from the health industry and from an
individual who is directly supporting the particular Aboriginal community.
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Position With Organisation Organisation Type
Interviewee A Communications Manager Federal Government
Interviewee B Chief Executive Officer Research Organisation
Interviewee C Manager RPAS Commercual Operator
Interviewee D Manager RPAS Commercual Operator
Interviewee E Operations Manager Emergency Services
Interviewee F Operations Manager Emergency Services
Interviewee G Station Officer Emergency Services
Interviewee H Operations Manager Medical Organisation
Interviewee I Care Provider State Government
Interviewee J Operations Manager Medical Organisation
Interviewee K Health Support Worker Medical Facility
Table 4. List of Interviewees, their Organisations and Roles.
In each case, as part of the pre-interview discussions/email exchange, the

interviewee was presented with the scenario of the need to provide urgent medical
supplies to a remote Aboriginal community in Western Australia, and then invited to
reflect on the benefits and challenges of the use of an LE-RPAS to meet this
requirement. Each interview was recorded and transcribed by one of the research
team using manual coding with Post-ItTM notes and coloured highlighters.
6.3 Findings
The overall issues emerging from these interviews will be discussed in terms of the
benefits and challenges of the use of LE-RPAS to transport medicines as they relate
to well-known triad of (a) technology, (b) processes and (c) people that was
originated by Leavitt (1964) – albeit, there are clear overlaps between these
categories. It will be noted that the interviews related to the operation of RPAs as
the means for the swift movement of medicines and did not specifically discuss the
use of MDT as a treatment regime.
6.3.1 Technological Benefits and Challenges
Overall, the interviewees with expertise in the technological aspects of RPAS

operations were very supportive of the proposed use. Indeed, Interviewee B pointed
out that in the period 2002-2016 there has been a step increase in the number of
certified RPA operators in Australia, with just under 850 currently qualified as of Dec
2016 (CASA, 2016). The interviewee argued that there is an increasing recognition
that RPAS is “a viable technology that works”. Furthermore, although the use of
RPAS by the emergency services is in its relative infancy, successful trials have
been undertaken by the Melbourne Fire Brigade which, in turn, have informed similar
trials in both New South Wales and Queensland. Based on these, Interviewee H
indicated that the key challenges are related to the need for the appropriate
infrastructure as well as the restrictions imposed by the Australian Civil Aviation
Safety Authority (CASA) regulations (See Section 6.3.2, below).
In terms of the actual operation of the RPAs, the scenario used in this research was
not perceived to present any insuperable challenges – indeed, the requirement was
regarded as relatively straightforward with a vertical launch, a transit some 90km in a
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straight line, vertical landing, and a similar return flight. However, there was a clear
view amongst the technical experts that the inclusion of ‘sense and avoid’ (SAA)
technology would be essential if the RPAs are to be fully integrated with manned
flight operations, noting that such systems are under active development.
The interviewees did introduce some concerns over the potential for a rogue RPA to
interfere with commercial flight paths and/or infiltrate restricted/sensitive air space –
albeit the latter is a theoretical rather than real concern in the specific geographic
context of this case. Discussion of the detailed solutions to these problems are
beyond the scope of this paper, suffice to say that both industry and regulators are
very much aware of these challenges, and are actively developing appropriate
response measures (Karpowitz, 2016).
6.3.2 Process Benefits and Challenges
The exemplar (Latitude) RPA under consideration in this case weighs 45kg and is,
therefore, classified as a ‘medium’ aircraft under the Australian Civil Aviation Safety
Regulation (CASR) 101. Consequently, it could not be flown under the ‘Standard
Operating Conditions’ that apply to lightweight RPAs, and specific exemptions
(CASA, 2016a) would need to cover:
a. Operating in Beyond Line of Sight (BLOS) mode.
b. Operating within 3nm of an aerodrome (Broome airport).
c. Extended Area of Operations (AO) – for future operations outside the

Broome to Bidyadanga flight corridor.
d. Night time flying.
e. Operating within 30m of people – although this could be overcome if

the RPA is deployed/received using VTOL from a segregated safe landing
zone at both the hospital and clinic locations.
Such applications would be considered by the Chief Air Traffic Controller based on
an assessment of:
a. RPAS equipment levels and capability.
b. The locations and heights of the requested operations.
c. The operational terrain and associated obstacles.
d. The Remotely Piloted Aircraft Operator’s Certificate (ReOC) conditions.
The interviewees with relevant industry experience were of the view that, with
appropriate risk assessments (in accordance with ISO AS/NZS 31000:2009 risk
management principles and guidelines) and due diligence during the ReOC process,
there would be a reasonable expectation that the required exemptions would be
approved due to the nature of the project’s intent and its AO characteristics.
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Table 5 provides a summary of the key areas of risk and their mitigation strategies
that have been developed by the authors with input from the interviewees.
Extensive and ongoing risk management in order to de-conflict RPAS operations

with all air users and citizens (including emergency organisations, property
owners, citizens).
See and be seen – paint the RPA in bright and unique colours.
Ensure a safe landing zone (SLZ) away from people at the take-off and landing
points, 5m diameter at a minimum.
Crowd control at the SLZs to ensure no unauthorised contact with the RPA.
Set communication protocols during take-off, flight and landing.
Utilising satellite or mobile phones establish aircraft in an orbit overhead with a
trained member of the clinic staff acting as a spotter in order to manage the
landing.
Develop emergency procedures for aircraft malfunction.
Identification of an alternative landing zone if VTOL fails, for example the landing
strip at Bidyadanga or Broome Airport.
Issue a Notice To Airman (NOTAM) prior to a flight and broadcast to all in the
Area of Operations (AO) that an RPA will be operating.
Develop a community of practice via engagement with UAViators Network.
Purchase insurance cover.
Table 5. Key Risk areas and Mitigation Strategies
Given the nature of the payload (medical supplies) in the case study, particular
attention must be paid to their security and the authors would suggest that a number
of specific measures, developed by the authors and summarised in Table 6, should
be considered.
Pin code locked box with only the sender and receiver issued with codes.
Temperature controlled storage box to transport the medicine.
Tracking device to locate a missing RPA.
System redundancies that reduce the chances of failures.
Hazardous goods images affixed to the package to discourage ingestion/use if
found.
Table 6. Specific Risk Mitigation Strategies in Relation to the RPA Payload of

Medical Supplies
6.3.3 People Benefits and Challenges
The whole issue of the acceptability of the use of RPAS in a disaster response
and/or development environment has been highlighted by OCHA (2014), American
Red Cross (2015) and, in particular, by Soeliso and Sandvik (2016) in their survey of
attitudes towards the use of RPAS in the humanitarian sector. One of the key issues
raised by those who had concerns over the benign use of RPAS was that it had the
potential to increase the ‘distance’ between the aid workers and the beneficiaries.
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A key finding from the current research highlights broadly similar concerns which, at
least in part, reflect the troubled historic relationship between Australian Aboriginal
communities and the governments of the day. Thus, it was made particularly clear
by Interviewees I and K that it would be essential to engage with the community
through a partnership that was able to draw on the trusted and established
relationships that the Bidyadanga Clinic has developed.
More broadly, in terms of the overall operation of the RPAS, this is not perceived to
create major barriers. Whilst it is assumed that the process would be managed and
controlled from Broome by licensed operators, the Clinic itself would require a
number of staff able to receive and despatch the RPA as necessary. Their role
would include ensuring that the land/launch area is clear of hazards (including
people), unloading/loading the RPAS (a relatively simple operation), conducting any
pre-flight checks and then liaising with the Broome operators to initiate the return
flight. Furthermore, given the endurance of the exemplar RPAS, it is not anticipated
that refuelling would be needed. Despite literature identifying a high turnover in
remote health care centres (Reeve et al., 2015) Interviewee K advised that
Bidyadanga clinic staff members are ‘long termers’ so ongoing training costs should
not be a major factor in the decision-making process.
6.4 Cost Considerations
The following section provides an overview of the costs of the proposed LE-RPAS in
the particular case context discussed in this paper. In an ideal world, some
understanding of comparative costs would have been offered, however as noted by
Mailey (2013), there is no standardised way of generation ‘cost/flight hour’ or a
similar metric. Nevertheless, Table 7 provides a summary of the key costs.
Details Commentary
Latitude HQ-i60B Whilst the capital cost of the exemplar RPA is not
Aircraft publically available, that of the Aerosonde Mk4.7 (see
Table 1) was reported in 2014 to be some US$100,000
(Corcoran, 2014). This is an order of magnitude cheaper
than the US$1,800,000 (Global Air, 2016) for the Hawker
800XP aircraft currently used by the RFDS in Western
Australia.
Latitude Ground Informal estimates indicate that this would cost some
Control System US$100,000, and it has the potential to control a number
of RPAs thus achieving economies of scale.
Operators Whilst no clear figure has been obtained for this aspect of
the costs, it is assumed that the number required (pilot,
RPA camera operator, ground staff) would be broadly
similar to those required by fixed wing or helicopters.
Training Certification of the pilots and the staff at the clinic would
require some $US 10,000.
Fuel The Aerosonde Mk 1 with a 4-stroke engine used 7L of
fuel to fly for 26 hours in 1998 (Barnard, 1999). The fuel
consumption of the 2-stroke Latitude RPA is unlikely to be
significantly greater.
339
Table 7. Overview of RPAS costs.
Clearly the financial benefits of utilising an RPAS within a remote medical
emergency response can only be achieved if the system is used extensively enough
to outweigh the capital costs. Interviewee J suggested that, in order to justify costs,
the system should be used in collaboration with other agencies within a regional
interagency network. This is a particularly relevant observation in the context of MDT
and medical maggot logistic solutions. It is highly unlikely that infrequent and low-
volume delivery of medical maggots alone would justify investment in LE-RPAS
technology.
7. Flying Maggots
As indicated earlier, the specific research reported in this paper has focussed on the
challenges and benefits associated with the use of LE-RPAS to transport urgent
medical supplies to support patients located in a remote community of Western
Australia. This relatively benign scenario was chosen as a means of understanding
the core issues and potential mitigation approaches. In parallel, however, the aim of
this paper has been to extend the research to include consideration of the transport
of medical maggots for the purposes of MDT, and the aim of this section is to
integrate the two streams of research.
From a transport perspective, medical maggots differ slightly from regular medication
on one hand, and vaccines on the other. While regular medication is not particularly
heat sensitive and can be stored at room temperature or colder, most vaccines
require strict cold chain transport in which some can be frozen but others must be
stored at between 2oC and 8oC (Ateudjieu et al. 2013). Because medication is sealed
in air and water tight packages, environmental humidity should not be an issue in
unopened packages. Medical maggots, however, are fragile living organisms that are
heat-sensitive, require oxygen and adequate humidity. Thus the core requirements
are that they should be kept in a secure container that:
a. Will maintain the internal temperature in the range 6-25oC.
b. Will maintain adequate humidity inside the sterile primary container.
c. Provides for sufficient ventilation either via excess air within an air–tight
system or via air inlets that continue to provide protection and temperature
control.
The core outstanding issue relating to the successful use of MDT remains the
acceptability of MDT to the particular community. Prior research into the use of
medical maggots indicates that there is no evidence of wide-spread patient
resistance toward MDT (Petherick et al., 2006; Spilsbury et al., 2008), but this cannot
be automatically assumed for remote Aboriginal communities, or for the healthcare
workforce servicing these communities. Therefore, information programs for
healthcare professionals and patients would need to be a core component of any
MDT implementation irrespective of the mode of transport for medical maggots.
340
8. Operationalising the Use of LE-RPAS to Transport Medical Maggots
The above analysis of the benefits and challenges surrounding the use of LE-RPAS
as the means of transporting medical maggots clearly suggests that there are no
insuperable challenges to the implementation of the concept. However, its
operationalisation will, inevitably, require some investment, and the following steps
represent a proposed way forward:
Step 1.
Select a pilot location to act as a ‘pathfinder’. The selection would be based on:
a. The prevalence of wounds in the community that are amenable to

MDT.
b. Timely access to laboratory-raised medical-grade maggots.
c. The willingness of local wound care providers to use MDT, and the
patients to accept this treatment.
d. The extent to which the community is supportive of the use of RPAS as

a means of providing swift and effective transport for medical supplies
including medical maggots.
e. The geography and topology of the chosen location both in terms of the
need for LE-RPAS services to that location as well as the safe operation of
the aircraft.
Step 2.
Representatives of the pathfinder community together with RPAS experts in the

various domains (the aircraft operations; air traffic control; risk management, etc.)
should collaborate to undertake the following activities:
a. Establish appropriate air traffic control protocols to enable RPAS

operations.
b. Capture base-line data that will enable the downstream impact

analysis.
c. Conduct appropriate training and education at all levels to facilitate the

RPAS operations.
d. Develop (as necessary) appropriate payload containers that will ensure

the delivery of high-quality viable medical maggots during all environmental
and weather conditions.
341
Step 3.
Conduct live operations on a limited basis in order to evaluate and improve the
above people, process and technology-related requirements for safe, effective and
efficient RPAS use in support of medical supply chains. Thereafter, and assuming
that the trial proves both efficient and effective, the use of RPAS to support MDT
could be expanded to include other countries and scenarios.
9. Summary
In summary, it is perceived that the use of LE-RPAS has significant potential to

support the logistic processes underpinning the provision of MDT in remote
locations. However, a number of important hurdles remain before the concept can
be operationalised. Key amongst these are the development of an air traffic control
regime that supports (rather than constrains) the RPAS use, together with the
required people and process-related mechanisms.
Importantly, whilst the paper reflects the authors’ analysis of the existing literature in
the HL, RPAS and MDT fields, it has been amplified by the insights developed from
a series of interviews with key informants whose spheres of expertise have covered
the key issues relating to the use of RPAS. It is also important to note that the whole
area of RPAS operations is moving extremely quickly, not least reflecting the interest
of commercial organisations such as Amazon and Domino’s. Although both of these
companies are focusing on the use of mini-UAVs, the lessons identified, and
associated developmental activity, in relation to all three aspects of the people,
processes and technology triangle are likely to benefit the efficient and effective
operation of LE-RPAS. Moreover, implementation of MDT in the disaster response
context may require medical maggots to be delivered with mini-UAVs to cut-off
communities, as opposed to the long-range delivery with LE-RPAS discussed in this
article.
It is argued, therefore, that the next critical step in understanding the reality of the
potential for LE-RPAS to support the transport of medical maggots is to undertake a
field trial in a controlled (benign) environment through which the reality and
magnitude of the challenges can be better understood. Assuming a positive set of
results in such a trial, this would enable a more robust plan to be developed and
costed, and the resultant proposition given due consideration by governments and
the global humanitarian assistance community.
342
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ANZAM Symposium Queenstown 2017
The Problem of Emergency Supply: Best Practice in the Preparation and

Response Phases
Dr Mark M.J. Wilson*

Senior Lecturer
Lincoln University, Canterbury, NZ
mark.wilson@lincoln.ac.nz
Peter Tatham
Professor of Humanitarian Logistics
Griffith Business School
Department of International Business and Asian Studies
Gold Coast, Queensland, Australia
p.tatham@griffith.edu.au
Mr John Payne
PGK Systems Ltd
Brisbane, Queensland, Australia
john@pgksystems.com.au
Dr Cécile L'Hermitte
Australian Maritime College
University of Tasmania, Launceston, Tasmania, Australia
cecile.lhermitte@gmx.com
Mr Michael Shapland MBE

Department of the Inspector General Emergency Management
Brisbane, Queensland, Australia
Michael.Shapland@igem.qld.gov.au
Abstract
Purpose – This paper discuss the problems inherent in planning and responding to disaster events in
a multi-agency context where numerous actors and agencies are involved in the planning and
response phases. In particular we examine a situation where a lead agency has been delegated the
responsibility for emergency supply and how it determines best practice.
Design/methodology/approach – Exploratory in-depth interviews were conducted with 12 CDEM

organisations and key managers within Australasia who highlighted a number of emergency supply
issues.
Findings – We discuss the problem of coordinated supply management in developed countries where
mandated/lead response agencies are required to meet stakeholder and local community
expectations and outcomes. From this we then formulate a scenario based model for disaster planning
that incorporates; desired outcomes, scale, resources, constraints and agency integration to better
348
manage the desired response. Finally, we offer a range of practical recommendations to assist multi-
agent coordinated of supply management.
Originality/value – Humanitarian logistics is usually examined from a developing country perspective,

yet efficient and effective disaster response is no less important for modern economies. In this respect
we offer a relatively novel scenario based planning model that incorporates community outcomes
from the beginning and should facilitate interagency cooperation to achieve best practice for
emergency logistics.
Key words Scenario, Disaster, Planning, Multi-agent, Collaboration, Supply Management
Paper type Research paper
Acknowledgments:
Funding from the Queensland Government
* Corresponding author
1.0 Introduction
This paper discuss the problems inherent in planning and responding to disaster events in a multi-
agency context where numerous actors and agencies are involved in the planning and response
phases. This is indeed a challenging operational environment for emergency responders and
humanitarian logistics organisations. To successfully meet the expectations of all stakeholders
requires; continuous planning (Perry, 2007), a clear policy framework (Reid and van Niekerk, 2008),
public and private resourcing (Nogami, 2014), training and exercises (Tint, McWaters and Driel, 2015),
and perhaps most critically, tight collaboration (Kovács and Spens, 2009). One of the major
impediments to effective response is the high turnover of trained humanitarian operators, reported
to be as high as 80% per annum (Sheppard, Tatham, Fisher and Gapp, 2013; Thomas, 2003; Thomas
and Kopczak, 2005). As a consequence, often the humanitarian logistics field turns to their commercial
supply chain cousins (and vice-versa) in an attempt to optimise (Charles, Lauras & Van Wassenhove,
2010; Oloruntoba and Gray, 2006).
In the ongoing debate over how best to manage a commercial supply chain, Melnyk, Davis, Spekman
and Sandor (2010) argue that all supply chains reflect a balance between six behavioural drivers,
namely: cost, responsiveness, resilience, security, sustainability and innovation. The balance between
these drivers should, and arguably for the supply chain to be efficient and effective, must reflect
conscious strategic level decisions. However, there are inherent trade-offs within these six
dimensions. For example, if a company chooses to be an efficient low cost supplier by reducing its
range of offerings and is prepared to accept non-availability (stock-outs) at times, it is prioritising cost
over responsiveness and resilience. While all six behavioural dimensions are applicable to the
humanitarian logistics context, we argue that cost, responsiveness and resilience are key to achieving
the desired outcomes in emergency logistics (Scholten, Sharkey Scott and Fynes, 2014). Ideally, if cost
were not an issue, then responsiveness and resilience would reign. Here, a dispersed network of fully
stocked emergency warehouses and physical assets such as transportation with sufficient reserve
capacity and redundancy to cater for even the most severe disaster would easily meet stakeholder
outcomes. Clearly this is unrealistic. Lower cost alternatives would be a single centralised warehouse
with minimal holdings of long life emergence supplies, but this compromises responsiveness and
resilience (Charles, et al., 2010). The other main alternative is to operate on a ‘just in time’ basis,
349
whereby the required materials are obtained after the disaster event has taken place. This approach
could be enhanced by the prior development of some form of call-off contract whereby the desired
equipment and stocks are held by the private sector and accessed as necessary. In this model the
suppliers can, in effect, be seen as operating multiple ‘warehouses’ thereby providing resilience, but
on the other hand this approach potentially compromises the need for responsiveness (Jahre and
Fabbe-Costes, 2015).
But this all is considered from the relief provider’s perspective. Increasingly, governments and relief
agencies have been examining the role of the affected (and surrounding) community’s role in a
disaster event, as first responders (Sheppard, Tatham, Fisher and Gapp, 2013), and also their
expectations as to relief outcomes. Indeed, much of the criticism has centred on the lack of
interagency coordination and the lack of attention paid to what the community perceives as
satisfactory outcomes. It is noted that communities “…continue to be frustrated by the lack of
coordination between government services; …and the tendency to blame-shift across silos that
citizens neither care about, nor respect” (Tiernan, 2016). It is therefore argued that further strategy-
driven analysis of the challenge facing those providing emergency logistics could, and indeed, should
be undertaken through an analysis of the ideal and actual status of best practice in emergency supply.
From both a theoretical and a practitioner perspective, the challenge facing those managing the area
of Emergency Supply/Logistics is that of achieving the optimal balance between responsiveness,
resilience and cost in order to meet community outcomes (Scholten, et al., 2014). It is inevitable that
multiple jurisdictions and organisations will be involved in the response to a major disaster. Hence,
this research was prompted by a number of administrative reorganisations within a state government
and by the perception that the current system of ‘emergency supply’ was not operating optimally.
This role has recently been delegated to a lead agency, yet the provision of emergency supply would
necessarily interface with multiple agencies and various levels of government (Federal, State and
Local), and across functional areas such as fire, police, ambulance and other emergency services. Also
consider the involvement of non-government organisations (NGOs) such as The Red Cross, faith based
NGOs such as the Salvation Army and the coordination problems exponentially increase. Hence, the
aim of this paper is to examine best practice in emergency supply to achieve community outcomes.
Indeed, the challenge of integrating multiple agencies is being met in a large number of humanitarian
logistics contexts (Perry, 2007).
This paper is structured as follows, firstly, the literature review examines the theory of people, process
and technology integration, the challenges of inter-agency collaboration and providing emergency
logistics that meets the exceptions of a number of disparate stakeholders, not the least the recipients.
Next a case based approach was adopted and a number of interviews were conducted within the state
of Queensland, and also across Australia and New Zealand to achieve a wider view of the problem
from a developed country perspective. The results discuss best practice for emergency supply in both
the preparation and response phases. Following this, we offer a conceptual scenario based planning
model as a way to help close the loop between plans and outcomes. We conclude with a set of
practical recommendations.
2.0 Literature Review
The compilation of this literature review has followed a three-step approach. Initially, a number of key
documents from the humanitarian logistics discipline were reviewed (e.g. practitioners’ handbooks,
guidelines, etc), next a review of national information and logistics guidelines and practices
350
recommended by the United States Federal Emergency Management Agency (FEMA), the Australian
Emergency Management Handbook Collection and the New Zealand Ministry of Civil Defence and
Emergency Management (MCDEM) were explored by reviewing the documentation available on their
websites. These were supplemented by a review of academic databases.
People, Processes and Technology
In any emergency response situation there are typically a range of actors involved. The categories of
response agencies can be many and varied ranging from Governments, military and other government
organisations (OGOs), non-government organisations (NGOs), emergency services, commercial firms,
donors and not the least, the local community. The key issue then is the interaction of agencies,
processes and people into a common whole (Pettit, Croxton and Fiksel, 2013). Indeed, Leavitt, (1964)
argues that the key enablers of any successful enterprise incorporate is an appropriate balance
between People, Processes and Technology (PPT). Implicit in the proposed focus on PPT, is that inter-
organisational horizontal cooperation (as well as vertical) is the key to success and that this needs to
be developed and exercised in advance of a disaster event (Schulz and Blecken, 2010), not least so
that the key relationships have been built and matured before they come to be tested in the aftermath
of a disaster. The importance of this cannot be understated and is reinforced by Boin and t’Hart (2010,
p. 368) who state that “effective crisis response relies strongly on pre-existing cooperative networks
built and maintained painstakingly during the preceding years” this includes “…the forging of
relationships among response agencies, as well as media representatives, external stakeholders, and
a variety of experts. Once a crisis has occurred, there is usually no time to look to the right people and
interact with them on a basis of trust.”
In the commercial supply chain literature there is an abundance of evidence to support collaboration
as a mechanism for coordination (Soosay and Hyland, 2015). Discussed in terms of inter-organisational
governance, these frameworks argue for a continuum of interaction ranging from market based arms-
length relationships, through to hybrid forms of partnerships, strategic alliances, joint ventures and
culminating in vertical integration (Webster, 1992; Wilson, 1995). However, while Moan, Lindgreen
and Vanhamme (2009) and Wild and Zhou (2011) argue that commercial supply chain frameworks are
not suitable for humanitarian logistics, we argue that there are relationship control mechanism that
should apply. Indeed, with so many agencies involved in relief operations, Sheppard, et al., (2013) and
Tomasini and van Wassenhove (2009) see coordination as one of the most urgent issues in
humanitarian logistics world-wide. This is also a major research theme for journals such as Supply
Chain Management: An International Journal and also the dedicated Journal of Humanitarian Logistics
and Supply Chain Management. While there seems to be a proliferation of collaborative models (such
as Agent Based and Discrete Event Simulations, see Krejci, 2015) and theories (Williamson, 2002),
there does seem to be somewhat of a disconnect between practice and relief outcomes (Bhimani &
Song, 2016).
The Problems of Coordination
It is no surprise that there are existential difficulties in coordinating relief efforts among agencies
(Tatham and Hughes, 2011). One of the major issues is that the humanitarian domain is intensely
competitive as agencies clamour to gain recognition and donor support for their principles and
operations (Oloruntoba & Gray, 2006). Heaslip and Barber (2016) describe the differences in operating
philosophies, goals and objectives between agencies (for example civil and military) relief efforts
noting the all too often duplication in the relief chains. Further, Krejci (2015) argues that humanitarian
actors suffer from ‘bounded rationality’ in that instead of completely rational decisions that account
for perfect goal alignment among multiple actors, they opt for self-interested decisions. Thus,
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humanitarian managers utilise simplified heuristics and experience to make ‘satisficing’ decisions that
introduce bias and prejudices putting one’s own agency’s needs before the total relief effort. Further,
tight coordination relies on information sharing and this can be problematic due to the poor quality
and timeliness of critical information (Fisher and Kingma, 2001) and also the unwillingness to share
between agencies (Ngamassi, Maldonado, Zhao, Robinson, Maitland, and Tapia, 2011). Tint,
McWaters and Driel (2015) highlighted the problems with linguistic and contextual differences
between international relief agencies. Indeed, most humanitarian logisticians would say that the lack
of collaboration is the most challenging issue in the field leading to suboptimal outcomes for affected
communities (Kovács and Spens, 2009).
Positively, efforts have been made to implement relief wide coordination. For example the UNJLC
(United Nations Joint Logistics Centre) and the Logistics Cluster groups that designate lead NGOs
according to specialisations such as water and sanitation, camp management, and logistics etc
(Jenson, 2012). Ngamassi, Maitland and Tapia (2014) examined the nature of network structures in
humanitarian organisations and found that close ties, or ‘cliques’, facilitate greater information
exchange and hence collaboration. Despite this, much work still needs to be done as Soosay and
Hyland (2015, p. 621) note that collaboration in humanitarian supply chains is “…exceptionally under-
researched”.
The Customer – Community Outcomes
It is interesting that while the concept of the ‘customer’ is central to the design and organisation of
commercial supply chains (Day, 1994), this idea of the ‘relief customer’ has only recently emerged in
the humanitarian field (Oloruntoba & Gray, 2009). They go on to define “…the key customers – the
most important (in humanitarian terms) in the emergency relief chain are the aid users (also known
as ‘victims’)” (p. 489). It is important then that relief efforts should then focus on this objective, but
the question remains, how do we know when we have meet the customer’s expectations?
Davidson (2006) develops a humanitarian logistics performance measurement framework based on

upon four performance metrics; appeal coverage, donation-to-delivery time, financial efficiency, and
assessment accuracy. Adding to this, Beamon and Balcik (2008) have developed a framework
consisting of resource metrics, output metrics, and flexibility metrics that is applicable to humanitarian
relief chains. From a community perspective, reasonable measures would be the minimisation of
negative outcomes on the community, infrastructure, buildings and the environment (QLD
Government, 2017, p. 2). Further, Beamon and Balcik (2008), state that one of the key performance
measurement areas should focus on community involvement and empowerment. Indeed, Sheppard,
et al., (2013) argue strongly for local community voice and engagement in the preparation and
response phases of an event.
Meeting the expectations of a community would involve satisfying people’s immediate basic needs of
shelter, food, water, medical and information. These are meet by the provision of emergency supplies
such as blankets, tarpaulins, first aid, water containers, house repair kits, family cooking kits,
generators etc (the subject of this research). Also through emergency centres, temporary shelters and
temporary housing (Somasundaram and Davies, 2014). From a recovery perspective, the speedy
restoration of power, sewage, telecommunications, roads, commerce and community facilities
(Deshmukh, Oh & Hastak, 2011), the provision of normal health services, care of those with disabilities,
mental health and hospitals (Kumar, Niedan-Olsen & Peterson, 2009), basically, getting back to normal
as soon as possible whilst minimising the negative effects. We argue that one way to achieve these
expectations, and thus meet disaster relief metrics, is to give the community a voice in the planning
phase. Community advocacy and social justice are important issues to affected communities (Dingman
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& Ginter, 1995). From this we can derive best practice for emergence supply that would meet these
objectives.
While it has been argued that the beneficiaries of any relief effort cannot be considered humanitarian
actors as such (Kovács & Spens, 2008), it is often the case that the local affected population are the
first responders and do indeed have a role to play (Newport & Jawahar, 2003). Indeed, the affected
community would certainly have some expectation as to the outcomes of the relief effort, both
immediately and ongoing. The affected community are the ones best placed to understand their needs
and from this demand profiles are derived. Supporting this claim, Sheppard, at al., (2013, p. 22) state
“…that the ability of local populations to contribute to the logistic preparation and response processes
has been considerably undervalued and underutilised”.
To help incorporate these voices into a coherent whole, disaster response agencies should place
considerable emphasis on the need to integrate People, Processes and Technology (PPT) (Leavitt,
1964). Such approach is broadly similar to that currently being used within the Queensland Disaster
Management community of: People, Process, Organisation, Support, Technology and Exercise
(Queensland State Disaster Management Plan (2016). Thus, it is clear that a program of continuous
improvement in relation to all three elements of the PPT triangle, both in isolation, but more
importantly as whole system, is key ensuring that the expected community outcomes are met.
3.0 Method
Firstly, a literature review was conducted in three stages as noted above. As the nature of the topic is
inherently practical and of significant important to governments, the review focused on non-
traditional academic sources such as documents and websites from humanitarian organisations, and
national policy frameworks and emergency logistics guidelines/handbooks. These sources were then
complemented by the more traditional academic databases.
Adopting a case based approach for the research design (Yin, 2014), semi-structured interviews were
used as the mechanism to gather qualitative data. This approach was chosen as the focus on this
research was to elicit from practitioners best practice in emergence logistics for the planning and
response phases without a prioir prompts from literature. Hence, in light of the relative paucity of the
published literature considering ‘best practice’ exploratory interviews were held with 12 practitioners
based in Australia and New Zealand who are working in a range of organisations including the Rural
Fire Service, the State Emergency Services, local government and NGOs. These were achieved using a
‘snowball sampling’ approach whereby the research team leveraged existing contacts within both the
academic and practitioner spaces. Whilst contact was initiated with 28 individuals, only 13 responded
and of these 1 provided written input, yet this still reflects a reasonable 48% response rate.
Table 1 List of interviewees

n Role Organisation Country
1 National Project Office with responsibility for Red Cross Australia Australia
Logistics
2 Logistics Officer Red Cross Australia Australia
3 Emergency Management Coordinator Wimmera Regional Council VIC, Australia
4 Zone Commander RN2 Fire and Rescue NSW, Australia
5 Director Planning & Environmental Services Rural Fire Service NSW, Australia
6 Regional Recovery Coordinator Hunter Valley and Central Coast NSW, Australia
Flooding (2015)
7 Region Controller, Clarence Nambucca Region State Emergency Service NSW, Australia
8 Emergency Management Advisor Red Cross New Zealand New Zealand
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9 Manager, Capability & Operations Ministry of Civil Defence & Emergency New Zealand
Management
10 Controller, Civil Defence and Emergency Canterbury Region New Zealand
Management
11 Capability Development Manager Joint Centre for Disaster Research, New Zealand
Massey University
12 Former leader of Emergency Logistics Auckland City Council New Zealand
13 Department of Fire, Disaster Management & State of Baden-Wuerttemberg Germany
Ambulance Services (written submission)
A simple interview protocol was developed to guide the interactions, but the intent was to keep these
questions very general thus allowing the respondents to go where they thought best. The respondents
were asked about best practice in preparedness planning and the responses phases as a means of
obtaining input to the identification of ‘best practice’ for emergence logistics. Firstly, a definitional
statement was offered by the researchers as a way to set the scene. This was:
Emergency supply relates to the acquisition and management of emergency supplies and
services in support of disaster operations such as the establishment of a forward command
post, or a recovery/evacuation centre. Such supplies can be both consumable items (such as
water, bedding, medical items etc), or tangible assets (such as furniture, marquees, or medical
equipment etc).
While the term Emergency Supply was understood by the respondents, most respondents naturally
defaulted to Emergency Logistics as this related better. This term was then adopted for the remainder
of the research. The research themes focused on the challenges faced in managing emergency
logistics, how the respondents have overcome/or not these challenges, what was missing, and how
the performance of the emergency sector could go from good to great. The researcher’s specifically
asked for examples of good practice and any documentation or sources that they thought would be
relevant. The transcripts were recorded and then transcribed. Analysis then followed by coding and
categorising the data. Codes were examined for their relevance and then merged, expanded or
deleted as appropriate. Theme building then grouped and interpreted the concepts for obvious and
also latent constructs. Researcher bias was minimised by the interviewer being very familiar with
logistics concepts in general and emergency logistics in particular. This created rapport and common
understanding. The resulting report was then reviewed and approved by the sponsoring agency. We
have categorised the results into the two major phase of emergency planning and then emergency
repose, and discussed as follows.
4.0 Best Practice in Emergency Planning
In this section we discuss the planning results and have grouped them into seven main themes, these
being; process and supporting documentation, stockpiling and reverse supply chains, resource
integration and modularity, standardisation, response framework agreements, shared resources and
finally logistics collaboration.
4.1 Process and Supporting Documentation
Firstly, the informants place considerable emphasis on the importance of establishing in advance
appropriate processes in order to support the entire logistics effort as well as the organised and rapid
mobilisation of supplies in an emergency situation. Well-defined processes prevent short-term,
reactive and disorganised actions that may result in higher costs and supply gaps. Such processes
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include, sequential and logical steps for the acquisition and provision of emergency supplies. Best
practice includes a set of guidelines and procedures that should be comprehensive (e.g. without
missing information) as well as clear and accurate (e.g. easy to follow and without confusing language
such as jargon and acronyms). Supported by tools and documents which facilitate effective and
consistent emergency supply processes (either in paper or in electronic form). One good example is
the resource request procedure in the New Zealand MCDEM Director’s Guidelines (2017, p. 105), and
the subsequent processing steps (pp. 106-107). Most importantly, the results stresses that processes
should not be cumbersome and rigid. Rather, in order to avoid any excess of bureaucracy, the
processes need to be developed through considering the value of each step, and flexibility needs to
be built into the system. In particular, the processes and procedures should allow for the ability to
circumvent the established rules in the case of extreme scenarios.
However, some informants suggested that, while much effort has been invested in the development
of the processes, documentation and training material development, the take-up of these tools and
resources has been slower to gain momentum. This would seem to represent a potential failure to
embrace the totality of the PPT triangle. In other words, the processes and technological elements
appear to have been documented, but further investment to integrate the people component is
warranted. In addition, there would appear to have been significant replication of effort as many
different State and national bodies have created materials targeting similar challenges, to some
extent, in isolation.
4.2 Stockpiling and Reverse Supply Chains
Stockpiling refers to the pre-positioning of goods in anticipation of an emergency. The resultant

strategic decisions to be made in regard to stockpiling relate to the number of storage sites, their
locations (typically close to disaster-prone areas and to the main transportation infrastructure in order
to ensure a timely response to emergencies), the volumes of goods to be held at these locations, and
the frequency with which they must be turned over in order to ensure that they do not become
dilapidated whilst being stored. From the perspective of the respondents it was evident that
stockpiling is viewed as a sliding scale rather than a simple “yes we do” or “no we don’t”. Thus different
organisations employed differing stockpiling strategies and, hence, hold differing views on what is
appropriate to be stockpiled. At least in part this appeared to be driven by the function of the
emergency management organisation.
The use of such central stockpiles is found in the USA where FEMA controls eight warehouses located
across the mainland (FEMA, 2017). Whilst stockpiled resources are commonly stored in warehouses,
some organisations (for example FEMAs PPDS programme) make use of containers to position
supplies and equipment (e.g. generators, folding cots, blankets, pillows, hygiene kits, etc.) for rapid
deployment. However, due to the presence of heat/humidity in some areas supplies may therefore
be stored for only a limited time. Red Cross (NZ) has a large central warehouse with a set inventory of
six key items (some of which are kits) that can be distributed quickly and efficiently by road, ship or
air. These kits are focussed on shelter and blankets, food preparation, water collection and water
storage.
Whilst the obvious advantage of stockpiling is the immediate availability of supplies and the resultant
time savings in the critical first phase of a disaster event, the pre-positioning of resources requires
sufficient funding in order to cover the high level of investment required. The substantial costs
associated with stockpiling relate not only to the purchase of the goods, but also to their storage at
multiple locations. Importantly, the common PPT-related theme which emerged is that, in the words
of one respondent: “…the cost of maintaining great relationships is considerably less than the cost of
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maintaining stockpiles of goods in warehouses and generally achieves the desired outcomes better”
(Interview 12, 2016). That said, because of the intangible nature of such relationship management and
the difficulty in the measurement of success, making the case for its importance can be challenging.
The reverse flows of durable goods back into the emergence supply system is not something that is
often considered but was the theme that emerged in our data, often associated with comments
around cost savings. This is reflected in the inclusion of ‘sustainability’ within Melnyk’s et al., (2010)
six behavioural drivers outlined above. Policy decisions revolved around the options of; ‘writing off’
an item once distributed to the recipients, recover the supplied item, but dispose of in an
environmentally responsible manner, or recover those items that are likely to have continuing life (for
example portable generators). It is likely to be appropriate that the recovered item be refurbished and
then placed into storage ready for the next event.
In considering the options it is relevant to note that in an international disaster response context, only
limited recycling takes place not least as the import/export regulations of some countries penalise
NGOs if they decide to remove items previously supplied to an affected country (Peretti, Tatham, Wu
and Sgarbossa, 2015). Whilst clearly this does not apply in a national context, the broader total cost
of ownership of items issues remain relevant. For example, if it is planned that an item of equipment
will, indeed, be withdrawn at the end of an incident, it will be necessary to monitor its location, and
this represents an additional burden on those managing the incident.
On the other hand, the need to dispose of items appropriately was also mentioned by the informants.
As an example, sandbags once used are contaminated and, therefore, the dumping of such sandbags
must be carefully considered as they can, and do, create a waste management challenge at the end
of the emergency event. The other case highlighted was in the aftermath of the earthquakes in
Christchurch where the demand for portable toilets was resolved by importing significant numbers
which the emergency management team decided to procure directly. This created two issues, the first
of which was getting these units serviced. Whilst the hire companies had the plant and trained
personnel to manage the servicing of their own pool of facilities, they struggled to cope hence trucks
had to be imported to service the toilets. The other issue was disposal of surplus toilets at the end of
the requirement. In some cases, these had to be dumped or disposed of at not insignificant expense
as there was little or no demand for these elsewhere in New Zealand.
4.3 Resource Integration and Modularity
Resource integration refers to the combination of different types of resources (i.e. materiel, services
and/or personnel) into packages ready to be deployed in the aftermath of an emergency event. A
good example of materiel/skills integration are the Emergency Response Units (ERUs) of the
International Federation of Red Cross and Red Crescent Societies (IFRC) that are modular and easily
integrated (IFRC, 2016a). ERUs are self-contained units made of pre-packed sets of standardised
equipment and trained teams of technical specialists. ERUs are designed to be operational in the field
within a week of their deployment. Such IFRC ERUs include those optimised to provide (1) water and
sanitation, (2) basic health care, (3) hospitals, (4) base camps, and (5) IT and telecommunications. The
key benefit of such an approach is that the response can be ‘right-sized’ in relation to a given disaster.
The IFRC increasingly relies on such modules in order to be able to adapt to the specific circumstances
of each disaster situation and, therefore, to increase flexibility in addition to responsiveness. Our
respondents noted that resources tended to be configured, naturally, toward the needs or the
emergency service or response agency making integration and modularity problematic. This points to
one essential condition for the effective use of modularity, that is standardisation, a concept discussed
in further detail in the next section.
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4.4 Standardisation
A similar theme to integration identified in the data is the need to move toward a form of
standardisation for the procurement of emergency supplies, equipment, specifications and
nomenclature. A number of organisations such as the IFRC have established a publicly accessible
catalogue of standard items in which they organise emergency supplies by category (IFRC, 2016b).
Categorisation has the advantages of enabling requesters/users to easily identify resources in a
database and to quickly access the specifications of each item, and also to facilitate the acquisition
and the management of each type of resources by developing appropriate strategies for each
category/subcategory. The following table details the benefits of standardisation through a common
catalogue.
Table 2: Benefits of Standardisation for Emergency Supplies
Supports the use of a common language in Facilitates sourcing and purchasing operations.
regard to the mobilisation of resources.
Creates homogeneity and reduces the overall Supports the continuity of item specifications
number of items handled. over time.
Reduces the complexity of the logistics Supports quality consistency.
operations.
Supports the selection of the most Allows economies of scale to be achieved.
appropriate and the most cost-efficient items.
Ensures compatibility between items. It can indicate recoverability or reparability of
the item after use
Supports interoperability and inter-agency
cooperation.
At a greater level of granularity McGuire (2015) provides a detailed list of the potential information
that should be included in a standard item catalogue. In addition, UNHCR’s core relief items catalogue
provides good examples of item specifications (including graphics and pictures) for the relief items
most commonly used in UNHCR operations (e.g. tents, tarpaulins, blankets, etc.).
4.5 Response Framework Agreements
For the most commonly used emergency items, framework agreements may be established with a
number of selected suppliers in advance of the actual disaster response operation. These lay down
the essential procurement terms (quantities, quality, delivery timeframe, etc.) and enable emergency
agencies to secure fixed prices for the acquisition and delivery of such emergency supplies. Overall,
framework contracts simplify, speed up and reduce the cost of procurement.
From the practitioner perspective there were three clear approaches adopted in relation to supplier
management, these being outsourcing, relationship management and active supplier management.
Firstly, outsourcing. Red Cross NZ and Australia place all orders on the IFRC regional sourcing centre
in Kuala Lumpur and therefore do not have a local sourcing operation. This approach also means that
they raise purchase orders against known cost bases. The NSW Fire and Rescue service, when in an
emergency management situation and needing to source plant and equipment in addition to its
appliance-centred equipment, places requisitions on the local council which is then responsible for
managing the procurement activity.
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Secondly, relationship management. Auckland City Council (the largest local government body in
Australasia) and others approach this problem through an extensive network of suppliers which are
able to be called upon when required under the umbrella of a relatively loose set of formal
arrangements. This has benefits in that these arrangements tend to be more agile and responsive to
changing scenarios. The major risk is, however, that when key personnel change these relationships
may change or degrade – once again emphasising the importance of maintaining the focus on all three
elements of the PPT triangle.
Thirdly, active supplier management. Many of the informants had supplier management
arrangements in place with detailed supply plans, contracts and costs. In practice these organisations
had rarely needed to use these as the relationships developed as a result of these processes tended
to transcend the formal arrangements at the time of an emergency management event. Such
arrangements did, however, help ensure that an appropriate level of governance was applied.
Several of the informants suggested that, in real terms, the ideal solution was a blend of Active
Supplier Management and Relationship Management. This combination led to a fast agile response
with good capability whilst still meeting appropriate probity and audit requirements.
4.6 Shared Resources
Given that S.13(1) of the Queensland Disaster Management Act (2003) states that:
“A disaster is a serious disruption in a community, caused by the impact of an event that

requires a significant coordinated response by the State and other entities to help the
community recover from the disruption.” (Emphasis added)
It follows that there will be an a priori requirement for resource-sharing arrangements to be

developed at various levels. Those participating in such systems may include local, district and State
jurisdictions and agencies as well as NGOs.
All of our informants emphasised that cooperation was the nirvana of emergency management. Thus,
whilst there may well be centres of excellence in logistics, there is no guarantee that every element
of the emergency management organisation knows who or where this is in “peacetime”, let alone in
an emergency situation which potentially involves new personnel and degraded communications.
With this in mind, there has been a concerted effort to build in standards at many levels ranging from
ICT systems to fire hose couplings, and everywhere in between. Notwithstanding these achievements,
informants suggested that legislative and lines of reporting differences between jurisdictions were
unhelpful in the development of seamless integration, and therefore ironing out such differences and
achieving inter-organisational coherence was perceived to be a continuing task.
4.7 Logistics Collaboration
Within the literature, collaboration and integration go beyond the previous examples of sharing
resources and cover a broader range of cross-organisational logistic activities. Examples include the
development of a joint procurement system that combines the work of a number of governmental
organisations and NGOs. Such pooled procurement is common in the international aid sector and is
typically carried out in a joint procurement centre (such as the IFRC operates in Kuala Lumpur) which
orders a number of pre-defined resources from qualified suppliers and operates a centralised bidding
system. Items suitable for joint procurement actions are those with the highest level of demand (e.g.
shelter items, pharmaceuticals, etc.).
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From the operational perspective, collaboration in the logistics space was seen as a very real
opportunity that should extend beyond the current achievements in the preparedness phases of
solution and training design, and into the delivery space. Interestingly, one senior SES manager
suggested the “homogenised nature of logistics” lends itself to a shared services model, and so it was
argued that expertise could travel well. Informants also spoke to the need to engage with the broader
business community to tap into the capabilities that it owns and manages, and it would appear that
volunteer- based organisations had been more successful at this. In some cases it was suggested that
there was a clear willingness to learn from business colleagues, but a lack of clarity over how to achieve
this.
5.0 Best Practice in Emergence Response
Moving forward from the planning stage, this next section will discuss the approaches that are
recommended within the literature for use in the immediate aftermath of a disaster event and the
informants’ observations. It was clear from the results here that the most attention was given to the
planning phase above. These results here where grouped into three areas; fast track procurement,
centralised resource unit and cash transfer programmes.
5.1 Fast Track Procurement
When the required resources have not been stockpiled and are not available from other response
agencies, businesses should be approached in order to purchase (either buy or hire) the emergency
supplies that are immediately needed. The respondents felt that purchasing resources from local
sources is usually associated with shorter lead times and lower transportation costs, as well as having
the side-benefit of investing resources in the affected region. The data suggests three mechanisms for
supporting fast track procurement; firstly, the standardisation of emergency supplies (specifications
etc, see 4.4 above), secondly, framework agreements with selected suppliers (see 4.5 above), and
finally a priori approval to depart from extant procurement procedures. This last aspect was suggested
in order to adopt a swifter approach to the acquisition of the required supplies. This includes, for
example, defining the circumstances in which verbal quotes are sufficient and/or when it is acceptable
to carry out non-competitive procurement.
5.2 Centralised Resource Unit
In the response phase of a disaster, the actual mobilisation of resources can be facilitated by setting
up a centralised resource unit that acts as a focal point for the acquisition and deployment of
emergency supplies. Such a centralised resource unit would be in charge of receiving and processing
both routine and singular requests for resources, noting that the activities would clearly need to
reflect the actions taking in the preparatory phase – such as the use (or not) of framework agreements.
The advantages of centralising the emergency logistics processes are as follows:
• Expertise and capacity are concentrated in one place.
• Pooled resources are managed in a more effective/coordinated fashion and according to a set of
pre-determined priorities.
• Economies of scale may be achieved.
• It provides a governance/accountability check that helps ensure that proposed actions have,
indeed, been implemented.
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When creating a centralised resource unit, emergency services should be very careful not to adopt a
narrow approach to the acquisition of resources and avoid encouraging a silo approach that would
undermine the benefits of centralisation. To this end, the staff working in the centralised resource
unit need to approach their role not as a purely administrative one, but rather position themselves as
facilitators supporting the entire relief effort.
5.3 Cash Transfer Programmes.
In recent years, one of the most discussed topics in the international humanitarian logistics literature
has been the use of cash transfer programs (CTPs) (also called cash and voucher programs) as an
alternative or complement to the distribution of goods to those affected by a disaster. Hence, this
topic was raised with the respondents whom seemed to have mixed feeling about the scheme. The
advantages of the CTPs are that they allow recipients to purchase goods on the basis of their needs
and priorities, the overall operational costs are lower as compared to the direct provision of goods,
cash can be provided more rapidly than goods, and finally it supports local markets and economies
who have been effected by the disaster.
On the other hand, CTPs are increasingly recognised by relief agencies as one amongst a range of
emergency relief tools. In other words, cash delivery mechanisms are neither a panacea nor a ‘one-
size-fits-all’ solution, and should therefore be built into emergency responses when appropriate to
the circumstances of a specific disaster. In particular, cash-based responses are suitable when the
market conditions are favourable, i.e. when goods are available locally and when cash transfers are
not likely to generate inflation and/or supply shortages. Furthermore, CTPs should be carefully
implemented and monitored in order to ensure that cash is not diverted (e.g. spent on alcohol or the
repayment of debts). Such misuses can be avoided by, for example, using paper-based vouchers
redeemable in participating stores only and for the purchase of pre-defined resources (e.g. food).
More sophisticated solutions, as used in Syria, include the use of the CodeREADr-based technology
commonly employed by airlines or event organisers to scan tickets and/or track attendance
(Norwegian Refugee Council, 2015). Using a broadly similar model, Red Cross (NZ) has provided cash
directly to those impacted in the aftermath of recent disasters. The core rationale was that individuals
will purchase what they most immediately need, and secondly it ensures that local sourcing is used to
aid in the economic recovery of the affected area. This cash payment has ranged from a few hundred
rupees in the Nepal earthquake to three thousand dollars in Christchurch.
6.0 Community Outcomes and Emergency Supply
It will be recalled that the aim of this research was to “investigate best practice Emergency Supply to
ensure that resource management and relief measures meet community expected community
outcomes”. Discussion of this latter clause with informants surfaced a number of strongly held views.
Thus, some spoke of “doing the best we can”, while others had a clear strategy for actively managing
the expectations of the community as an integrated component of the emergency management
process. In this regard, one respondent noted the clear differences in community expectations
ranging, as an example, from a tree branch down on a front lawn in an urban centre, compared with
a severe flooding event in a remote indigenous community. From the perspective of the research
team, this whole area of expected outcomes requires further investigation based on the simple
premise that, unless there is clarity over what ‘good’ looks like, its achievement will always be
challenged.
More broadly, in approaching this research, the team had anticipated that there would be clear
differences between the management of services, commodities, consumable items and durable asset
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items. However, virtually all of our respondents took a scenario-based view. Thus, for example, the
discussion would reflect the differential impact of, and response to, a flood or fire event etc. By taking
this perspective, the key sourcing and logistics differences were related to the context rather than the
type of goods and services needed.
As a consequence, logistics planning in practice tends to be driven by the potential risk profiles and
likely scenarios in a given community or region, and the associated resilience or fragility of the
resultant supply chains. In this way a logistic response mechanism was adopted which, based on the
experience of those managing the process, would have the highest chance of a successful outcome in
an appropriate timeframe. Following on from these findings, we have developed a scenario based
model for emergency planning in the flowing section.
7.0 Proposed Scenario Based Planning Model
Extending beyond the results, we postulate a scenario based model for shared services disaster
planning that incorporates; desired outcomes, scale, resources, constraints and agency integration to
better manage the desired response. The intent of this model is to close the loop between emergency
logistics planning and community outcomes. Hence, the basis of such scenario building is to start with
the expected outcomes of the community, in other words, how they would perceive ‘good’. This is
very analogous to the value chain approach in commercial logistics where the voice of the customer
is the starting point for the design of the supply chain and value expectations (Webster, 1992). We
argue that while the use of scenarios is not unique to the emergency management field, they are in
the main, used as context setting for planning exercises and drills. This is indeed very useful, in fact,
so useful as stated by many of our respondents, that we would argue for an extension of the use of
scenarios. We consider that realistic multi-phase emergency scenarios should be developed in an
integrated manner by all stakeholders (not just by an exercise controller) and then be used as the basis
for holistic planning in a closed loop systems view approach (see Figure 1). These scenarios should be
developed to cover the most likely events given the history, climate, geography and risk factors of
each city, region or state. A series of scenarios should be documented and reviewed periodically.
Taking the State of Queensland, Australia as an example, the higher probability events are cyclones,
bush fires and flooding, whereas earthquakes are historically rare. This then delimits the type of event
and effort can be concentrated. From here, the location and scale and level of complexity can be
worked into a range of possible scenarios. For example, flooding usually follows geography, thus
effected towns, infrastructure and roads (routes) can be modelled reasonably accurately (Villegas-
González, Ramos-Cañón, González-Méndez, González-Salazar and De Plaza-Solórzano, 2017). Having
a mental model of the likely event, and also the expected constraints such as infrastructure
destruction or degradation, is, we argue, a much better basis for disaster planning.
Figure 1 Scenario Based Model for Disaster Planning
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Joint Creation
Agencies:
Government (Federal, State,
Community
Regional, Local)
Emergency Services
Essential Utilities Govt's Agencies
Local Communities
NGOs
Commercial/Businesses
Measure Disaster High

Disaster Event Scale of Event
Feedback/Learning Scenarios
Low
· Estimate risk / probability /

· Anticipate event – fire/flood/
Exercises / Training magnitude
cyclones/EQ/Pandemic etc
· Location/s
· Define expected outcomes,
· Number of people /
Response endstate, costs
communities
Plans · Develop metrics / measures
· Level of complexity
· Sequence / phases of events
Doctrine, Strategy,
Operating Procedures
Integration Constraints /
Resources
Framework Damage
· Clear command and control · Estimate types and quantity of · Estimate location and scale of damage
· Task allocation / priorites emergency supplies · Casualties
· Clear escalation/de-escalation · Location of warehouses / network · Asset degradation / functionality
protocols · Preposition stocks · Damaged Infrastructure - esp transport
· Deliberate collaboration · Suppliers and Catalogues nodes
· Joint exercises · Assets and tracking systems – · Available hospitals and medical capacity
· Personnel exchange / tours visibility (common operating · Available roads and routes
· Training plans picture) · Information availability – social media use
· Common IT systems · Local assets of businesses (pre- · Level of situational awareness
event surveys) · Level of emergency staff non-availability
Emergency managers and stakeholders, having set the emergency scenario, are now better placed to
plan the appropriate response/s. With this understanding, policy frameworks and legislation can be
drafted/amended that would best articulate strategy and responsibilities to responders with clear
lines of authority and structures given expected event scalability. Importantly, clear and unambiguous
decoupling points can be identified a priori from local, then state to federal level of control. Thus
quickly deploying the most appropriate scale of response. Each service or agency then being able to
more accurately predict events as they unfold and the appropriate response in each phase. From here
cascade planning will flow through to command and control, procedures, training, supply, location
and other critical decisions that are thought through and assumptions tested before the chaos of a
live event.
Importantly, one of the key findings was that emergency managers are tasked with achieving
outcomes and results, but suffer given the unpredictability of event occurrence and also general
mandates to provide emergence relief without clear objectives or defined outcomes. These objectives
will necessarily differ within each branch of responders, such as fire, police or NGOs, due to differing
skills sets and modes of operation. A lack of inter-agency cooperation and hence poor outcomes is
one of the biggest criticisms of the civil defence and emergency management field (Rivera, Tehler and
Wamsler, 2013). An important contribution of a scenario based model of disaster planning is if you
have a good idea of the likely event, you can have a good idea of the most appropriate response and
a much better change of meeting stakeholder expectations. This then allows the evaluation of the
362
excepted outcomes against actual outcomes. This, we believe, is a more considered approach than
planning for any and all contingencies.
The expected benefits of scenario based shared services planning are:
· Events are anticipated before they happen, thus giving emergency managers the ability to
seize the initiative and avoid reacting to events and hence dispersing or wasting effort.
· The most appropriate lead agency, assets and resources are defined prior to events.
· Multiple agencies are involved in the scenario creation and hence have a ‘voice’ and
ownership.
· Key personnel from multiple agencies interact prior to events, building familiarity and trust.
· Processes and documentation are tested realistically, this also includes framework
agreements with commercial entities who are contracted to support emergency work.
· Personal, assets, warehouses and emergency stock are more appropriately pre-positioned,
thus increasing resilience.
· Multi-agency collaboration is fostered.
· Stakeholders including the community itself are better able to judge if expected outcomes are
meet or not.
One key limitation of this approach is real emergencies almost never pan out according to the planned
scenario. Thus, all scenario planned responses must maintain a degree of responsiveness and
flexibility to ensure mind-sets do not become fixed on what ‘should happen’.
8.0 Recommendations
Overall, it is emphasised that a key challenge is that of obtaining the optimum balance between a
stockpiling approach, i.e. the acquisition and storage of critical resources in advance of a disaster, and
a just-in-time approach, i.e. the acquisition of resources as soon as actual needs have been identified
during the emergency response phase. While community outcomes were a central concern, costs also
loomed large. In response, this research offers a number of practical recommendations to assist multi-
agent coordinated of emergency supply management. Based on the observations of our respondents,
these ideas would appear to merit more detailed consideration.
Firstly, there was a strong belief that the levels of inter-organisational cooperation could and should
be further developed. Whilst there is no doubt that such cooperation does already take place, it would
be greatly facilitated by the introduction of:
a. A common parts catalogue and the associated standardisation of items that are, typically, in high
demand. Such items could be identified through an analysis of past demand patterns, and need
not necessarily result in a large document/data base. Furthermore, recent analysis in an
international logistic response context has indicated that, in reality, it is possible to predict quite
accurately the commodities needed (Jahre & Navangul, 2011). This reduces one of the unknowns
(the ‘what’), albeit the ‘where’ and ‘how many’ questions remain challenging. Nevertheless,
adopting a similar approach in a national context would clearly be beneficial.
b. The procurement of equipment and specifications that supports the use of modularity.
c. A common IT system that would facilitate inter-organisational transfers of loans of equipment

etc. This would assist in locating where a particular item is located, how it can be accessed, and
363
who would be responsible for its movement. This would materially assist in building a common
logistics operating picture for overall command and control (Tatham, Spens and Kovács, 2017).
d. Common framework agreements that can be accessed by multiple organisations.
Secondly, and taking into account the proposed greater implementation of inter-organisational
cooperation, further consideration of the balance between warehousing and just-in-time supply
should be undertaken. In this respect, the use of containerised stock that can be pre-positioned or
swiftly moved in the aftermath of a disaster (such as is employed by FEMA) would appear to have
significant merit, albeit in some regions the meteorological conditions (such as high heat/humidity)
may restrict its applicability.
Thirdly, and as has been emphasised throughout this research, developing the people (as distinct from
process and/or technology) dimensions of the emergency logistics challenge must remain arguably
the highest priority. Whilst there is a clear understanding of the need to greater professionalisation,
it will be vitally important to continue to progress down this path in order that there is assurance that
the system(s) in place can be implemented smoothly and effectively when the next disaster event
strikes. Given that disasters take place relatively infrequently, it will be important to continue to
support a training and development program that helps to ensure that knowledge and skills are not
lost during the down-time periods, and also that emerging technologies such as social media are
leveraged. Not only will such an approach have the direct benefit of helping to ensure that the logistic
teams and associated infrastructure are ready to go, but it will also continually refresh the vital inter-
personal linkages that are typically relied upon to overcome the inevitable unanticipated challenges.
Finally, it is believed that there needs to be a clearer understanding of the ‘expected community
outcomes’ in this area. Without clarity over the ultimate goal, there is an obvious potential for over-
and/or under-achievement (with associated inefficiency or resource expenditure). Hence, we believe
that a scenario based model based on community and stakeholder expectations should be a helpful
way for future emergency logistics planning.
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Responsibility centric isomorphism in supply chains: A
conceptual model
With increasing levels of complexity and length of global supply chains, stakeholder
pressures for responsible behaviour has reached its zenith. Consumers demand for responsible
conduct of business in all tiers of international supply chain operations and this mandates a
similarity of responsibility orientation within all supply chain actors. The paper employs a dual
theoretical lens offered by stakeholder theory and institutional theory, the latter being
underutilised within the responsibility and supply chain domain. Using this theoretical
approach, the paper illustrates a model that results in a homogenous perspective of
responsibility within the entire supply chain. By exploring how institutional pressures for
sustainability and socially responsible behaviour integrate within the supply chain, the paper
contributes to the academic domain.
Keywords – Supply chain, responsibility, institutional theory, isomorphism, responsible consumerism
Introduction
Within the global business context, more often than not, fiscal imperatives trounce societal
and environment centric values. This is exemplified by the cases of the food safety scandals in
recent years including the Chinese Melamine tainted milk scandal, the horsemeat scandal in
EU, etc. With decreasing trade restrictions and an analogous increase in trade transcending
national boundaries, companies operating transnationally strive to be competitive in the global
playing field by decreasing costs. As Bai and Sarkis (2011) illustrate, a major percentage of
the final product value is generated along the supply chain. Similarly in some industries, as
Hartley and Choi (1996) indicate, it could contribute to up to eighty percent of the value of the
product. Thus, companies no longer compete on the basis of their product or process alone, but
on basis of their supply chains which can make it competitive (Bai & Sarkis 2014; Gold,
Seuring & Beske 2010). The pressure of cost reduction to remain competitive is thus, funnelled
through the supply chain and adhering to such pressures is usually at the cost of responsible
behaviour. Socially irresponsible behaviour like the employment of sweatshop labour and non-
sustainable production systems within the developing world is an example for this trend.
Stakeholders, including the global consumers has taken note of an increasing irresponsibility
within supply chains, and thus, provide a countering pressure to companies; the pressure to be
responsible from an environmental and a social perspective. As Ashby, Leat and Hudson-Smith
(2012, p. 497) state, “the expected line of responsibility needs to extend along the full extent
369
of a firm’s supply chains into its products, processes and relationships”, thus illustrating the
importance of responsibility within the supply chain context. Pressures from the Customer, a
primary stakeholder) force businesses to act ethically Carrigan and Pelsmacker (2009, p. 681)
(New 2010).
Though Supply Chain Management is a boundary-spanning process (Fawcett, Magnan &
McCarter 2008), in most cases, the pressure to be environmentally sustainable and socially
responsible is directed at the focal firm/brand organization which might employ the services of
supply chain actors operating on multiple levels of the supply chain (Goebel et al. 2012). Bai
and Sarkis (2010) explicate that organizations are aware of importance of the supply chain
partner’s responsibility and its influence on the organization’s sustainability. Thus, the brand
organization mandates ethical business practices from its supply chain partners and contractors
though employment of responsible buying policies and monitoring of supplier activities for
adherence to the ethical values of the brand organization. Within the business context, culture
based on values and ethics is a significant antecedent of responsible behaviour within a supply
chain context (Carter & Easton 2011; Carter & Jennings 2004; Gonzalez-Padron, Hult &
Calantone 2008; Seuring & Müller 2008; Svensson 2009; Zorzini et al. 2015). A culture, i.e. a
shared ethos based on responsibility is pivotal for effective sustainability and responsibility
centric operations along the entire supply chain. Research by the likes ofCosta e Silva, Bradley
and Sousa (2012); Sako (1998); Tatham (2013) suggest that a sharing of values within a supply
chain is important for effective supply chain management. The objective of this paper is to
provide a conceptual model that accounts for different stakeholder pressures for responsibility
that will result in creating a homogenous perspective towards supply chain responsibility
within all levels of the supply chain.
The pressures for sustainable supply chain management witnessed a corresponding interest
from academics (Ageron, Gunasekaran & Spalanzani 2012; Carter & Rogers 2008; Seuring &
Müller 2008; Zimmer, Fröhling & Schultmann 2015). However, from a research perspective,
Ciliberti, Pontrandolfo and Scozzi (2008); Govindan, Khodaverdi and Jafarian (2013); Seuring
and Müller (2008); Van Bommel (2011, p. 897) illustrates that research within this context is
still growing and needs further development. Though literature has focussed predominantly on
the environmental perspective, there is an increase in interest on the social practices of supply
chain. From a supply chain perspective, there is a controversy surrounding the the term
‘sustainability’ which refers to environmental sustainability alone in some instances, and in
others, refers to the social and environmental components (Carter & Rogers 2008). Zorzini et
al. (2015) explain the importance of responsible social practices by citing cases of the unethical
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social practices of supply chain actors in emerging economies affecting the brand image of a
brand organization but the extant literature is not clear in this sense when it uses the term
‘sustainability’. Thus, in this paper, the authors defines the umbrella term ‘responsibility’ since
responsibility refers to all three dimensions of sustainable business; the economic, the social
and environment imperative. Empirical work within supply chain context illustrate that the
pressure to be responsible from a powerful supply chain actor, when channelized upstream to
the vertical supply chain actors, will result in adoption of more sustainable practices within the
supply chain (Hall 2000; Lee & Klassen 2008; Park-Poaps & Rees 2010). From a responsibility
perspective, currently literature is more focussed on the environmental component of
responsibility and further research is mandated within the social component (Ashby, Leat &
Hudson-Smith 2012; Carter & Rogers 2008; Carter & Easton 2011; Pagell & Shevchenko
2014; Sarkis 2001; Zimmer, Fröhling & Schultmann 2015; Zorzini et al. 2015). Ashby, Leat
and Hudson-Smith (2012, p. 506) illustrate that environmental component of sustainability
emphasises on “the management of natural resources” and the social component of
sustainability is emphasises on “the management of social resources, including people’s skills
and abilities, institutions, relationships and social values”. In essence, the key tenet of social
responsibility is social equity which mandates all members of society to possess equal access
to resources and opportunities (Bansal 2005, p. 198). As Pagell and Wu (2009) and Walker and
Jones (2012) illustrate, there are similarities between the environmental and social component
of responsible supply chains especially within the context of common drivers and barriers.
Thus, it is evident that today there is a greater stakeholder pressure that mandates responsible
conduct within all levels of the supply chain and customers, being a primary stakeholder, has
a significant influence on responsibility of businesses (Fernandez-Feijoo, Romero & Ruiz
2014; Meixell & Luoma 2015). Freeman (1984) states that responding to stakeholders
pressures is crucial for businesses and social responsibility strategies of an organization “can
cause important stakeholders of all stripes to form strong and long‐lasting identification‐based
bonds with the company” (Hildebrand, Sen & Bhattacharya 2011, p. 1359). In parrticular, as
Varma, Wadhwa and Deshmukh (2006) suggests, it requires a ‘paradigm shift’ from the present
consideration of financial success as a parameter for success, to a much more holistic
stakeholder concern. This paradigm shift mandates a change in the ethos or the culture of the
supply chain and this paper conceptualizes a model that could bring about such a paradigm
shift. However, within the different levels of the supply chain network, there are different
supply chain actors with a different perspective towards responsibility. For example, some may
371
consider the fiduciary duty to be pivotal, whilst others may consider the stakeholder orientation
pivotal. A homogenization of responsibility, which results in all supply chain actors operating
responsibly, is thus mandated. Since research analysing the overlap of environmental and social
dimensions is scarce, as Ashby, Leat and Hudson-Smith (2012) illustrate, this paper creates a
model that facilitates a responsibility-centric change within the supply chain. This change,
viewed through the institutional context, is defined as a conceding to the stakeholder pressures
for responsible behaviour.
Literature
Supply chains have a pivotal role on the environment and Tachizawa et al. (2015); Zimmer,
Fröhling and Schultmann (2015) illustrates this by exemplifying the increasing interest in
greening the supply chain. As Sarkis, Gonzalez-Torre and Adenso-Diaz (2010) puts it - “it
was the quality revolution in the 1980s and the green revolution since the beginning of this
century”. This resulted in the birth of Sustainable Supply Chain Management which Carter and
Rogers (2008, p. 368) define as “the strategic, transparent integration and achievement of an
organisation's social, environmental and economic goals in the systemic coordination of key
inter‐organisational business processes for improving the long term economic performance of
the individual company and its supply chains”. However in literature, the term ‘sustainability’
predominantly refers to the environmental component of sustainability and sometimes does not
account for the social side of business thus mandating a better definition (Carter & Rogers
2008; Touboulic & Walker 2015). Since this paper employs the umbrella term ‘responsibility’,
the authors use Bansal (2005) to define these components and thus, define the environmental
imperative as based on environmental integrity which accounts for the limited regenerative
capacity of the environment and ensure anthropogenic activities must not erode environmental
integrity. The social component pertains to the social equity principle which ensure that all
members of society have access to the resources and opportunities and the economic prosperity
principle promotes a reasonable quality of life through creation and distribution of goods and
services that raise standard of living.
Though institutional theory has been evidenced as a respectable theoretical lens possessing
explanatory power by the likes of Pedersen and Gwozdz (2014) Liu et al. (2010), Kauppi
(2013) and Ketokivi and Schroeder (2004), the supply chain literature “has been slow to utilize
the Institutional theory” (Cai, Jun & Yang 2010; Carter & Easton 2011; Huang, Gattiker &
Schroeder 2010, p. 65; Liu et al. 2010). Though academics call for more theory development
in supply chain research (Carter & Rogers 2008), literature currently lacks in the responsibility
372
context due to the dearth of models to inculcate responsibility centric isomorphism within
supply chains and the existing work has predominantly focussed on the environmental
dimension of sustainability and not the social dimension (Kauppi 2013; Menguc, Auh &
Ozanne 2010; Wu, Ding & Chen 2012).
Theoretical lens
Although not explicitly citing institutional theory, Park-Poaps and Rees (2010) illustrate that
stakeholder pressures affects the social dimension of supply chains and these pressures lead to
socially responsible behavior within the supply chain and thus, proves that social responsibility
centric isomorphism can be driven through institutional pressures from supply chain. Though
there is literature illustrating models of ethical supply chains (Benjaafar, Li & Daskin 2013;
Seuring & Müller 2008), they do not take into account the influence of shared values within
supply chains. This paper accounts for these gaps in literature and develops a conceptual model
that will inculcate a responsibility centric sharing of values within supply chains; isomorphism
and thereby, account for pressures for increased responsibility within supply chains.
Within the institutional literature context, there are different taxonomies including the new
and old institutionalism and we used the classical institutionalism since this perspective
postulates that institutional pressure for sustainability will lead to isomorphic adoption of
sustainability (Caprar & Neville 2012). A review of literature within the supply chain domain
by Carter and Easton (2011, p. 57) illustrates an increasing trend of utilising multiple
theoretical lenses since the blending of multiple theoretical lenses can “help to better develop
hypotheses, add rich insights to the interpretation of findings, and help better understand the
boundaries of where these theories apply”. Thus, stakeholder pressures for responsibility
centric business is the crux for change and this change, within the context of this paper is
viewed from an isomorphism perspective. Pedersen and Gwozdz (2014) evince an increasing
trend in which institutional theory is employed within the context of sustainability and social
responsibility research. Thus, we employ the theoretical lens of institutional theory based on
stakeholders in this paper similar to Sarkis, Gonzalez-Torre and Adenso-Diaz (2010, p. 172)
since the “joint consideration of institutional and stakeholder pressures” provide better insights
to be responsible.
Stakeholder Lens
Freeman’s (1984) stakeholder theory is a dominant theoretical lens employed when studying
sustainability and social responsibility within the business context and it is relevant to this
model since stakeholder pressures mould an organization’s responsibility orientation (Carter
373
& Easton 2011; Eesley & Lenox (2005)). Since the term stakeholder has conceptual confusion
from a definition perspective, it is imperative that stakeholder be defined (Fassin 2009;
Freeman, Harrison & Wicks 2010; Miles 2012). For the purpose of this paper, we use
Freeman’s (1984, p. 46) definition of the stakeholder – “any individual or a group of individuals
who can affect or is affected by the achievement of an organization's objectives”. Stakeholders
demand responsible behaviour from the organization since stakeholders opine that
“corporations have a duty to social justice beyond legal compliance and that corporations
are capable of intentional actions through their own commitments toward their goals,
including morally responsible acts” (Ha-Brookshire 2015, p. 3). Pedersen and Gwozdz
(2014); Sarkis, Gonzalez-Torre and Adenso-Diaz (2010) state that these stakeholders could
exert pressures that could potentially change an organization’s operations, policies and values;
in essence, the organization. This is relevant from an institutional theory perspective since such
pressures, defined in the institutional literature as isomorphic pressures mandate similar
responsible behaviour from all organizations.
Institutional Lens for stakeholder legitimacy

As DiMaggio and Powell (1983) illustrate, actors within a set of organizations operating
within the same field work together to be similar to each other; a process termed isomorphism.
According to Pedersen and Gwozdz (2014) and Zsidisin, Melnyk and Ragatz (2005), factors,
both internal and external to the organization, could contribute to isomorphism. From a
research perspective, different variants of institutional theory exist within the academic domain
and within the inter-organizational and supply chain context. Ketokivi and Schroeder (2004)
and Kauppi (2013) illustrate the existence of two variants of institutional arguments. The first
variant, the economic variant, as offered by the likes of Haunschild and Miner (1997) accounts
for the intentional profit-maximization rationality of businesses and their managers. The
second variant of institutional theory, the sociological variant states that businesses account for
isomorphism to increase organizational legitimacy or social approval (Deephouse 1996;
DiMaggio & Powell 1983; Meyer & Rowan 1977; Zhu & Sarkis 2007). As Suddaby and
Greenwood (2005, p. 36) suggests, the “criterion for legitimacy is encoded within institutional
logics”. Legitimacy is a necessary condition to be competitive and thus, organizations adopt
systems to increase legitimacy. From a stakeholder theory perspective, this adoption of systems
to be perceived legitimate can be linked with stakeholder pressures to be responsible. Since
isomorphism leads to legitimacy within the industry, organizations accounts for the three
isomorphic pressures for sociological legitimacy; coercive, mimetic and normative. These
374
pressures lead to supply chain actors employing a strategy to adopt similar structures and
processes as their counterparts within the industry. We propose that it is within the sociological
tenet of institutional theory that the concepts of responsibility be ingrained within all levels of
the supply chain. Thus, the paper employs the sociological institutional variant as a theoretical
lens by accounting for the stakeholders’ coercive, mimetic and normative pressures of
responsibility.
Coercive pressures include both the formal and the informal pressures to be responsible
exerted on supply chain actors including brand organizations by stakeholders (Sarkis, Zhu &
Lai 2011; Zhu & Sarkis 2007). Rivera (2004) and Hsu et al. (2013) analysed the drivers of
green initiatives within the supply chain and illustrate that regulatory measures and competitor
pressures to be more environmentally sustainable through the employment of legislation and
policies and define them as examples of the coercive pressures.
Mimetic pressures are based on imitation, especially in cases where there is uncertainty
(DiMaggio & Powell 1983; Zsidisin, Melnyk & Ragatz 2005). Hsu et al. (2013) exemplify
mimetic isomorphism by citing the case of organizations embracing (mimicking) green
initiatives that were proven valuable to other organizations. For example, the Christmann and
Taylor (2001) illustrates that within the Chinese context when Chinese firms started exporting
to developed countries, they mimicked the environmental strategies of foreign competitors
thereby leading to better environmental performance in the Chinese context. As Jenkins (2006)
and Mccarthy and Puffer (2008) suggest, competitor companies are significant stakeholders
who contribute to the improvement of sustainability within an industry and mimicking the
behaviour of an ethical competitor or in this case, a responsible supply chain actor can result
in higher responsibility within the industry.
Normative isomorphism is a product of professionalization which Gopal and Gao (2009, p.
477) define as a process by which, “members within an occupation define the conditions and
methods of their work to establish greater legitimacy for their occupation”. From a supply chain
perspective, this relates to actors defining systems and processes that standardise operations
through industry networks and professional organizations like that of Production and
Operations Management Society (POMS) and the Institute for Supply Management (ISM)
(Kauppi 2013). In this logic, environmental sustainability and social responsibility standards
and certifications relates to the normative component of isomorphism since networks and
standards like that of The State of Sustainability Initiatives (SSI), Rainforest Alliance in the
United States, and Fairtrade in the Netherlands results in responsible supply chains. Within the
Chinese supply chain context, Zhu and Sarkis (2007) defines customer pressures as normative
375
pressures. However, these normative pressures through standardisation can be construed as
coercive pressures within the supply chain if such standards are mandated by customer
companies during procurement (Petrella & Richez-Battesti 2009).
Conceptual model
The concepts of institution and culture are very similar due to common elements of values,
beliefs, tradition and processes and thus, “institutions have been conceptualized as cultural
themes” (Caprar & Neville 2012, p. 237). With the preponderance of irresponsible behaviour
in global supply chains, stakeholders, including consumers from the developed world are
pressurising brand companies to inculcate responsible behaviour within their global supply
chains (Goebel et al. 2012). Such stakeholder pressures result in brand organizations
transferring these pressures along the supply chain thereby mandating a homogenous
perception towards responsibility within the entire supply chain, thus resulting in isomorphism.
The isomorphism process begins with an intention to change; the supply chain leaders
instigating this change communicate this intent along the supply chain resulting in the
consummation of change based on isomorphic responsibility centric pressures. To ensure the
sustenance of this change, the powerful supply chain actors create control and collaboration
systems that will effective result in a change within the values and the ethos of the supply chain.
This new change in the supply chain ethos results in a similarity of supply chain responsibility
since the supply chain actors who are dispersed globally, share similar responsibility-centric
orientation. This will ensure responsible behavior along the entire supply chain thereby
resulting in truly responsible supply chain, and thus, appeasing the responsible customer’s
pursuit for a truly responsible product.
Fig. 1 The Responsibility-Centric SCM model
376
Stakeholder pressures
Increasing stakeholder pressures for sustainability will result in “greater sustainability

awareness, adoption of sustainability goals and the implementation of sustainability practices”
within a supply chain (Meixell & Luoma 2015, p. 69). Thus, an increase in stakeholder
awareness within the supply chain resulted in an increase in pressures for responsible
behaviour. These pressures for responsible business from stakeholders can be “both direct (and)
indirect” (Chua & Rahman 2011, p. 317) and are denoted as SPs in the model. For example, an
NGO like Greenpeace protesting against the operations of an oil company is an example for
direct pressure but employing political lobbying against the oil company is an example for
indirect pressure. To account for these pressures, organizations account for five systems that
would result in isomorphic pressures within the supply chain. The authors define these as the
antecedents of responsibility centric isomorphism and these are an intention to change (I2C),
Supply chain communication, Consummation/Implementation of the change process, Control
and Collaboration systems. These antecedents pressurize the supply chain actors through
isomorphic pressures (denoted as IPs in the model).
Antecedents of responsibility centric isomorphism – the five Cs
Intention to change
Change begins with an intention; an intention to change for the better. This intention to change
the operations, policies or existent systems within an industry is a result of external or internal
motivations to be more sustainable; isomorphic pressures. For example, within the case of the
apparel industry, the intensity and consistency of stakeholders’ pressures to be responsible
determine the intention to change (Pedersen & Gwozdz 2014).From a responsibility
perspective, the focal company is usually held responsible of the actions of upstream suppliers
(Dai & Blackhurst 2012; Theißen & Spinler 2014; Zimmer, Fröhling & Schultmann 2015). As
Matten and Moon (2008), and Tan and Wang (2011) suggest, powerful actors within the supply
chain can also shape the institutional environment. Thus, it is in the best interest of the focal
company that the supply chain inculcates responsibility within the supply chain and thus, the
intention to change is usually instigated by managers within the focal company. A proactive
and collaborative approach based on shared values and integrated strategies is mandated for an
intention to change which leads to a change in the attitude towards responsibility (Holt &
Ghobadian 2009).
Communication
With greater supply chain length and complexity, the probability of unethical supply chain
377
actors and irresponsible behaviour increases. Communication along the supply chain is an
essential requirement of supply chain management (Bowersox, Closs & Stank 2000;
Christiansen 2015; Kwon & Suh 2004). This is more relevant to the small and medium
businesses, who are a major percentage of supply chain actors and “SMEs have a tendency to
hesitate to reach out for help if certain external stimuli do not exist” (Lee & Klassen 2008, p.
575). Thus, if isomorphic pressures to be responsible is not present from stakeholders like that
of customer organizations or regulators, SMEs tend not to communicate within the supply
chain. An effective communication system that improves supply chain transparency has
benefits from social, ecological, operational performance and long-term relationship success
perspectives (Bastian & Zentes 2013). Thus sustainability–centric communication is crucial
for stakeholder appeasement.
Supply chain partners within an industry have to adhere to industry specific standards. For
example, certifications within the organic food sector mandates minimal use of artificial
materials during production and this is communicated along the supply chain. Powerful supply
chain actors also communicate any changes to industry standards within the supply chain. Such
industry centric communication pertains to the normative component of isomorphic pressures
that could potentially lead to organizations changing to be considered more legitimate within
the industry. If a customer company mandates such certifications and sustainability centric
processes and communicates this to the supplier during the procurement process, this normative
pressure changes to coercive pressures. Hsu et al. (2013, p. 679) opine that that “managers
should share ‘success stories’ of their green adoption to exploit the effect of expected business
benefits” and each success story must also illustrate the benefit gained through the
implementing of a specific environmental initiative. This tends to lead to mimetic isomorphism
since other supply chain actors could mimic the processes of successful green adopters.
Communication within the supply chain, which in in turn is affected by institutional pressures
contribute to responsibility centric isomorphism within the supply chain.
Consummation
It is during the consummation stage that the strategies of responsible management are
implemented within the supply chain. This stage is termed consummation because it is in this
stage that the ethics centric culture is amalgamated into the ethos of the supply chain since such
a culture is imperative for effective implementation of sustainability (Andersen & Skjoett-
Larsen 2009; Carter & Easton 2011; Ha-Brookshire 2015). As Ha-Brookshire (2015) illustrate,
an organization’s culture which is based on shared knowledge, experience and values, is very
378
influential on overall responsibility; especially in a scenario where there is an absence of well-
defined structures. Accounting for the environmental dimension, Hsu et al. (2013) suggests
three tactics that organizations can implement to minimize the environmental impact;
• Green Purchasing which ensures the procured products have ecological
attributes,
• Effective design for environment which reduce the environmental impact of
products during the life cycle and finally,
• Sustainable reverse logistics.
The design for environment and reverse logistics might be costly due it significant process,
product, and distribution channel redesigns within the supply chain and therefore, Hsu et al.
(2013) recommends the implementation of the green purchasing strategies. This involves the
customer company coercing the supplier to be responsible in their operations failing which, the
supplier’s products will not be purchased. This relates to the coercive pressure of isomorphism.
Such a coercive tactic results in funnelling responsibility the supply chain through
implementing practices likes that of sustainable sourcing which accounts for both socially and
environmentally responsible sourcing (Hoejmose & Adrien-Kirby 2012; Pagell, Wu &
Wasserman 2010). This results in responsible operations from supplier organizations which
incites responsible behaviour within the supply chain thereby consummating a responsibility-
centric ethos within the supply chain and the industry.
Control and Collaboration

Within the supply chain context, target setting and monitoring of supplier behaviour is a very
common control mechanism. Controlling through monitoring can be considered as a process
aimed at reducing information asymmetry and therefore, a strategy for risk management
(Vachon & Klassen 2006). Controlling supply chain actors’ sustainability and social
responsibility is usually conducted through implementation of environmental standards
(ISO14000) or social standards like that of Social Accountability International SA8000
(Handfield, Sroufe & Walton 2005; Maloni & Brown 2006; Sarkis, Gonzalez-Torre & Adenso-
Diaz 2010). Other examples for control mechanisms involve informal evaluations (sans formal
procedures and in sporadic frequency) and formal evaluations (involving formal procedures at
a pre-determined frequency) (Tachizawa et al. 2015; Tsoulfas & Pappis 2008). Controlling
through monitoring of supply chain actors is usually considered as an arm’s length approach
and is critiqued on its efficiency (Lee & Klassen 2008). However, the threat of opportunistic
and unethical behaviour by companies along the supply chain forces downstream actors
379
(customers) to control the actions of their suppliers through constant and usually, costly
monitoring (Stump & Heide 1996). There exist three modes of control through monitoring:
• Self-monitoring or first party control,
• Control by association sector members (for example, the customer
organizations) and finally,
• Third-party monitoring through external independent organizations (Bastian &
Zentes 2013).
Within the supply chain context, as Mueller, Dos Santos and Seuring (2009, p. 512) suggest,
third party monitoring systems are most effective due to “concrete controls” that have a higher
degree of perceived legitimacy. Monitoring programs are mandatory within supply chains to
unethical and illegal activities that can affect the environmental or social responsibility
orientation of the supply chain (Carter & Rogers 2008).
Monitoring a supplier’s environmental sustainability compliance through environmental
audits (e.g. ISO 14000 and eco-labels) and the social responsibility compliance through social
audits (e.g. SA8000 and fair-trade certifications) can be considered as normative pressures. As
illustrated earlier, the industry standards and certifications relate to the normative pressure but
the compulsion by customers or regulators to adhere to such standards can be considered as
coercive isomorphic pressures. As Gimenez, Sierra and Rodon (2012) and Tachizawa et al.
(2015) illustrate, controlling though monitoring and collaboration affects the sustainability and
the environmental orientation of the supply chain and assessment through monitoring alone
would not suffice for responsible business and thus, they suggest collaboration as an integral
part of supply chains. Tachizawa et al. (2015) illustrate that coercive drivers can negatively
impact collaboration and proposes that focussing only on coercive methods can potentially
decrease the mutual trust that is the foundation for collaboration between supply chain actors.
Control and collaboration elements are extremely important within the supply chain
management perspective since, as Sarkis, Zhu and Lai (2011) illustrate, this reduces the
information asymmetry and transaction costs which directly contributes to the supply chain
efficiency. Effective monitoring and collaborative systems will result in developing the
suppliers’ environmental management capabilities thereby directly affect the environmental
sustainability of the supply chain (Large & Thomsen 2011; Lee & Klassen 2008; Tachizawa et
al. 2015).
Pedersen and Gwozdz (2014, p. 258) reveal that though there is greater stakeholder pressures
for responsible business, “companies see CSR responses to institutional pressures as
380
largely a compliance game rather than a strategic opportunity” and therefore, for true
sustainability, a shift in perceptions of ethical behaviour is necessary. The implementing
of five Cs within the supply chain will result in a shift in responsibility perception through
isomorphism thereby facilitating a similarity of processes or structures within a supply chain.
This similarity pertains to responsibility centric isomorphism. Ethics centric operations will
result in a sharing of social responsibility and environmental sustainability values within a
supply chain thereby resulting in the ‘sharing’ of these values along the entire supply chain
resulting in reducing the risk of an unhealthy or unsafe product.
Responsibility centric isomorphism
With increasing stakeholder pressures to be more sustainable and socially responsible,

managers have turned their attention towards the supply chain since as Hsu et al. (2013)
suggest, a major percentage of environmental risk exist in an organization’s supply chain. The
poor environmental or social standard of a small supplier can affect the larger brand
organization adversely. An end-of-pipe approach, which focuses not on the elimination of
irresponsible behaviour but on the transformation from one form to other, is a poor excuse for
sustainability. Thus, an extended external oriented approach that extends the responsibility
initiative beyond the firm’s boundaries is important to implement responsible business. As Ha-
Brookshire (2015, p. 1) state, “for (such) a supply chain to be truly sustainable, each
member of the supply chain must also be truly sustainable. For each member of the
supply chain to be truly sustainable, the individuals who work in a corporation must be
truly sustainable as well. That is, a truly sustainable supply chain cannot be established
without its member corporations’ and employees’ commitment to and successes in
sustainability”. Though not from a supply chain perspective, Caprar and Neville (2012, p. 231)
states that culture has a role in “norming the proliferation of sustainability-relevant
institutions, while also influencing the ‘‘conforming’’ to pressures for sustainability emanating
from these institutions”. Thus, a responsibility-centric culture must be deeply engrained
within the supply chain and all supply chain actors thereby creating a culture deeply
rooted in responsibility must share this. To instil such a culture within a supply chain, the
five defined antecedents that accounts for institutional pressures for responsible
behaviour must be present thereby morphing the supply chain into a ‘truly responsible
supply chain’.
Appeasement of responsible consumerism
Market factors, which include demands, competition, and norms set by consumers, drive the
381
supply chain processes and pressures for responsible behaviour from customers have a pivotal
role in supply chain dynamics (Chkanikova & Mont 2015; Smith, Palazzo & Bhattacharya
2010). Not adhering to consumer demands for responsible products leads to negative moral
emotional responses, which could potentially instigate negative consumer behaviour including
“negative word of mouth and protest toward the corporation” (Grappi, Romani & Bagozzi
2013, p. 1814). A responsible behaviour by all supply chain actors, the result of a shared sense
of responsibility through responsibility centric isomorphism will ensure the appeasement of
responsible consumerism.
Contribution
From an environmental perspective, implementing the model will inculcate an environmental
attitude as defined by Holt and Ghobadian (2009) or a green orientation within the supply chain
and as Hsu et al. (2013) suggests; there are three benefits associated with a green orientation
within the supply chain. Firstly, from a product life cycle improvement perspective, there will
be a better utilization of the product thereby minimizing landfill. Secondly, implementing
processes that involves recycling and better resource utilization will result in both
environmental and business benefits Sarkis et al., 2011; Rao and Holt, 2005; Zhu and Sarkis,
2004). Finally, having a green orientation will result in a reduction of transaction costs through
reduced packaging waste, lower labour costs, monitoring costs, and increased supply chain
efficiency (Carter & Rogers 2008). As Hobbs (1996, p. 26) illustrates, the reduction of
transaction costs “lie at the heart of the interest in supply chain management”. The proposed
model can achieve this by improving the Environmental Management Capability of the entire
supply chain since every supply chain actor possess a greater ability to integrate the
environmental issues into the business processes (Organisational and Supply Chain EMC)
thereby improving the overall EMC of the supply chain (Lee & Klassen 2008) and contribute
to customer satisfaction (Ageron, Gunasekaran & Spalanzani 2012).
Ashby, Leat and Hudson-Smith (2012, p. 502) states that “Supply Chain Management is
fundamentally a practical discipline which focuses on products and processes and the
links/relationships that facilitate these”. Thus, this discipline of operations research mandates
models that has practical, real-world implications and therefore increases the relevance of the
model since the model defines five antecedents of responsibility centric isomorphism. The
supply chain managers must ensure the existence of these antecedents within the supply chain
thereby ensuring a responsibility centric change resulting in a shared perspective of
responsibility. Carter and Rogers (2008) suggest that for the long term sustenance, visionary
382
companies accounts for profit maximization component as not the primary driving force, but a
sense of purpose and core value that transcended the economic construct of business. Thus, a
sense of purpose based on responsibility centric value is mandated within the supply chain for
the long-term sustenance of all supply chain actors. Carter and Rogers (2008) illustrates that
within the supply chain context, there is usually a difference in the understanding of
sustainability among supply chain personnel and the model will result in isomorphism within
the supply chain and this could be based on a shared sense of responsibility and ethics.
With increasing pressures for sustainability and social responsibility from stakeholders
around the world, companies have to account for responsible behaviour; not only within its
own walls of the office, but also along the entire supply chain. This mandates a similarity or a
shared perception of responsibility and the paper illustrates five antecedents of responsible
behaviour which, when implemented effectively within a supply chain, results in
responsibility–centric isomorphism. From a marketing perspective, consumers demand
responsible products, which are produced and delivered in the most sustainable and socially
responsible manner. Through a homogenisation of responsibility within the supply chain, the
supply chain will bolster its ability to purvey products that are truly responsible, thus appeasing
consumers’ pressures for a truly responsible product.
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387
ANALYZING THE RELATIONSHIP BETWEEN BATCH SIZING AND
BULLWHIP EFFECT IN TWO-TIER SUPPLY CHAIN: A CASE STUDY
OF SELECTED PAKISTANI RICE FIRMS
ShoaibYousaf1, Matloub Hussain2
1
Doctoral Researcher, Department of Technology Management, Facility of Management
Sciences, International Islamic University, Islamabad, Pakistan .Address: Sector H-10,
Islamabad, Pakistan.
2
Associate Professor, College of Business Administration (COBA), Abu Dhabi University,
P.O Box 59911, Abu Dhabi, UAE. Email: Matloub.hussain@adu.ac.ae
Corresponding author: Corresponding author: Email; shoaib.phdtm19@iiu.edu.pk
Phone:0092- 300 4439 774 , Fax; 0092- 051- 2802005
388

Analyzing the Relationship between Batch Sizing and Bullwhip
Effect in Two-Tier Supply Chain: A Case Study of Selected
Pakistani Rice Firms
ABSTRACT
The purpose of this research is to investigate the bullwhip effect in two tier supply chain.
Simulation has been used as a methodology to analyse the impact of batching on bullwhip in
rice industry of Pakistan. Two cases of the rice industry have been chosen as a sample. The
contribution of this research is two-fold. Firstly, the current research is an extension of a study
by Hussain and Drake (2011) that analyses the relationship between batch size and bullwhip
effect as non-monotonic, whereby the size of the remainder of quotient determines the value of
bullwhip effect. Secondly, the batch size has less frequently been studied in the context of
bullwhip effect; hence the researcher has extended strength to the existing supply chain model.
It has been found that the relationship between batch size and demand amplification is non
linear. It cannot be said that reducing the batch size will minimize the bullwhip effect. Batch
size larger than average demand does not result in bullwhip effect. In other words, variance of
the order quantity is smaller than the variance of demand, which leads to anti-bullwhip or de-
whips effect. This study will help the practitioners and supply chain managers to control the
bullwhip produced by batching effect across multi-echelon supply chains. However, this study
has been based on two tier supply chain while in reality supply chain has got many tiers. Hence,
this study can be extended across more than two tier supply chains.
Keywords: Supply Chain Dynamics, Bullwhip Effect, Batching, Simulation, Rice Industry.
INTRODUCTION
One of the most significant supply chain research problems, that have drawn much attention
for more than four decades, is the phenomenon well-known as the “Bullwhip Effect” i.e. a
condition where demand distortion magnifies, as one moves up in the supply chain. Forrester
(1961) was the pioneer, who explored demand amplification in supply chain dynamics, also
called “Forrester Effect” or the “Law of Industrial Dynamics” at the Massachusetts Institute of
Technology. This attracted many researchers and triggered a curiosity among them to
understand its causes. Forrester identified that demand amplification is due to system dynamics
and can be tackled by reducing delays in the supply chain. Then, Sterman (1989) explored the
bullwhip effect in a “Beer Distribution Game” and concluded that this phenomenon occurs due
to “irrational behaviour” of supply chain players. After that, Lee et al., (1997a, b) identified the
causes of bullwhip effect in upstream nodes in the supply chain players. Five causes of bullwhip
are demand signal processing/demand forecasting, order batching, price fluctuation, rationing
and shortage gaming (Lee et al., 1997a, b) and lead time (Chen et al., 2000; de Souza et al.,
2000). Disney and Lambrecht (2008) wrote a textbook to identify the causes and provide some
remedies. In past the researchers tried hard to eradicate the menace of bullwhip effect. However,
this problem is persistent in the supply chain management, and it is a source of continuous
perturbance for the industrialists.
Batch sizing is one of the most irritating problems caused by the bullwhip effect identified by
(Lee et al. 1997a, b; Riddalls and Bennett 2001). It is also termed lot sizing. It refers to the
389

phenomenon of placing orders to upstream tiers in batches. The main reason for a company
ordering in batches is that it may prove to be less costly because of transportation costs or the
company might receive a discount if a large quantity is ordered in one period (Burbridge, 1991).
In a traditional perspective, to determine the optimal batch size, industrialists have to analyze
the trade-off between ordering costs, storage and holding costs, and stock out costs, which is
generally well-known as Economic Order Quantity (EOQ) (Lee et al. 1997b). Order batching
refers to Economic Batch Quantity (EBQ) and Economic Production Quantity (EPQ) for a
company ordering a large quantity of products in one week and not ordering any for many
weeks where it is economically conducive for a company to produce large batches which can
reduce the number of facility set-up and enhance manufacturing efficiency.
The present paper focuses on the impact of batch sizing on bullwhip effect with real time data.
For this current paper the primary data has been collected from the rice industry of Pakistan.
This paper fills a missing piece in the landscape of batching on the bullwhip effect for supply
chain applications in academia. A few studies have been conducted in the context of supply
chain management with reference to Pakistan. It has been noticed that rice industrialists are
facing dire problems related to supplying their products to other chain members in the supply
chain. Unfortunately; no model has been used in the rice industry of Pakistan so far. This study
is filling the gap in the existing literature since no detailed investigation has been carried out to
explore the impact of batch size on the bullwhip effect in the two-tier supply chain. No real
time data has been utilized by the past researchers. The supply chain model Automatic Pipeline
Inventory and Order Based Production Control System (APIOBPCS) has been implemented
for the first time with special reference to Pakistan.
The rest of paper is split in four sections. Section 2 presents research methodology. In section
3, the model is presented. Section 4 summarizes the impact of batching on bullwhip effect, and
conclusion is presented in section 5.
METHODOLOGY
The case study approach has been selected as it is an apt method to describe and explore a new
phenomenon. Keeping in view the dynamics of the issues, this research has applied the
continuous simulation modelling technique and the case study research as a research
methodology. To simulate the APIOBPCS model, “What-If” analysis has been applied in this
research. Computer software Microsoft Excel 2007 is used for simulation techniques.
TWO-TIER SUPPLY CHAIN MODEL

Figure 1 shows the simulation model of two-tier supply chain consisting of one manufacturer
and one distributor. The APIOBPCS model expressed by John et al. (1994) as “Lets the
production targets be equal to the sum of an exponentially smoothed demand (over Ta units of
time) plus a fraction (1/Ti) of the inventory error, plus a fraction (1/ Tw) of the work in progress
(WIP) error. The model comprises four parameters (each-tier) that are Ta, Ti, Tw, and Tp. Ta
is the parameter that expresses how quickly demand is tracked in the exponential smoothing
forecasting technique, while Ti suggests that the difference between the actual and
desired/target inventory levels is added to the production/distribution order rate (ORATE). Tw
describes how much of the discrepancy between the actual work-in-process (WIP) and
390

desired/target WIP levels should be added to the production/distribution ORATE. Tp describes
the actual pipeline delay between an order being placed and its receipt into stock - see Figure
1.
In summary
SALES  Is the actual end customer demand (1)
SALES  ORATE (2)
SSALES  SSALES  ( SALES  SALES ) * 1 / Ta (3)
ORATE  SSALES  EINV / Ti  EWIP / Ta (4)
COMRATE  ORATE (5)
AINV  AINV  COMRATE  SALES (6)
DINV  SALES (7)
EINV  DINV  AINV (8)
DWIP  TPxSSALES (9)
EWIP  DWIP  WIP (10)
In the current research the supply chain APIOBPCS model has been extended by introducing
batch ordering. Batching is introduced by the ROUND function in the Microsoft Excel program.
The round function rounds values up to the next integer value. So to convent an ORATE to
batches of size (BS), the following formula is applied:
Number of Batches = ROUND (ORATE / BS) (11)

And the new ORATE is then:
Batched ORATE = Number of batches x BS (12)
MEASURING THE BULLWHIP EFFECT

Past researchers have applied different statistical equations to calculate the variance, like
Reinder and Trcka (2004) used to calculate the total bullwhip effect through coefficient of
variance of the manufacturer and divided it on the coefficient of variance of the consumer
demand. Hussain et al. (2007) used coefficient of orders placed and divided it on the orders
received. In the current research, the following equation has been used to calculate the bullwhip
effect. This equation is mostly used in literature (e.g., Muramatsu et al. 1985; Disney and
Towill, 2003b; Bottani and Montanari, 2010; Hussain and Drake, 2011).
Bullwhip = σ2 orders / σ2demand (13)
391

Sales Feed forward 2
Exponential
DINV 2 Smoothing 2 SALES 2
Distributor
EINV 2 ORATE 2 COMRATE 2 AINV 2
1
Ti
Production
Delay (Tp) 2 
1 1
Tp Tw 
DWIP 2 EWIP 2
Pipeline Feedback 2
Inventory Feedback 2
Sales Feed forward 1

Exponential Factory
DINV 1 Smoothing 1 SALES 1
EINV 1 ORATE 1 COMRATE 1 AINV 1

+ 1
Ti
++
+
Production
Delay (Tp) 1 + 
1 1
Tp Tw
+ 
DWIP 1 EWIP 1
Pipeline Feedback 1
+
Inventory Feedback 1
Figure 1: Block Diagram of Two-Tier APIOBPCS Model.
ANALYSIS OF THE IMPACT OF BATCHING ON BULLWHIP EFFECT
392

In this research, two case studies have been selected from the rice industry of Pakistan. The
data for the study is collected from the demand and sales sheets of a group of four large rice
manufacturers and their distributors (two-each) from the districts of Lahore and Islamabad,
Pakistan. Since this is a case study research, therefore, the data from four firms is considered
sufficient to examine the impact of different batch size on bullwhip effect for the selected firms.
In this study, the APIOBPCS model has been adopted from John et al. (1994). The value of
parameters from the model applied in this research are Tp = Tw = 6 and Ta = 2Tp = 12, i.e. a
good set of values in accordance with the findings of the Mason-Jones et al. (1997) and as well
as used by Wilson (2007). The detailed investigation on the impact of batching on the bullwhip
effect has been tested through different scenarios’ of simulation modelling technique.
Simulation was carried out 520 times within 100 weeks, both from the manufacturers’ and
distributors’ perspective. The main purpose of conducting the study is two-fold. Firstly, is to
find out the optimum level of batch sizes, and secondly to make easy for the supply chain
managers and operation managers for mitigating the bullwhip effect. For these purposes, the
batch sizes of manufacturers and their distributors have been selected as practically used, i.e.
1kilogram (kg), 2kg, 5kg, 10kg, 20kg, 30kg, and 40kg for the distributors and 5kg, 10kg, 20kg,
30kg, and 40kg for manufacturers.
By using simulation modelling technique on data analysis, it has been found that when the batch
sizes of manufacturers are selected 5kg, 10kg, and 30kg, the value of variance of orders is high.
On the contrary, when the batch size of the manufacturer is selected 40kg, the value of variance
of orders lessens. Likewise, when compared the values of variance of the batch sizes from the
manufacturers’ perspective, the 40kg batch size obtains an optimal value of variance, mitigating
the bullwhip effect. However, from the distributors’ point of view, the variance of orders cannot
be minimized when the batch size is reduced. For the first distributor, the optimal level of
variance can be achieved when the batch size is 20kg as compared to batch sizes of 1kg, 2kg,
5kg, and 10kg. Same is the factual position of the second distributor whose optimal value of
variance is also achieved when the batch size is 20kg.
Table 1: Variance Values of Tier1 and Tier 2 in FIRST CASE
Sr. Weeks Batch Sizes (Distributor, Tier 1 (Variance Tier 2 (Variance

No Manufacturer) Value of Value of
Distributor) Manufacturer)
1 1 to 100 1Kg, 5Kg 946,955.01 159,330,822.55
2 1 to 100 2Kg, 10Kg 946,913.23 159,342,163.02
3 1 to 100 5Kg, 20Kg 947,229.48 159,324,694.95
4 1 to 100 10Kg, 30Kg 946,250.46 159,332,056.00
5 1 to 100 20Kg, 40Kg 946,145.45 159,298,045.90
6 1 to 100 30Kg, 40Kg 950,400.00 159,298,045.90
7 1 to 100 40Kg, 40Kg 947,203.88 159,298,045.90
8 1 to 100 20Kg, 40Kg 946,145.45 159,298,045.90
Table 2: Variance Values of Tier 1 and Tier 2 in SECOND CASE
393

Sr. Weeks Batch Sizes (Distributor, Tier 1 (Variance Tier 2 (Variance
No Manufacturer) Value of Value of
Distributor) Manufacturer)
1 1 to 100 1Kg, 5Kg 653,598.85 479,816,295.14
2 1 to 100 2Kg, 10Kg 653,468.02 479,846,164.15
3 1 to 100 5Kg, 20Kg 653,914.91 479,819,397.33
4 1 to 100 10Kg, 30Kg 653,620.31 479,886,697.73
5 1 to 100 20Kg, 40Kg 652,599.76 479,782,944.81
6 1 to 100 30Kg, 40Kg 654,751.27 479,782,944.81
7 1 to 100 40Kg, 40Kg 654,773.49 479,782,944.81
8 1 to 100 20Kg, 40Kg 652,599.76 479,782,944.81
The results of this research have confirmed that a large batch size than the average demand,
results in no bullwhip effect or the variance of the order quantity is smaller than the variance of
demand, which leads to anti-bullwhip or de-whips effect. A de-whip effect means that the
production planning phase at the manufacturer’s level becomes easier and more stable. The
manufacturer prefers to smooth production and a smooth ordering pattern from the retailer. The
bullwhip effect increases the variance in orders and destabilizes the production planning phase
at the manufacturer’s level. When the variance of the order quantity is smaller than the variance
of the demand (de-whip effect), the production manager can plan efficient production schedule
and minimize the production cost.
This research provides a great deal of managerial implications for making effective decisions.
The production and inventory holding costs play a pivotal role in every organization to
maximize its profits. The strategic management of an organization mainly focuses on this
aspect, irrespective of the fact that it is doing a small business or a large one. Batch sizing is
also a one of the factors that increases production and inventory holding costs. Due to batch
sizing, the production and inventory holding costs of their products increases. In this situation,
the industrialists are unable to handle their stock that leads to out of stock, and sometimes extra
stock is accumulated. The operational managers do not know how to tackle these problems.
These problems can be controlled and minimized by utilizing the proper batch sizes. By
employing the proper batch sizes, they can gain competitive advantage over their competitors
by grabbing the market share through controlling the batch sizes. Moreover, they can minimize
the cost of their labour, inventory and operations.
By examining this trend, the production managers are able to forecast high amplification in
advance and can better pre-plan to change the batch size to minimize this amplification. This is
quite logical as the batch size increases, the managerial cost of production minimizes, so it is
more convenient to take the advantage of this temporary low production cost and a small
increase in production can be accommodated by increasing the batch size to integer multiple of
the average demand without requiring a whole new batch.
By looking at the graph of bullwhip effect caused by batch size, the operations managers can
substantially minimize the inventory holding cost, switching over cost and backlog cost by
cautiously selecting the batch size without complex mathematical calculations. When the
upstream tiers of the supply chain are not working with the batching constraint in their order
394

rates, changing the batch size of the distributor does not have any impact on the demand
amplification of the factory.
Tier 1 Tier 2
2500
2000
ORATE (in 100s)
1500
1000
500
0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Weeks
Figure 2: Impact of 20kg & 40Kg Batch Sizes on Bullwhip Effect in FIRST CASE
Tier 1 Tier 2
3500
3000
ORATE (in 100s)
2500
2000
1500
1000
500
0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Weeks
Figure 3: Impact of 20Kg & 40Kg Batch size on Bullwhip Effect in SECOND CASE
CONCLUSION
395

The original contribution of this research is two-fold. Firstly, it provides an empirical testing of
a conceptual study by Hussain and Drake (2011), which analysed the relationship between
batch size and the bullwhip effect as non-monotonic and that the size of remainder of quotient
determines the value of bullwhip effect. Thus far, there has been no empirical evidence
available related to the impact of batch sizing on the bullwhip effect in the existing literature.
Secondly, it provides the extension of APIOBPCS supply chain model by incorporating batch
sizing.
This research supports the research conducted by Hussain and Drake (2011) in a way that the
smallest batch size does not lead to lower amplification. It is also conformity with the findings
of (Riddalls and Bennett 2001; Potter and Disney 2006). However, it challenges Burbridge,
(1981), who espoused that the smallest batch size leads to lower amplification. Mehra et al.
(2006) also found that through smaller batch sizes in a process industry, demand amplification
lessens as compared to larger batch sizes. Hejazi and Hilmola (2006) identified that splitting
bulky incoming orders into small production batches is the proficient scheme to fight against
the bullwhip effect.
Although, batch sizing is one of the most enigmatic issues for the manufacturers since there are
a number of good reasons to make them larger and other good reasons to make them smaller
batch sizes. To avoid a war, organizations want to identify whether they should make either
larger or smaller batch sizes. This study vehemently recommends that: larger batch sizes are
more beneficial for gaining profits. This will also help them to avoid delay in supplying to their
chains. To this end, larger batch sizes will be the desired strategy as they will create minimum
bullwhip effect as compared to the small batch sizes.
As this research focuses only on the rice industry, the findings are apparently valid for this
industry and may not be generalized for all the industries. However, there is a need to
investigate this issue in some other case studies in order to validate the findings. While the two
case studies have been conducted during this research, there is a need to carry out more case
studies to explore the impacts and validate the results of the present study.
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398

Smallholders and Agribusiness Supply Chains:
Participation and Implications
Gursharan Singh
Ph.D. Candidate, Faculty of Agribusiness and Commerce,
Lincoln University, Christchurch
Gursharan.Singh@lincolnuni.ac.nz
Mark M.J. Wilson, Ph.D.

Senior Lecturer in Supply Chain Management,
Department Global Value Chains and Trade,
Faculty of Agribusiness and Commerce,
mark.wilson@lincoln.ac.nz
David L. Dean, Ph.D.

Senior Lecturer in Marketing,
Department Agribusiness and Markets,
Faculty of Agribusiness and Commerce,
david.dean@lincoln.ac.nz
Abstract:
Purpose: Linking smallholder farmers to markets is an important issue under discussion in

academia and economies. This paper draws the attention to smallholder farmer participation in
fresh produce supply chains in developing countries. This paper aims to discuss the literature
concerning the impediments and opportunities for smallholder participation in agribusiness
supply chains within developing countries. It will then develop a conceptual model and propose
a set of research propositions.
Design/ method: The existing literature is reviewed by using library search, reviewing journal
articles, books, conference proceedings and academic databases to identify the smallholder’s
position in agribusiness supply chains. The hypothetic-deductive method is proposed for
further research on this topic.
Findings: The opportunity for smallholders to raise their incomes increasingly depends on
their ability to participate and compete in the various market structures. Previous studies
predominantly emphasize exploring the transformation of food systems in developing countries
399

and the impact of organised chains on farmer’s income and poverty reduction. This paper
reviews the literature to formulate a framework to quantify enablers and barriers for
smallholder farmer participation in agribusiness supply chains.
Contribution: By using transaction cost and collective action theories, this paper provides a
framework and research propositions for further research on the topic.
Keywords: Food supply chains; Fresh produce, Smallholder farmers; Participation,

Transaction cost; Collective actions;
Paper type: Conceptual
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1.0 Introduction
Recent literature has drawn attention to the rise of the organised food retail sector in different
regions of the world and forecasts their rapid spread. The spread of the organised retail sector
in developing countries, as discussed by Reardon and Timmer (2007), emerged in three
successive waves between 1990’s and the early 2000s. In developing countries, food markets
are still dominated by traditional local (wet) markets. These chains are characterised by
performance issues, high price volatility, high marketing costs, a large number of
intermediaries, inefficient logistics and asymmetric information flows (Cadilhon, Moustier,
Poole, Tam, & Fearne, 2006; Murray-Prior et al., 2005). Traditional wet markets are often price
driven and opportunistic behaviours are observed in chain participants who prefer to maximise
their self-interest (Martin & Jagadish, 2006).
On the other hand, organized retail usually comprises a chain of stores, all owned or franchised
by a central entity, or a single store that is large enough to achieve scale economies (Singh &
Singla, 2011). Organised chains focus on value quality, continuity of supply, food safety and
shelf-life (Dabas, Sternquist, & Mahi, 2012). The emergence of organised chains (the words
‘organised chains’ and ‘supermarkets’ have similar connotations are used interchangeably) in
developing countries has transformed agri-business markets, but at different rates and to
different extents across regions and countries. It has created an opportunity for the emergence
of the international food supply chain retailer as well as regional agri-business chains in
developing countries (Reardon & Berdegue, 2002; Singh, 2002).
The main driving factors responsible for changes in agribusiness systems are agro-
industrialisation (Boehlje, 1999), changes in agri-business technology (Saxowsky & Duncan,
1998), trade liberalisation adopted by developing countries (Reardon & Barrett, 2000),
changing consumption patterns in terms of quality, safety and convenience by customers.
These changes have offered a platform to organised retail chains to prosper in developing
countries. In addition, these changes have offered an opportunity to primary producers of
developing countries to participate in local and global markets as well (Hernández, Reardon,
& Berdegué, 2007; Pingali, Khwaja, & Meijer, 2005).
On the other hand, it is not easy for smallholders to access high value markets due to high
marketing and transaction cost (Blandon, Henson, & Cranfield, 2009; Delgado, 1999; Key &
Runsten, 1999; Kirsten & Sartorius, 2002; Reardon & Barrett, 2000; Reardon, Timmer,
401

Barrett, & Berdegué, 2003; Weatherspoon, Cacho, & Christy, 2001). While, organised chains
focus on creating economies of scale and frequent and graded quantities, the chances of
smallholder’s exclusion are high due to inadequate physical, legal, capital and regulatory
infrastructure (Kirsten & Sartorius, 2002; Reardon & Barrett, 2000; Reardon et al., 2003).
For some specific fresh produce commodities, smallholders may hold some competitive
advantages over larger producers, especially as their low costs are derived from accessing
family labour and intensive local knowledge. Yet, the opportunity for smallholders to raise
their economic viability largely depends on their ability to compete in the market (Poulton,
Kydd, & Dorward, 2006). The issues discussed above, raise questions whether smallholders
would be able to fully participate in organised chains and what impact such participation would
have on their livelihood? Hence, this paper aims to identify the enablers and barriers to
smallholder farmer participation in agribusiness supply chains in developing countries. By
using transaction cost and collective action theories, this paper provides a framework and
research propositions for further research on the topic.
The paper is divided into five main sections. The first briefly describes the introduction and
review method, second is an overview of smallholders farming, third is procurement modes of
organised chains, the forth section examines factors affecting market performance of
smallholders, and finally we present the analytical framework and propositions for the model.
2.0 Review Method
The paper aims to develop a framework to identify the position and key constraints for
incorporating smallholder fresh-produce growers into organised supply chains. A framework
is provided to identify what drives smallholder farmers to participate in either the traditional
or organised fresh produce supply chains. Existing knowledge is always the foundation of
future research, hence reviewing the literature of the proposed domain is an important starting
point as it identifies and summarizes the extant patterns and themes emerging around the
intended topic (Seuring, Müller, Westhaus, & Morana, 2005). As the context is smallholder
farmer participation, the literature reviewed concerns procurement modes, constraints to
smallholders, modes of participation, and the impact of transaction cost and collectivisation.
The initial approach was to use the keywords of; ‘smallholder’, ‘farmer participation’,
‘agribusiness’, ‘supply chains’, ‘developing countries’, ‘collective action’, ‘food supply
chains’, and ‘transaction cost’ and ‘agribusiness supply chain’ in ProQuest, Science Direct and
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Google scholar. In addition, discussion papers from Food and Agriculture Organization of the
United Nations (FAO), International Food Policy Research Institute, New Delhi (IFPRI),
International Food and Agribusiness Management Review (IFAMA), Food Policy
(ELSEVIER), International Fund for Agricultural Development (IFAD), Modernizing
Extension and Advisory Services (MEAS), Centre for Management in Agriculture,
Ahmadabad (CMA), Oxford journals were also searched.
3.0 Literature review
3.1 Smallholders farming: An overview
In developing countries, small farmers that rely mainly on family labour are the backbone of
agricultural production (Fan, Brzeska, Keyzer, & Halsema, 2013). Smallholders can be defined
according to size of land they owned (Initiative, 2005). Lowder, Skoet, and Raney (2016)
conducted a study on agriculture census data and revealed that there are more than 570 million
farms worldwide, most of which are small and family-operated. It shows that small farms (less
than 2 ha) operate about 12% and family farms about 75% of the world’s agricultural land. It
also shows that average farm size decreased in most low and lower-middle income countries
for which data are available (from 1960 to 2000). Whereas, during this same period average
farm sizes increased in some upper-middle income countries and in nearly all high-income
countries.
For example, in Guatemala, the famers suppling to supermarkets had larger farm size (9.3 ha)
and cultivated area (4.6 ha), as compare to those supplying to traditional markets (7.8 ha and
2.5 ha respectively) (Hernández et al., 2007). In Kenya and Zambia the average land holdings
in the small farm sector range from between 2.5 and 3.0 hectares, while only around one hectare
in Rwanda and Ethiopia, meaning farm size figures mask great variations (Jayne, Mather, &
Mghenyi, 2005).
In China, 53% of farmers contracted with supermarkets due to the stable or guaranteed fixed
price, while another 24% due to higher price offered by the packers (Miyata, Minot, & Hu,
2009). In Kenya, supermarket channel farms were on average five times larger in overall farm
size, than traditional channel farms (9–18 ha vs. 1.6–2.4 ha per farm depending on the crop)
(Neven, Odera, Reardon, & Wang, 2009). Further in India, Singh (2012) asserts that 85% of
farmers are small or marginal land holders and are widely excluded from organised chains.
Furthermore, wholesale cash and carry actors and domestic organised chains source 60% to
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70% of their procurement needs from wholesale markets rather than smallholder farmers.
Further, a study of contract farming in Punjab by Dhillon, Singh, and Dhillon (2006) found that
medium (5-10 Acres) and large farmers (10-15 Acres) participated more in organised chains
as opposed to small farmers (0-5 Acres). This shows that smallholders are less involved in large
more organised food supply chains. Thus, to understand the participation of smallholder farmer
in fresh produce supply chains, we need to first understand the procurement practices of
organised chains worldwide first.
3.2 Organised chains and primary producers: International experiences
It is presumed that organised chains focus on creating economies of scale, frequent and graded
quantities, hence the chances of smallholder’s exclusion are high. Yet, some academics suggest
that smallholders have actually benefitted from organised chain procurement through income
gains, higher and stable prices, increase in farm employment and technology adoption
(Michelson, Reardon, & Perez, 2012; Michelson, 2013; Minten, Randrianarison, & Swinnen,
2009; Miyata et al., 2009; Neven et al., 2009; Rao, Brümmer, & Qaim, 2012; Rao & Qaim,
2011). Indeed, there is evidence in literature (Miyata et al., 2009) to support that organised
chain participation raises the income of smallholders compared to contract and non-contract
small farmers (growing apples and green onion in china), and found that farmers contracted to
supermarkets have higher incomes. In Madagascar, Minten et al. (2009) found supermarkets
have micro-contracts with small farmers, combined with extensive farm assistance and
supervision program. The study found higher welfare, income stability and intensive farm
assistance gains by small farmers, in addition to the supervision programs to help fulfil the
complex quality requirements of supermarkets. In Kenya, Neven et al. (2009) found positive
impacts on smallholders with supermarket participation through higher wages and employment
due to dependence on hired labour by supermarkets. Rao and Qaim (2011) also found farmer
participation in supermarket channels lead to higher incomes due to the demands of hired
labour. In another study, Rao et al. (2012) found that by participating in supermarket supply
chains, farm productivity was increased by 45% by adopting production technology required
by the supermarkets. Michelson et al. (2012) found stable prices for farmers participating in
supermarket procurement programmes in Nicaragua. Singla, Singh, and Dhindsa (2011)
reported farmers supplying to organised chains realize higher profits, higher yields and higher
prices as compare to farmers supplying to traditional wet markets due to the technical
assistance that resulted in higher quality produce. Bellemare (2012) also identified an increase
404

in household income and found positive impacts on livelihood for farmers participating in
supermarket procurement in Madagascar. Blandon et al. (2009) reported that in Honduras, 57%
of the farmers supplying the supermarket channel received higher prices than the wholesale
spot markets, compared to only 26% of farmers supplying the spot market.
Conversely, other studies highlight mixed responses to participation of smallholders in

organised chains. Singh (2012) found smallholder exclusion by supermarket procurement in
Punjab (India) where supermarkets tend to rely on large landholders. Shepherd (2005) also
found supermarket preference for large farmers. In Mexico, Schwentesius and Gómez (2002)
stated that although supermarkets paid higher prices to their suppliers as compare to traditional
market suppliers, the net benefit to the supplier was somewhat diminished by the strict quality
standards and practices. In Thailand, Boselie, Henson, and Weatherspoon (2003) found
considerable risks to smallholder producers through the strict quality requirements and
implementing specific production practices which sometimes resulted in higher rejection rates.
Louw, Vermeulen, and Madevu (2006) noticed the practice of supply scheduling to
supermarkets that sometimes resulted in deliveries arriving at the same time creating an
oversupply on specific days. This results in smallholders being forced to sell at lower prices to
ensure the clearance of the stock due to its perishable nature. Ruben, Boselie, and Lu (2007)
also reported smallholders in Thailand delivering fresh produce to supermarkets in non-
standardized crates, in small lots, often in non-refrigerated trucks, with high variation in quality
and quantity which led to high ordering and invoice costs.
Hernández et al. (2007) examined the procurement practices of supermarkets in Guatemala and
stated that smallholders benefitted by supplying supermarkets. But they incurred some
additional transaction costs to participate that the larger and traditional farmers did not face.
Chowdhury, Gulati, and Gumbira-Sa'id (2005) investigated procurement system of organised
chains in Indonesia and found that high fixed transaction costs and the need to implement
quality grades and standards are significant barriers to participation. Pritchard, Gracy, and
Godwin (2010) reported on three districts of Karnataka in India where quality parameters used
by organised chains side lined the smallholders. A similar study in India, Mangala and
Chengappa (2008) noted smallholders exclusion by Spencer’s supermarket.
Even in developed countries, Réviron and Chappuis (2005) showed that producer/farmers had
to guarantee the product quality in Switzerland. However, despite a major change in the chain’s
organization, costly investments in quality control and storage facilities, and certification, and
the risks of smallholder exclusion still remains high. Similar patterns of organised chains
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overlooking smallholders for their procurement have been noted in numbers of other countries
such as Guatemala (Berdegué, Balsevich, Flores, & Reardon, 2005), in Mexico (Reardon,
Barrett, Berdegué, & Swinnen, 2009), and also Kenya (Rao & Qaim, 2011). Further, in Kenya
Dolan and Humphrey (2000) found supermarkets generally procure only 18 percent of their
fresh produce needs from smallholders, as compare to 40 percent from their own production
and 42 percent from large commercial farmers. Nonetheless, some exceptions are also found
where smallholders hold some competitive advantages over larger producers, especially in their
low costs derived from accessing family labour and intensive local knowledge. The examples
include tomatoes farmers in Guatemala and guavas in Mexico (Reardon et al., 2009), and
Nicaragua (Michelson et al., 2012).
The literature reviewed above highlights mixed trends regarding participation of smallholders
in organised chains. While some studies clearly mention higher return for smallholder’s
participation, others counted it as a challenge for low endowed farmers to participate. The next
section will identify various constraints smallholders face when attempting to participate in
organised supermarket chains.
3.3 Factors affecting market performance of smallholders:
Millions of smallholders in developing countries face serious obstacles in advancing from

subsistence farming to higher-income pathways. There are numerous factors found in the
literature that affect farmers’ prospects in the value chain and establishing market linkage
such as; the lack of information on prices and technologies (Markelova, Meinzen-Dick,
Hellin, & Dohrn, 2009); small land holdings (Jayne et al., 2005; Louw et al., 2006), high unit
transaction costs due to small volume of marketable surplus (Minot, 2011; Poulton et al.,
2006) high cost of meeting quality and food safety standards (Dolan & Humphrey, 2000;
Pingali, Khwaja, & Meijer, 2007; Vorley, Lundy, & MacGregor, 2009); private standards
(Fulponi, 2007; Minten et al., 2009) poor access to agricultural extension services (Pingali et
al., 2007; Shepherd, 2007), investment constraints to install costly machinery (Poulton et al.,
2006), credit constraints (Ayaz & Hussain, 2011; Minot, 2011), poor road infrastructure
(Minten et al., 2009; Singh, 2009), and high chances of product spoilage (Rienekens, 2011).
Table 2 shows these factors affecting market performance for smallholder farmers.
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Table 2 Factors affecting market performance of smallholders
Key factors Specific details

Farm size  Organized chain buyer avoid to work with land farmers having land
size less than 2 ha or below (Barrett, 2008; Jayne et al., 2005).
 Farmers who supply Organized Chains are 5 times larger than
traditional farmers, 9-18 ha compared with 1.2 - 2.4 ha (Neven et al.,
2009)
 In traditional markets, most smallholder farmers are constrained in
their ability to supply markets by their farm size and access to
resources (Minot, 2011; Poulton et al., 2006; Poulton & Lyne, 2009),
linkage to credit and  To invest in change, farmers need financing in the form of production
extension services loans, storage, trade capital, and insurance.
(including training)  Larger scale farmers, and those linked to formal markets, have access
to formal financial services (Ayaz & Hussain, 2011; Minot, 2011).
Ability to own  Owing warehouse and agriculture machinery increase the economic
resources viability
 Commercial farmers of fresh produce manage their water resources.
 Farmers linked to higher value markets typically have access to
irrigation, whereas most smallholders, especially those growing field
crops, operate in a rain fed environment (Agrawal, 2001; Barham &
Chitemi, 2009).
Variable production  High prices, availability, and financing for inputs are major barriers
cost to their use (Ferris et al., 2014).
 The cost to establish production in many types of crops can require a
farmer’s entire savings and loan potential.
 Farmers with access and the ability to buy technologies (such as
seeds from improved varieties or fertilizer), and who can manage
water resources have sizeable advantages over farmers who are
unable to use such technologies.
Transaction costs  Increasing consumer demand for high quality, safe, value added food,
required fixed cost to compliance (Poulton, Dorward, & Kydd, 2010;
Poulton et al., 2006).
Price volatility  Fresh produce is perishable by nature and high risk of losing
aesthetics and quality
 Price driven market, participant prefer opportunistic self-interest
rather than whole chain Ragasa et al. (2013).
 lack of storage and processing facilities, they cannot find alternative
markets and forced to sell at low price in wet market
Access to roads and  Proximity to markets reduces variable transaction costs in

ownership of transport horticultural markets and fixed transaction costs
 Access to roads and transport is typically a function of location, while
more remote and poor farmers have less market access than those
farmers living in areas with more investment do (Minten et al., 2009;
Singh, 2009.
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Education  Education levels are highly correlated with market access levels.
 This is typically a legacy issue in that wealthier households can
educate their children who then run, or manage, the farms.
Collective actions  In most situations, farmers in groups have been more likely to receive
support from extension services. Learning is more rapid in groups
compared with physically meeting many individuals. Peer support
helps farmers to learn together, stick to plans, and sell collectively.
Group sales associated with aggregated sale lots are more likely to
gain premium prices compared to farmers who sell as individuals
(Devaux et al., 2009; Kaganzi et al., 2009; Markelova et al., 2009).
Use of information  Farmers are using this technology to communicate with service
and communication providers, colleagues and buyers, and to learn about technology and
technologies market opportunities Smallholder farmers often lack market
information, struggle to meet buyers’ food safety and quality control
requirements, and are seldom able to provide standardized products
on a continuous basis (Gulati, Minot, Delgado, & Bora, 2007;
Markelova et al., 2009) .
Specification of  Leading supermarket chains impose private standards on their fresh
grades and Standards produce suppliers.
 Preference to large farmers who produce the best quality products at
the lowest possible cost (Kirsten & Sartorius, 2002)
Supply chain visibility  Better proximity with buyers leads to lower marketing risk for
smallholder farmers having less marketable surplus.
These factors include location and business maturity within a target area, as well as access to
infrastructure, agricultural services, and water and production technologies. The skills,
education, and organization of the farming community are also important aspects in terms of
their ambitions, discipline, and ability to plan, set goals, and follow an implementation
schedule.
The review above highlights the international experience of smallholder participation and it
seems general exclusion from organised chains. Next, we review two theoretical perspectives
that with help illuminate the problems and issues to allow the research to progress. Hence, we
examine the New Institutional Economics (NIE) framework (Williamson, 1975, 1979, 1985a)
and Collective action theory (Olson, 1965) to scan and identify the issues for fresh produce
smallholders, looking for the key constraints and enablers for participation in organised supply
chains.
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4.0 Theoretical Approaches - Transaction Costs and Collective Action
Fresh produce agriculture in developing countries has been transforming from subsistence to
commercial for some considerable time (Reardon and Timmer (2007). The evolution of
organised supply chains added costs and barriers into different stages of supply chain. Seeking
a view of these costs, we turn to the New Institutional Economics (NIE) framework to provide
a lens to scan and address the relationships between small fresh produce farmers and
commercial supply chains. Being especially interested in the form of relationship, from arm’s
length to vertical integration, we find that the NIE framework provides insights for transaction
and governance problems among supply chain partners. Hence, we next examine Transaction
Cost Economics (TCE) and then the Collective Action framework for theoretical insights with
which to explore smallholder’s participation in agri-business supply chains.
4.1 Transaction Costs
TCE has been widely used to research agricultural markets (Bhattarai, Lyne, & Martin, 2015;
Blandon, 2006; Key & Runsten, 1999; Pingali et al., 2005; Sartorius & Kirsten, 2007; Staatz,
1987). The TCE approach offers appropriate insights to address the relationship between
smallholders and organised fresh produce supply chains, and has an important role in shaping
fresh produce procurement modes. Coase (1937) introduced transaction costs into economic
analysis and pointed out that cost is associated with information and search of supply partners,
bureaucratic cost (maintaining a purchasing office), screening and monitoring by third party
arrangement, negotiation, coordinating and enforcement of contracts. Williamson (1985b, p.
52) considers three key concepts of the transaction, these being ‘asset specificity’, ‘uncertainty’
and ‘frequency’. From an agribusiness point of view these three concepts can be understand as
follows:
1. Asset Specificity can be described as the degree to which asset can be redeployed for
alternative use. Firms or individuals may be exposed to the risk of being taken advantage
of if an investment is only relevant for that specific transaction. Particularly in the
producer-buyer relationship, producers often must make transaction-specific investments,
thereby becoming exposed to hold-up situations. The producer’s decisions such as
selection of input, allocation of land to specific crops, channels of distribution to engage
with comprises the specificity of various assets.
2. Uncertainty of price and quality loss, force producers to accept variable prices prevailing
at harvesting time. Hueth, Ligon, Wolf, and Wu (1999) suggest that in general uncertainty
409

regarding quality of fresh produce leads to lower price for producers. Specifically,
environmental risk in agri-business are closely associated with the form of production,
yield, price variability and quality loss. The perishability of fresh produce, limited storage
options, the supply chain is highly inelastic (Sexton & Zhang, 1996).
3. The Frequency with which transactions occur can also affect the way that transactions
are organized, and hence their associated transaction costs. Organised chains demand
higher specific characteristics delivered in a consistent and frequent way, which make
spot markets inappropriate for some particular commodities where constant monitoring is
needed (Boehlje, 1999).
In agribusiness, transaction costs are associated with several forms of selling into organised
chain. Generally, organised chains demand specific requirements in terms of quantity, quality,
and frequency (Kirsten & Sartorius, 2002). Therefore, small farmers are uncertain if they will
be able to supply the quantity and quality demanded (Barrett, 2008; Jayne et al., 2005).
Information about grading and terms of contract also cause uncertainty for farmers. In order to
participate in the organised fresh produce supply chains, small farmers need specific
investments that allow them to continuously produce and meet the frequency required. Facing
high transaction costs to enter the organised chain, farmers may prefer to sell into the traditional
markets, because it has lower requirements and buyers/sellers are localised and familiar with
each other (Dolan & Humphrey, 2000; Pingali et al., 2007; Vorley et al., 2009). Nevertheless,
acting in this way, farmers would forego the potential benefits of selling in the organised chain.
Finally, Makhura (2001) argued that transaction costs reflect the character of the market, but
are mainly embedded in the characteristics of individual households and their economic
environment. Blandon (2006, p. 47) elaborates transaction costs relevant to the participation of
smallholders in organised fresh produce supply chains (see Table 3 below).
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Table 3: Transaction cost associated with the participation of smallholders into organised
chains
Uncertainty Asset Specificity Frequency

1 Production risk Irrigation Month of production
2 Quality risk Greenhouse Frequency of
delivery
3 Information asymmetry Collection and
distribution centers
4 Price volatility Logistics
5 Payment mechanism Technical assistance
6 Trust in relationship
7 Grading
Adapted from Blandon (2006, p. 47)
4.2 Collective Action Theory
Collective action can be define as the activities of a group of people either directly on-behalf
of an organisation, for the shared interest or benefits of group members themselves (Meinzen-
Dick, DiGregorio, & McCarthy, 2004). Collective action refers to actions taken by a group
either directly or indirectly in pursuit of members’ perceived shared interest, and arise when
people collaborate on joint action and decisions to accomplish an outcome which involves their
common interest (Sandler, 1992). Collective action theory argues that members jointly benefit
where groups are formed. Olson (1965) stated that collective action developed as a means to
overcome free-rider problems and design cooperative solutions for the management of
common resources. Collective actions are particularly pronounced in agri-business supply
chains to counter the power and polices of channel intermediaries and retailers. Thus, it is a
suitable framework with which to examine small-holder participation.
It is noted that organised chains preferably work with large farmers or groups who produce the
best quality products at the lowest possible cost (Kirsten & Sartorius, 2002). Markelova et al.
(2009) elaborates that collective action increases the market access for smallholders by
reducing the market imperfections, such as high transaction costs and missing credit markets.
It enables smallholders to gain the necessary information, reach quality standards and operate
on a larger scale when they pool financial and labour resources in a collective manner. In
addition, it is also found that Collective action enables smallholders to sell into new domestic
or international markets, which would otherwise be out of reach (Devaux et al., 2009). In
addition, collective action enables small-holder farmers to; comply with food safety standards,
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access to information on market, access market signals to gain economies of scale and be
competitive (Minten et al., 2009; Vorley et al., 2009).
In many cases, the establishment of farmer organizations incurs additional transaction costs
that imply that farmers may be better off not organizing in the first place (Stockbridge,
Dorward, Kydd, Morrison, & Poole, 2003). This may be especially the case with market access
for undifferentiated commodities, as often these supply chains are characterized by low
transactions, and the benefits of collective action and farmer organization in reducing these do
not outweigh the costs (Berdegué Sacristán, 2001).
5.0 Conceptual model and propositions
The propositions formulated for this research are derived from these two theories as well as
agribusiness supply chain literature. Due to factors, such as uncertainty, asset specific
investment and frequency, the act of searching, negotiating and monitoring the supply chain
partners incur high transaction costs. Furthermore, the conditions to fulfil the specifications
such as grading, frequent supply and seasonality make the situation more challenging for small
producers. Collective action theory provides a potential solution to mitigate the above
mentioned challenges. It suggests institutional arrangements to help small farmers to reduce
high transaction costs and meet product specifications enforced by organised chains. From this
we propose the following conceptual model (Figure 1).
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Figure 1: Conceptual model
Variable
Production Cost
Transaction cost
Credit, and
Extension
services
Mode of Market
Participation
Individual Traditional wet
participation markets
Specification of
Grades and Traditional wet
Participation via Traditional we
Smallholders middlemen
market/organised
vmarkets
markets
Market
information and
knowldghe Collective Organised
participation markets
Supply chain
visibility
Logistics and road
infrastructure
Collective action
Source: Authors
5.1 Evidence from literature and proposition development
5.1.2 Variable production cost
Smallholder farmers are challenged by the high per-unit transaction costs due to small volumes
of marketable surplus. Traditionally, small holders grow fresh produce with the help of family
labour and rely on traditional agricultural techniques. Farmers incur different costs such as land
preparation, seeds, planting fertilizers, pesticides, fungicides, planting, weeding, spraying,
pruning, and top dressing, to produce marketable commodities. Post-farm gate costs such as;
packaging cost, adopting technology, transportation through the cool-chain, adopting food
safety standards, arrangements of regular supply all increase the total production cost (Minot,
2011; Poulton et al., 2006).
When a significant part of the delivered produce is rejected by supermarkets, farmers then tend
to sell into the spot market, thus surrendering the opportunity for a larger share of the final
value. If a delivery is rejected it also increases the transportation and labour cost to farmers
413

(Singh, 2008). Cadilhon et al. (2006) showed that despite having higher prices offered by
organised chains, the risks, standards and extra costs incurred by farmer’s offsets the profit.
Hence, we find that farmers coordinating with modern chains incur higher transaction costs
than farmers who sell into the spot market, but less variability. Conversely, supply chains face
increased transaction costs when dealing with a large number of small farmers due to the higher
variability. As a result, organised chains rely more on large farmers, collective groups and
institutional arrangements in order to minimise overall transaction costs (Pingali et al., 2005;
Singh, Kaur, & Kingra, 2009). Hence, we propose:
P1: Smallholder farmers with highly variable production cost will be less likely to
participate in organised supply chains than those with less variable production costs
5.1.2 Credit availability
Farm credit is essential for day-to-day farming activities (Goel & Kaur, 2008; Hazarika &
Alwang, 2003). The seasonal nature of farm credit needs, and the uncertain nature of most
agricultural produce, undermine the viability of borrowing groups for farm credit purposes
(Hazell, 2007). Due to low collateral and the lack of availability of farm credit from publicly
funded agricultural development banks, smallholders often have to rely on self or family
financing (Doran, McFayden, & Vogel, 2009).
Capital investment constraints for the installation of costly machinery, modern techniques of
irrigation and availability of quality seeds also hinder smallholder farmers from participating
in organised chains. Yet, Foltz (2004) found that access to farm credit increases profitability
of less endowed farmers in Malawi. It is logical that the availability of credit increases small
and medium farmer’s ability to participate in modern food chains (Ayaz & Hussain, 2011;
Minot, 2011; Poulton et al., 2006) Hence, credit provides a necessary support for farmers to
arrange quality seeds, buy machinery, arrange/build irrigation, to install fences, and related
farm expenses that more readily allow small-holder farmers the ability to qualify for access to
organised supply chains, thus:
P2: Smallholder farmers with access to farm credit will be more likely to participate in
organised supply chains than those with limited access.
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5.1.3 Mode of market participation
The mode of market participation is very important factor for smallholders in order to compete
in modern organised chains. In developing countries smallholders rely on informal traditional
wet markets that are often characterised by volatile prices, high marketing cost, inefficient
transport, inadequate warehousing, and poor information flow (Cadilhon et al., 2006). The high
costs to enter the organised chains is a significant constraint for smallholders (Reardon &
Barrett, 2000). This is also supported by Neven et al. (2009) who analysed the impact on farms
of supermarket growth in Kenya’s horticulture sector that is typically dominated by
smallholders. The study found that high entry cost significantly hindered small, rain irrigated
farms.
In addition to this, organised chains employ strict grades and standards to gain competitive
advantage over rival firms. While Moustier, Tam, Anh, Binh, and Loc (2010) found that small
farmers in Vietnam have less quantity of marketable surplus and they struggled to deliver
organised chains by considering strict grades and quality standards. As a result of this, power
relationships between organised chains and farmers (especially small and poor farmers) tend
to be highly asymmetric largely favouring the powerful retailers or wholesalers (Kirsten &
Sartorius, 2002; Vorley et al., 2009).
However, where the costs of accessing markets are high due to poor infrastructure, inadequate
technology, or information barriers, collective action can help small producers be more
competitive (Markelova et al., 2009). Some studies support the idea that collective actions
provide necessary solutions where smallholders are unable to compete in high-value markets,
there are various examples where they successfully participate through collective action and
institutional support (Narrod et al., 2009). In India, Roy and Thorat (2008) show that marketing
cooperatives for grapes reduced transaction costs and contributed to a better bargaining
position of smallholders vis-à-vis foreign traders. Devaux et al. (2009) note that the ‘Papa
Andina’ collective have generated commercial, technological and institutional innovations, and
created new market niches for Andean native potatoes grown by poor farmers in remote
highland areas. Wollni and Zeller (2007) found that coffee cooperatives in Costa Rica
facilitated small-scale growers’ participation in specialty markets delivering higher prices.
Further, a study conducted by Narrod et al. (2007) in Kenya, India, and Mexico advocate that
collective actions can play a key role in creating farm-to-fork linkages among chain partners
415

that can satisfy market demands for food safety. Holloway, Nicholson, Delgado, Staal, and
Ehui (2000) suggested that producer cooperatives are useful in overcoming access barriers to
assets, information, services and markets for high-value products. Finally, Okello, Narrod, and
Roy (2007) found that in Kenya, Ethiopia, and Zambia, green bean growers organized in farmer
groups were able to enter markets in Europe.
Therefore, it depicts that collective arrangements by farmers lowers the transactional and
information cost, balances asymmetric power and facilitates smallholder participation (Barham
& Chitemi, 2009; Kaganzi et al., 2009). From the above discussion in can be proposed that:
P3; Small holders engaged in collective actions will be more likely to participate in
organised supply chains than those with not engaged in collective actions.
5.1.4 Specification of grades and standards
Consumer’s expectations are changing in fresh produce supply chains in developing countries
(Boehlje, 1999). Consumers are more aware of safety, quality, variety, convenience and service
concerns, as well as low prices. Increasingly, they are also demanding that production and
processing methods be environmentally sustainable, animal friendly and obey recognized
labour and social standards (Fulponi, 2007; McCluskey, 2007).
Grades and standards are defined quality parameters that segregate similar products into
categories and describe them with consistent terminology that can be commonly understood by
market participants. In particular, standards are rules of classification and measurement
established by recognized and consistent use or by regulation. The specific quality (e.g.
appearance, cleanliness, taste), safety (e.g. pesticide or artificial hormone residue, microbial
presence), authenticity (guarantee of geographical origin or use of a traditional process) are
main components of maintaining grades and standards (Giovannucci & Reardon, 2000).
Organised chains adopt strict grading and standards as a strategic move to gain competitive
advantage over competitors (Moustier et al., 2010). For example, Central American
supermarkets impose quality standards on fresh produce suppliers to differentiate their products
from traditional produce (Berdegué et al., 2005). These strict grading and quality standards
constrained smallholders to participate in organised chains.
Collins (2006) argues that quality is tool for organised chains to gain competitive advantage
over competitors. While, the implementation of quality systems to meet the required standards
are very expensive for small farmers. Ménard and Valceschini (2005) also mention quality and
416

private standards as tools enabling organised chains to compete with the informal sector by
claiming superior product attributes. Due to the use of centralized procurement systems by
organised supermarket chains, other requirements in terms of daily deliveries and formalized
transactions also reportedly result in the exclusion of small-scale farmers (Moustier et al.,
2010). Implementing and standardising processes according to the requirements of organised
chains represent high upfront costs for participation (Kirsten & Sartorius, 2002; Pingali et al.,
2007). The strict quality and grading standards of organised chains create significant barriers
to entry for small farmers: thus in can be proposed that
P4: Small farmers with capabilities of meeting quality standards will be more likely to
participate in organised supply chains than those without.
5.1.5 Market information and knowledge
The market information is very significant in food supply chains. It is very important to gain
information on market signals, price, trends, changing preferences and quality requirements of
consumers (Lee & Whang, 2000; Murray-Prior et al., 2005). Kizito, Donovan, and Staatz
(2012) have stated that holding other factors constant, reception of market information by
staple crops farmers in Mozambique is associated with a higher probability of market
participation by up to 34%. Conversely, asymmetric and incomplete information can
discourage smallholders from finding the best marketing option for fresh produce, and this
leads directly to increases in transaction costs by searching for new buyers. Transaction cost
theory describes the ‘bounded rationality’ factor, the idea that in decision-making, rationality
of individuals is limited by the information they have, the cognitive limitations of their minds,
and the finite amount of time they have to make a decision (Simon, 1957). For example, an
agribusiness firm may have excellent knowledge of markets while smallholders may possess
only limited knowledge, thus allowing exploitation by virtue of the application of asymmetric
knowledge (Winters, Simmons, & Patrick, 2005).
Along with market information, the mode of information dissemination is also very important
for economically viable organised chain participation of smallholders (Chalemba, 2017).
Singla et al. (2011) highlighted in their study that organised chains paid the price in cash to the
farmers on the basis of daily morning market price. Information about the delivery and quantity
requirement of each vegetable for a particular day was delivered by phone or personal message.
Based on survey research in northern Ghana, Zanello and Srinivasan (2014) suggest that the
417

principal role of radio broadcasts and mobile telephony is in providing a broader knowledge of
market price signals by enhancing the quantum of market information flowing to farm
producers. Information facilitates timely and accurate decision making.
In addition to the significance of mode of information, the use of information content such as
price, demand and selection of market, very much depends on the education and knowledge
levels of the primary producers. Dhillon et al. (2006) concluded that the adoption of contract
framing with food processing companies in Punjab are more prevalent among more educated
farmers. The effect of technology such as the internet, mobile phones etc. largely depends on
the ability to use these devices by primary producers. The use of collective means of
information sharing is also affected by education level of primary producers (Neven et al.,
2009).
There is a strong need for chain coordination utilising the flow of shared information among
chain partners, a coordination of processes from ‘farm-to-fork’ with efficient marketing
arrangements. This is because the economic viability of primary producers significantly relies
on effective supply chain linkages with market (Boehlje, 1999). All forms of buyer-seller
relationships chiefly rely on information exchange as a key relationship connector and
coordinator (Cannon & Perreault Jr, 1999). We argue that smallholder farmers have been
challenged by various constraints in developing countries such as; lack of information on prices
and technologies (Markelova et al., 2009). Therefore, we propose:
P5: Small farmers with (a) access to and (b) usage of market information will be more
likely to participate in organised supply chains than those without
P6: Small farmers who check prices with (a) higher frequency and (b) multiple sources
will be more likely to generate higher income than those without.
5.1.6 Supply chain visibility
Visibility is the ability to determine the on-going location of products, to trace products back
to their origin and the production methods used (Aung & Chang, 2014). Visibility denotes the
interaction of primary producers with buyers and also interaction with end customers. If
primary producers know the requirements of buyers, for instance the quality, quantity,
frequency, changing trends, and sensitivity to food safety, they can then plan production more
accurately. Moreover, closer proximity with buyers leads to lower marketing risk for
smallholder farmers having less marketable surpluses (Makhura, 2001).
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Product traceability and point of origin are also requirements under various safety standards
regimes (Bertolini, Bevilacqua, & Massini, 2006). Food supply chains in developing countries
are significantly affected by environmental, demand and supply risks. Environmental risk may
affect a particular value stream (e.g. product contamination), or any node or link through which
the supply chain passes, for example, as the result of an accident, direct action, extreme weather
or natural disasters (Christopher & Peck, 2004). Greater visibility in a food supply chains,
especially for small-holder farmers, will materially assist in their participation, hence:
P7: Small farmers who can see further down their supply chain will have (a) better
production planning (b) lower post-harvest losses, and (c) higher income than those
who cannot.
5.1.7 Logistics
Logistic involves all activities that are focused on achieving the physical product movement
and availability, getting right product, to right place, at right time without loss of natural form
(Christopher, 2016). Due to the fragile and perishable nature of the fresh produce, this requires
a high degree of coordination between different actors along the chain and each stage requires
a strong emphasis on workforce development to prevent damages and wastage through
mishandling or delays. This is particularly significant for countries located in tropical or hot
climates that do not possess integrated cool-chain infrastructure. Hence, logistics and
transportation are key supporting activities in the global fresh produce supply chain. These
functions ensure that perishable products reach their destinations in good condition. Cool
storage units are used throughout the chain to keep the produce fresh, and both air and sea
freighting supported by the cold-chain are key elements to ensure shelf-life and timely delivery
(Blackburn & Scudder, 2009; Blandon, 2006; Cooper, Lambert, & Pagh, 1997; Salin, 1998).
Another significant logistics consideration is the geographical distance to markets. The

physical distance (in kilometres) to nearest market is a very important factor that effects the
farmer’s selection of market. Studies show that organised chains often have their own
transportation facilities to pick up the fresh produce from the farm gate thus facilitating
deliveries, but this is not often the case for small-holder producers (Singh & Singla, 2011).
Longer distances to market increases the farmer’s dependence on intermediaries (middlemen)
to sell fresh produce in traditional markets. Masuku, Makhura, and Rwelarmira (2001)
419

demonstrated that in developing countries smallholder farmers struggle with transportation
access as it increases the total cost to sell the produce in long distance markets.
In addition to distance to market, good road infrastructure provides a significant boost to timely
supply of fresh produce. The holding of raw material is an expensive activity in the case of
fresh produce. The stock of fresh produce itself contains value because of its nature and might
not sell due to aesthetic and quality deficiencies if stored too long. Product and logistic quality
and handling requirements are especially high for fresh fruits and vegetables which makes
transactions complex. The challenges focus on adequate warehousing, cooling transportation,
adequate packaging, and timely delivery. If operating properly, effective logistic systems can
reduce costs, improve service, reduce supply chain food losses and provide a competitive
advantage for the retailers and materially assist the economic viability to primary producers
(Pingali et al., 2005).
For better market efficiency, adequate logistics infrastructure is needed such as refrigerated
transporting, cool-chains, and better communication of market information to mitigate the
challenge of food losses through wastes and delays (Pingali et al., 2005). Organised chains
demand a regular supply which further constrain smallholder farmer’s participation (Gulati et
al., 2007; Ruben et al., 2007). In developing countries, poor road infrastructure (Minten et al.,
2009; Singh, 2009), and high chances of product spoilage (Rienekens, 2011) result in high
volumes of post-harvest losses. Hence we propose:
P8: Small farmers who are in close proximity to their primary market will be more likely
to participate in organised supply chains than those who are not.
P9: Small farmers who have invested in logistics capabilities (including cold chain storage
and transport) will be more likely to participate in organised supply chain than those
without.
Conclusion
The agriculture sector plays a vital role in most developing countries where smallholder
farmers are significant in numbers. While newly emerging organised food chains have been
adopting different supply chain arrangements, smallholders are still facing difficult marketing
and production constraints. Previous studies on food supply chains in developing countries
have focused mainly on the effectiveness and impact of organised chains on farmer’s income,
poverty reduction, and transformation of food systems (Olwande, Smale, Mathenge, Place, &
Mithofer, 2015; Padua, 2015; Reardon, Timmer, & Minten, 2012; Riungu, 2011; Singla et al.,
420

2011). Most recent studies concentrate on farm and farmers characteristics (Schipmann &
Qaim, 2011) and farmers participation measured on the basis on single perspective (Franz,
Felix, & Trebbin, 2014).
Despite the importance of economic and agricultural transformation in developing countries,

data and insightful analysis of the magnitude and impact on small farmers participation is still
at early stage. Further, an academic research a gap has been identified where small-holder’s
concerns are not significantly discussed. Most of the research studies assumes fresh produce
farmers as homogeneous and do not specifically treat smallholders as differentiated for
designing solutions and understanding the problems as whole. Hence, the lack of survey based
research on the transformation of food supply chains from traditional markets to integrated
organised chains, and the impacts on farmers and farm workers, highlights the need for further
study on this important issue (Reardon et al., 2009). Thus, this paper attempts to draw attention
to the important issue of smallholder farmer’s participation in fresh produce supply chains in
developing countries.
421

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The Underlying Activities of Supply Chain Collaboration and Their
Contribution Towards Achieving Resilience.
Umar, Muhammad., Ph.D. Candidate, Global Value Chains and Trade +**
Wilson, Mark M.J., Ph.D., Head of Department, Global Value Chains and Trade **
Heyl, Jeff., Ph.D., Senior Lecturer, Global Value Chains and Trade **
+ Corresponding author
**Department of Global Value Chains and Trade
Lincoln University, Christchurch, New Zealand
Abstract
This paper explores some of the activities involved in supply chain collaboration and discuss their
contribution towards supply chain resilience. Multiple case study method is selected for this study and
the emphasis is on food supply chain in two different regions of a developing country. Utilising
qualitative methods, the analysis has revealed that effective communication, mutual dependence,
information sharing, informal financial support and building trust are some of the components of
supply chain collaboration, that in turn, enhance the overall resilience of supply chain towards natural
disasters.
Keywords: Collaboration, resilience, disaster, food supply chain
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Introduction
Current business environment all over the globe is getting more complex which demands more
flexible and collaborative operations. Due to this complexity, organizations are more exposed to supply
chain disruptions which arise especially from the natural disaster events. The idea of ‘supply chain
management’ is now firmly a part of the everyday vocabulary of politicians, Non-Governmental
Organizations (NGOs), managers and the general public (Christopher & Peck, 2004). Multiple
management activities are involved in supply chain management such as procurement, inventory,
distribution and logistics management. The planning and execution of all these activities is a
challenging task which demands efficient and effective coordination of informational, relational and
financial flows across the boundaries of an organization (Ponomarov, 2012). However, every activity
conducted in supply chain has inherent risk and can be exposed to some unexpected disruption. Natural
disasters are a major cause of supply chain disruptions and can result in major breakdowns of
distribution linkages and production nodes (Handfield, Blackhurst, Elkins, & Craighead, 2007).
Managing this rapidly changing risk landscape is a challenge which demands that supply chains develop
disaster resilient characteristics (van Opstal, 2007). These problems quadrupled in South Asian
countries due to poor infrastructure and lack of advanced disaster management techniques. Especially
the food supply chains which are more crucial in providing food to society in disruptions. These supply
chains have inherent risk of perishability and also poor harvesting techniques make them more
susceptible to disasters. On the contrary, these supply chains still remain intact and provide food to the
society, therefore come up to the definition of resilience.
Supply chain resilience is the concept that can reduce the impact of disruptions due to some
mega event where probability of occurrence is low but the impact could be devastating. It helps supply
chain to survive and recover to the same state which was there before the disaster or to a better position
which is called thriving in resilience dictionary (Christopher & Peck, 2004). This can be achieved when
whole supply chain takes certain measures such as becoming agile and adaptive (Folke et al., 2010).
Collaboration among the supply chain partners is considered as a glue which holds all stakeholders
together in difficult times (Maon, Lindgreen, & Vanhamme, 2009). Numbers of authors have talked
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about the importance of collaboration in resilience (Akhtar, Marr, & Garnevska, 2012; Christopher &
Rutherford, 2004; Fiksel, 2006; Gunasekaran, Lai, & Edwin Cheng, 2008; Jüttner, Peck, & Christopher,
2003; Maon et al., 2009; Pettit, Fiksel, & Croxton, 2010). Collaboration is the key element of supply
chain resilience, however empirical insights on how collaboration contribute toward achieving
resilience is blurry especially in the context of South Asian food network perspective. Why it is even
more important in these countries because most of the other supply chain strategies are compromised
due to the mismanagement in these areas yet collaboration among the food chain players kept these
chains running despite of the myriad of supply chain disruptions due to natural disasters.
As firms are embedded in networks with many diverse partners all of them with different kind
of resources, information and flexibilities (Ozcan & Eisenhardt, 2009). These resources spans firm’s
boundary and resides in inter-organization relationships and network (Dyer & Singh, 1998). These
network resources open up new opportunities for a firm to gain market capabilities to reduce
uncertainties (G. K. Lee, 2007) and all this can be achieved through collaboration. Literature on
collaboration lacks the empirical investigation beyond single firm. Some of the researchers have talked
about the collaboration between buyer and supplier. However at network level, there is hardly any
empirical insight. This study investigates multiple supply chain in two distinct regions and will highlight
the underlying activities in collaboration which can make food supply chains resilient to disasters such
as floods and earthquakes.
This research has three main contributions. Most of the previous studies has contributed by
making a conceptual framework but this study has done the empirical research on the phenomenon and
also the previous studies do not go beyond the single firm boundary, however this research has not only
went beyond the single firm but also taken the whole network view of these supply chains. It also
highlights the further contribution of collaboration in achieving resilience and lastly opens up the debate
on the important activities within the collaboration component.
This paper first talks about the literature on resilience and collaboration. Next section will be
on methodology. Findings and discussion on the topic keeping in view the literature will be the next
section. Lastly, this paper will present limitations and ideas for future research.
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Literature Review
Resilience is the ability of a system to bounce back to its former shape from a disturbance (Zakour
& Gillespie, 2013). For example pressing the side of a balloon that will bounce back to its original
position once the pressure is removed. Adaptability, we argue, is slightly different in that the system
will adapt to its new shape that is different in form from the original. Resilience as a concept was
originally from ecology but now it is increasingly being used in social sciences including disaster and
vulnerability management. In ecology, resilience can be defined as the ability of a system to bounce
back from a disruption while still maintaining integrity, diversity and processes (Folke et al., 2004).
Supply chains can be considered as network of these individual systems (Pettit et al., 2010). Based on
this system approach, Fiksel (2003) has categorized four important characteristics of resilient systems:
adaptability, coherence, efficient and diversity. Resilience in humanitarian supply chain context
emphasizes the different ways a system can respond to natural disasters. It also emphasizes its ability
to bounce back from these situations, absorb severe impacts, learn from, adapt to and recover well from
disruptions (Berkes, 2007).
The first comprehensive study of supply chain resilience was conducted by Cranfield
University. Its center of Logistics & Supply Chain Management explored the industrial knowledge base
of United Kingdom with the main aim of this report being to increase the resilience of UK industry to
cope with supply chain related threats. The authors emphasized that vulnerability analysis and resilience
are important business functions, yet little research had been done so far on these topics. This report
also highlighted some recommendations for improving supply chain resilience and that different supply
chains can have different mechanisms for resilience (Peck et al., 2003).
Christopher and Lee (2004) proposed that supply chain confidence can be increased by
visibility and control. Confidence in a supply chain is one of the best ways to deal with supply chain
disruptions, this confidence stems from its ability to recover from adversity. They argue that one way
to increase control is by even management systems and to pre-determine supply near critical nodes to
manage material flows in the whole network. If some disruption occurs at these nodes then a warning
is sent to all supply chain actors to enable corrective actions. According to Abe and Ye (2013),
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organizations can adopt risk reduction strategies to increase disaster resilience. They should carefully
consider the balance between supply chain efficiency and disaster risk preparation. Sourcing from a
single supplier can increase profitability, but it makes organizations more vulnerable to disasters. On
other hand, multi sourcing can considerably increase costs. Hence, firms should select suppliers on the
basis of risk reduction criteria in addition to pure cost minimization. They can also increase supply
chain visibility by monitoring systems and shortening of supply chain. A comprehensive assessment of
company’s vulnerability to disruptions and the impact of a disaster on firm’s supply chain can facilitate
establishment of risk transfer and mitigation strategies (Abe & Ye, 2013).
Adaptability should a key trait in resilient supply chains, as the new state after disruption can
be very different from original one. Christopher (2005) reveals that agility and flexibility are key
elements of resilient supply chains processes. The dynamic nature of adaptive capability makes it easier
for supply chains to bounce back or achieve a more appropriate state after disruption. Based on the work
of Christopher and Peck (2004), supply chain resilience includes elements such as supply base strategy,
risk categorization, supply chain risk management culture and collaboration strategies. They have also
argued that agility, availability, efficiency, redundancy and visibility as secondary factors. Although
Christopher and Peck (2004) argue forcefully, they provide no empirical justification.
Goranson (1999) has argued for the differentiation between agility and flexibility, with
flexibility being the planned adaptation strategy to sudden but expected external disruptions. However,
agility is unplanned adaptation to unexpected external circumstances. At the same time, few authors
consider flexibility as being part of agility (Stevenson & Spring, 2007). Similarly, Rice and Caniato
(2003) have proposed two methods, flexibility and redundancy, with great potential to enhance
resilience. Redundancy is excess of capacity which can be used to replace the capacity lost during
disasters. On the contrary, flexibility is the previously committed capacity which is redeployed.
Similarly, H. L. Lee (2004) also suggested that to combat demand and supply uncertainties, supply
chain processes need to have agility, adaptability and alignment to achieve superior performance.
Agility means responding to short term changes quickly to handle external disruptions smoothly.
Adjusting the design of supply chain to meet structural shifts in the market is called alignment.
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Alignment essentially means exchanging information and knowledge frequently with supply chain
partners to eliminate wastes and achieve better system performance.
Resilient supply chain capability, as Park (2011) says, is the sum of the adaptive capability of
the supply chain system to prepare for disastrous situations, responding to these situations and speedily
recovering. This preparedness, response and recovery (similar phasic cycles as disaster response) can
be done by maintaining a required level of process continuity with the desired level of control and
connectedness over supply chain system. Park (2011) has further classified supply chain capabilities
into readiness capability, response capability and recovery capability. The readiness stage of resilience
develops certain capabilities which refer to the coordination of resources to detect and prevent future
disruptions in the supply chain. This phase would also include typical risk management strategies.
Response stage capabilities mostly refer to actively dealing with disasters and providing the information
related to particular disruption to all supply chain entities. Finally, recovery stage capabilities deals with
interaction among all players and sharing of resources to bounce back to normal operations.
In a similar vein, Pettit et al. (2010) developed a conceptual framework by combining different
dimensions of vulnerabilities and capabilities. They proposed that if vulnerabilities are high as
compared to capabilities, this will lead to unbalanced resilience meaning it will ultimately lead to excess
risk. Similarly, if vulnerabilities are low in contrast to capabilities then it is still a state of unbalanced
resilience, and it will also eroded profitability. However, balanced resilience can be achieved if the
portfolio of vulnerabilities is matched to the pattern of capabilities. They refined this conceptual
framework through focus groups, however, also calling for empirical investigation support their
theoretically derived proposition.
On the whole the literature on supply chain resilience, while it is very informative, is primarily
focused on multiple fragmented perspectives of resilience (Christopher & Rutherford, 2004; Park, 2011;
Peck et al., 2003; Pettit et al., 2010; Ponomarov & Holcomb, 2009; Sheffi & Rice Jr, 2005). These
different views in reality highlight the importance of this topic.
Most of these concepts can be categorized into agility, adaptability and alignment. As flexibility,
velocity, visibility risk management and supply base strategy are supply chain agility components
(Aitken, Christopher, & Towill, 2002; Baramichai, Zimmers Jr, & Marangos, 2007; Swafford, Ghosh,
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& Murthy, 2006) and supply chain adaptability and alignment are already mentioned by many
researchers (Brooks, 2003; Keogh, Apan, Mushtaq, King, & Thomas, 2011; Maru, Stafford Smith,
Sparrow, Pinho, & Dube, 2014; Pathak, Day, Nair, Sawaya, & Kristal, 2007) as capabilities of
resilience. But as no single firm having all these capabilities can achieve supply chain resilience because
this is network of firms, therefore collaboration among all the players is very important to achieve these
capabilities.
Supply chain collaboration is inter organizational relationships which ranges from common supplier
relation to coopetition where firms collaborate with their competitors to create bigger pie (Bengtsson,
Eriksson, & Wincent, 2010). Collaboration is like glue among different firms which help them achieve
those all capabilities which are necessary for combating any disruptions in supply chains. collaboration
means that two or more organizations working together to smoothly run their supply chains through
information sharing, joint planning, combined decisions and resource sharing (Simatupang & Sridharan,
2002; Scholten & Schilder, 2015).
Supply chain collaboration can be classified into two main categories, vertical and horizontal
collaboration (Barratt, 2004). In the midst of any disruption, firms collaborate with relief provider,
government on one end and on another end collaborate with their competitors at horizontal level.
Similarly, at vertical level, these organizations collaborate with suppliers and buyers (Piboonrungroj &
Disney, 2015). This research is only related to vertical collaboration among the supply chain players.
Although, this collaboration among different supply chain players bring flexibility, visibility, velocity
and responsiveness, however it is not clear how and what activities are important to bring all these
capabilities in supply chains.
Methodology:
This study was seeking to empirical investigate the collaborative activities in food supply chains which
are helpful in achieving supply chain resilience and this study was more of exploratory nature, therefore
multiple case study approach is adopted here to find the collaborative activities in the region. A case
study is “an empirical enquiry which investigates a contemporary phenomenon in depth and within its
real world context especially when boundaries between phenomenon and context may not be clearly
evident” (Yin, 2014, p.13). Furthermore, if the researcher has no control over the behavioural events
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and the research is focused more on contemporary events, case study methodology is recommended
(Yin, 2014). Furthermore, Gummesson (2007) and Halinen and Törnroos (2005) has also pointed out
the importance of case study methodology in studying supply networks. This method gives the
opportunity to the researcher to be close to the study’s objects, thus enabling inductive and rich
description of the phenomenon. Case study is most appropriate in a situation where little is known about
the topic and where current theories seem inadequate, as is the case for this supply chain resilience
related research (Easton 1995; Yin 1994).
Yin (2014) claims that if theory is straightforward then two or three cases can be enough. However if
theory is more latent or subtle, then four to six replications will produce reliable results. Considering
this, this research relies on a four case study design. As a consequence, Eisenhardt (1989) and Miles,
Huberman, and Saldaña (2013) suggest that the sample chosen for qualitative research should be
purposive, one which serves the purpose of the study. As this research is focusing on food supply
chain/networks in disasters, especially in the context of under developed South Asian country, the
first step was to find the areas where disasters occur frequently in Pakistan. To help this selection the
researchers contacted the National Disaster Management Authority of Pakistan (NDMA) who deals
with the whole spectrum of disaster management activities in Pakistan (www.ndma.gov.pk), and also
the South Asian Disaster Knowledge Network (WWW.SAARC-SADKN.ORG) which is a knowledge
sharing platform among different stakeholders of SAARC (South Asian Association of Regional
Cooperation) countries. From these discussions two regions that are vulnerable to disasters (and in
fact have experienced these disasters frequently/annually) were purposively selected. The first area is
the Punjab Province which is predominantly agricultural land. This area is badly affected by severe
floods almost every year (Tariq and van de Giesen, 2012). The second region is the Khyber Pakhtun
Khwa (KPK) Province which is vulnerable to earthquakes as well as floods (Khan, et al., 2012).
Two cases from each region were selected to examine both intra and inter-regional differences.
Different relief food items were selected which are usually provided by relief agencies (GO’s and
NGOs) to the community, these include rice, flour, oil, dry fruits, juice, water and food grains
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(Kovács and Spens, 2007; Douglas, 2009; Day et al., 2012; Whybark, 2007). Given the research aim
of seeing how local (commercial) food supply chains cope with parallel relief supply chains, we chose
staple products (long shelf life) typically supplied in both channels in order to facilitate the
comparisons.
However, the research was also interested in supply chains with products of a more perishable nature.
Fresh fruit and vegetables supply chains are exceedingly susceptible to disasters in Pakistan. Fresh
produce items are highly perishable commodities and during natural disaster become even more
vulnerable to deterioration. Since the majority of the population in these areas is also dependent on
continuous supply of fresh vegetables (Din et al., 2011; Ismail, 2010), The research has also chosen a
fresh produce supply chain in each region to study. Hence, the design is to study one staple and one
fresh produce supply chain in each region, for a total of four case studies.
Data Collection
The prime source of data collection in case study research is typically in-depth interviews, backed up
by observations, informal conversations and a review of archival secondary sources. Research
protocols are necessary to enhance the validity and reliability of qualitative research (Yin, 2014).
Protocol was developed using the funnel approach where researcher started with the broader questions
and gradually approaching to main agenda. For this research, most of the interviews were individual
one-to-one interviews, however on several occasions group interviews were also conducted. These
individuals are different supply chain players in the network e.g. retailers, wholesalers, middleman,
farmers, Government representatives. The group interviews gave greater insights about the
phenomenon capturing the varied experiences of people involved. Of interest were the notes and
observations of the interpersonal interactions and reactions among the group being interviewed
revealing hidden meanings. Follow-up interviews were also conducted, with a number being
conducted via telephone due to time and travel constraints.
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Qualitative data should be vivid and nuanced and this should emerge from ones questioning.
Vividness comes through the step-by-step description of the event. The researcher enquired about the
background of the respondents, their suppliers, buyers, logistic providers and any other actors
involved to make the description of events fully vivid so that any reader would get a sense of not only
the detail but the emotion as well. The researcher also asked for a detailed description of any
meaningful moments that occurred in the recent disasters. For example, in one of the vegetable
markets, the commission agent described an extreme flood which left the market completely
submerged under water and silt, and then described how the market member’s self-organised and
coordinated the clean-up and also the rationale for this behaviour. This was clearly a significant
moment for the respondent and the emotion was evident. Researchers should not miss opportunities
like these that allow unique moments to probe in-depth.
Similarly, nuance implies that there could be several views/opinions/attitudes for the same
phenomenon/event. Nuance requires a detailed description of something, not just a yes or no answer.
For example, the researcher asked a question concerning trust from almost all the respondents, if
someone provided a closed answer such as “yes, we trust our supplier”, the researcher then asked
further questions about the meaning of trust, such as how to achieve it. Everyone seems to have a
different response to this question, hence providing a quite nuanced view of trust in this context.
Finally, richness comes through extended conversations. The researcher encouraged the respondent to
speak openly about each situation by asking probing questions (open ended questions). As the
researcher was familiar with the local culture and every culture has its norms, often the researcher
would ordered a cup of tea or lunch for the respondents to show the intention of spending time with
them and listening to more stories.
Analysis
In qualitative studies, data analysis starts alongside the data collection. This technique helped the
researcher to cycle back and forth between thinking about the existing data and coming up with new
ideas to collect new data. This analysis is dependent on three contemporaneous steps: data
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condensation, data display and conclusion drawing (Miles, Huberman, and Saldaña, 2013). Data
condensation is a process of focusing and simplifying the large quantities of data gathered from
interviews, notes, documents and any other relevant sources. Coding, concept and theme generation is
also part of this process. Data condensation in this research started with reviewing again the
framework, research questions and data collection methods, thus condensing the overall information
by selecting and focusing on the relevant knowledge derived from the theory framework.
Concurrently, writing detailed case study descriptions and compiling matrixes to show the
information is part of data display process. Data coding and themes generation are the most important
steps in qualitative data analysis this was done in NVivo software.
In order to make the research process more cooperative as mentioned by Kvale and Brinkmann
(2009), the written transcripts were shared with the respondents and feedback received. This process
is important as it increases the internal validity. This interaction with the respondents helped generate
more ideas and also strengthened the findings of the research. After the verification by the participant,
all the data was then coded and concepts were grouped. Based on these codes and concepts, themes
were generated and later triangulated against the observational and secondary data. Queries were then
run in NVivo software to display the data and finally this data was compared with the literature and
theory to generate the conclusions.
The coding of the data is a complex process. Even from a small paragraph, a good number of codes
and concepts can emerged. The development of codes, categories and themes in the NVivo software
was accomplished by a four steps process as suggested by Silver and Lewins (2014) being organising
the data, data exploration, data integration and finally interpretation. Additionally, a number of other
general approaches to coding suggested by other authors were trailed (Yin, 2014; Miles, Huberman,
and Saldaña, 2013; Saldaña, 2015; Hesse-Biber and Leavy, 2010).
In this whole data interrogation process, the first step is to ‘organize the data’. In this phase,
familiarization with the data is the objective. Interview transcripts were read, re-read, grouped and
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notes were reviewed. Similarly, secondary data was organized and referral to the literature base was
made for more insights. Furthermore, data was sorted and an interpretative framework was also built.
The interview transcripts were imported into NVivo in the source section. Then the files were copied
into the internal section and arranged into with four separate folders to accommodate the four separate
supply chains studied. Relevant secondary data was also copied here. In the memos section, all the
observations were saved. Pictures related to the each site were also brought into the internal folder of
this sources section in NVivo.
Next was developing the interpretative framework. This should be done according to the research
questions and/or the conceptual framework. In NVivo, this step is known as generating the initial
‘nodes’. Nodes are basically the container in which similarly linked data/ideas are kept in order to
generate themes and running queries. It also assists with displaying the data graphically
(visualisations). These initial nodes were generated according to the sections in the conceptual
framework of this study. For our research, these main nodes were initially: vulnerabilities,
capabilities, resilience and outcomes. Within these initial containers, further ‘child’ containers were
generated according to pre-coding codes. These pre-coding codes were drawn from the literature. The
reason for these child containers is that in using an inductive methodology, this research started with a
priori theory and hence initial concepts of interest. Further codes were then generated and the initial
codes were then merged or expanded based on degree of similarity or variance.
Simultaneously, the ‘classifications section’ in the NVivo was used to classify the sources of data
according to the different supply chain actors being interviewed. Initial coding was also done in this
step. The automatic coding function of NVivo was not used here, as the researcher wanted to code the
whole data manually in order to become more familiar with the contents. This process, while more
time consuming, was very helpful in developing a clearer picture of how data was ‘talking’ and the
themes started to originate even from this first round of coding.
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The second step in this data interrogation is ‘exploration’. Here, codes developed in first phase are
transformed into concepts based on resemblances and distinctions. Also, less important or orphaned
codes are subsumed into higher order codes. Codes and concepts are marked and annotated as well
using the annotated tools available in NVivo. The third step is ‘integration’. Here codes and categories
are connected together and this then generates the patterns. These patterns were carefully observed,
and based on these patterns and integration of other sources of information such as observation and
literature, ‘categories’ are developed.
In the fourth step, ‘interpretation’, queries are run to see the comparison and other data display tools
are used to make connections among different categories.
Finally, following measures are taken for reliability and validity of this study.
Table 1: Measures of Reliability and Validity in Qualitative Research
Criteria Steps Taken

Credibility (Internal Validity) a) Prolonged engagement in the field: research was familiar with
the local culture and also contacts were established with
Credibility establishes the extent to respondents long before the data collection stage.
which the research finding is true b) Multiple case studies were used in the study, which is well
interpretation of participant’s original established and backed by multiple recognized researchers in
views. the field.
c) Data triangulation was employed. This strategy made it easy to
cross check the findings with different data sources. For
example, data from interviews were triangulated with
observations and secondary data.
d) Respondents were given full opportunity to withdraw from the
study anytime. Only genuinely interested respondents were
chosen to collect the data.
e) Peer debriefing: researcher has continuously taken support and
feedback from the peers. Researcher attended seminars and
conferences to take suggestions. Researcher was also part of
Resilient Organization, New Zealand which provided support
during this whole study.
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Dependability (Reliability) a) Detailed interview protocol was prepared to collect the data.
This protocol includes the description of the research, concise
It refers to the stability of results over questions about the phenomenon and has the complete list of
time. prompt questions asked during the process. This can help
future researchers to be able to follow same procedures to get
similar results.
Transferability (External Validity) a) Multiple case studies are done in similar conditions which
further enhance the transferability of this study.
The level to which results from one b) Purposeful sampling was used and it helped the researcher to
case study or real world can be applied stay focus on the key informants. It helped the researcher in in-
to other case study in some different depth findings.
context.
Conformability (Objectivity) a) Full details of the participants were collected in the process.
Participants were also given chance to ready and give feedback
It refers to the degree to which results on the transcripts. Similarly, the interpretation chapters also
from one case study can be confirmed include the quotes from the participants’ interviews.
by other researchers.
Source: Adapted from Lincoln and Guba (2000)
Findings
Multiple activities in collaboration were revealed while analysis part of this research which help in
achieving supply chain resilience. In vertical collaboration, activities such as building and maintain
trust, combined/joint activities, effective communication and info sharing, non institutional financial
support, recognizing common vulnerabilities and utilizing network resources were found which enable
agility, adaptability and alignment thus supply chain resilience.
Effective Communication & Information Sharing
Effective communication and information sharing is one of the basic activity under collaboration which
leads to supply chain resilience. Its value becomes twofold when there are disruptions in supply chain
during the natural disaster. Mode of communication, frequency of sharing, details of sharing and
direction are important aspect of this module. In our interviews, we found that effective role of
telecommunication is very important in achieving the velocity and flexibility in supply chain. The major
mode of this communication is mobile phone. Our findings show that it helped the supply chain partners
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in having information on time as travelling within the area especially in KPK region was very difficult.
Similarly, mobile phones help them to have greater accessibility which increases the velocity as well as
helped them to adapt according to the situation as one of the wholesaler told us, “Earlier we used to
send the Rice parcels to our retailers in different parts of KPK region but now with advancement in
telecom if there is any shortage in this province then they directly connect with the suppliers in Punjab
region and get supplies from there”. Having up to dated information is also important when supply
chain partners share information in advance or latest news about floods and other disasters in the both
region. Not only mobile phones but internet has also helped these organizations to have access to the
latest information about disasters and getting new alternative sourcing channels. However effective role
of telecom is more prevalent in Punjab region where people are more educated and have greater access
to these facilities and in KPK region telecom role is limited to mobile phones.
Not only telecom but site visit is also common practice in these supply chains. Site visit helps better
understand the situation of supply chain partners and it also gives useful insights which helps build the
trust thus leads to information sharing which is very helpful to combat disasters as the following
example shows, “Rice Mill representative come to our place and check the product we are about to
load in the trucks” (Supplier staple food Punjab). There are other instances where buyer has sent their
representative to farmers so that they can see the damage done to their crops by the floods. Therefore
site visits help supply chain partners to understand each other needs and situation in difficult time. It
gives greater visibility and helps organizations adapt according to situation.
Another important component of effective communication and information sharing is to guide and train
the associated supply chain partners. There were number of instances where this phenomenon has been
seen in both regions. However the formal training is only seen where big retailers are involved mostly
in Punjab region. Training has significantly improved the overall process of smooth supply chain
operations in disruptions originating from floods as one of the super market supply chain manager told
us: “We have a dedicated person who visit our suppliers and train them the effective sourcing strategies
and also how they can use latest seed which are more resilient, as our quality checks are very strong
therefore having our suppliers on board is very important for us”. This training helps partners to better
align their processes. Providing linkages is another important part of guiding and training aspect. As
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commission agents are present in the main market and sitting in the hub, therefore in difficult times they
provide linkages to their suppliers, this phenomenon is prevalent throughout the supply network of all
four supply chains. These linkages range from providing access to financial sources to physical raw
materials: “We have many farmers who are our main suppliers, we introduce them to dealers who invest
on these farmers and when we receive vegetables then we deduct from there and also sometimes we
start the dealership of fertilizers and insecticides just to supply it to our farmers as they go through
difficult times (Commission agent, FPSC-Punjab)”. These linkages help achieving the required velocity
in supply chain as both are mutually dependant on each other; therefore it is necessary to provide these
linkages to achieve the required velocity in supply chains. There were other instances where training to
service providers such as laborers is also observed in these supply networks which shows the uniformity
of processes so make supply chain more efficient.
Mutual dependence is one of the core reasons these supply chain partners share information and
communicate with each other in disruptions. As a farmer doesn’t have the knowledge and access to
markets, therefore they are highly dependent on the middleman and commission agents for their
products to reach and sell in the market. Farmers also have no formal sources of finance; therefore they
seek finances from commission agents. So whenever farmers is in trouble because of natural disasters
or other social problems, then because commission agents finances are on stake, therefore they share
information and do effective communication to fight the disaster. In this way they give concessions to
each other, they do barter transactions where instead of money they deal in goods and also share missing
information. All these things bring more flexibility in supply chain operations and also bring velocity
which leads to more resilient supply chains.
Additionally we have found that having the information about suppliers at tier one and extended tiers
can help anticipate the problems quite early in any disruption. At hub level which are markets in this
case, commission agents have keen eye on financial strength of their suppliers and in many instances,
they have the insights into the processes of tier 2 suppliers as well as one of the commission agent in
KPK fruit and vegetables market told us, “we keep the information about our farmers through the help
of middleman and also sometimes we know from where these farmers are getting seed and fertilizers,
therefore we can ensure that our suppliers are up to our quality standards”. This information help them
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better prepare for the situation such as they can do investment or support in any other to their suppliers.
It increases their visibility. This information can also help them to develop more suppliers so that they
don’t rely on any single source which increases supply chain flexibility.
Non Institutional Financial Support
Besides info sharing and communication, financial collaboration is also major activity which
contributes to achieve resilience in these supply chains. Activities such as multiple mode of transactions,
joint investment, credit transaction with flexibility to return and availability of financial sources are
grouped under non institutional financial support heading, why we have grouped them under this
heading is because traditional formal financial support is somehow missing in both of these regions.
Although banks and other credit or financial institutes are present in both regions but their
functionalities are limited and besides farmers and other players are not well educated to deal with these
institutes. Therefore non institutional financial support where supply chain players support each other
financially is the key component of collaboration among these players.
Many commission agents in both KPK and Punjab region told us that they invest on farmers. As they
are mutually dependant on each other, therefore if due to floods or earthquakes crops are destroyed,
then they will again give loan to these farmers so that they can stand on their feet thus supply chain
remain intact, “We give money to farmers and also arrange fertilizers or other raw material for him to
help him grow the crops again, we also seek help from some of the investors and dealers, therefore also
jointly invest on farmers and growers. We can sometime buy them tractor and give money for labor
hiring as well”. (Commission agent, KPK fruit and vegetable market)
This effort makes supply chains more agile as other financial institutes are very slow in processing the
transactions. These agents deduct the loan installment as promised, however these is great deal of
flexibility in return the credit amount. This flexibility is very important for recovery of other supply
chain players after the disaster, for example one of the processor when asked about how do you deal
with loan return if your supplier face with natural calamity, he said . “They are totally relaxed, some
say they will return next year and some put other conditions, but we negotiate and come to solution and
give them maximum flexibility”. Although there is a great deal of credit return flexibility but they
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negotiate first and set up the terms. They negotiate is based on mutual interest, setting installments,
magnitude of disruption, timeline, relationship and magnitude of conflict, this is evident from this
example by rice supplier in KPK staple food whole sale market, “when there was earthquake in
Balakot...most of the shopkeepers over there around 70%...those who had made payment around 1
million rupees...they were ruined...we made compromise that build the shopkeeper...thank GOD there
was not any my shopkeeper...they build their shops again and start earning on monthly basis...they took
half a million loan and we asked how much loan you can return on monthly basis? they tell according
to their capacity that i can give 10,000 or 20,000 rupees...”
In addition to financial support, players also help each other through providing raw material and
necessary linkages in the market.
Combined Activities
Furthermore, our data has revealed that there are certain combined activities which also contribute to
resilience of these chains. These activities are named as conflict resolution, joint planning and loss
sharing and we have summarized them under the heading of ‘combined activities’. Conflict resolution
is particularly one activity which is very important for achieving the desired goals in supply chains and
this has significant contribution in terms of brining velocity, flexibility and alignment in supply chain.
In KPK region both in Fresh produce and staple food network, conflict resolution is done through a
committee which is called Jirga in local language. This jirga is formed when there is a serious issue of
payment delay or lost properties or any other issue which is not resolved by parties involved. This is
equally helpful in disasters when there is a serious disruption in supplies or finances. For example one
of the market committee member in KPK fresh fruit market told us, “Farmer has lost everything and
dealer has their investment on that farmer through commission agent. Because of the delay from farmer,
there is conflict among all parties then we announce Jirga, market committee member such as vice
president, general secretary, chairman, deputy general secretary are part of that jirga. All the supply
chain partners who are part of that conflict also attend the Jirga, we take undertaking from all parties
involved that whatever Jirga will decide will be acceptable by everyone”. This Jirga evaluates the
situation, investigates and give their verdict on loss sharing which all parties agree. This risk sharing
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phenomenon helps achieve the flexibility and further align the interest of supply chain partners.
Therefore this Jirga system contributes towards quick recovery from the disaster.
As market committee is mostly involved in Jirga, hence it has the Government support as well. Also if
some party approaches to the law enforcing agencies, they also recommend them to solve it through
Jirga system. Role and responsibilities are clearly defined in the Jirga and they all reach to a
collaborative decision which is the building block of responding and recovering from the disruptions.
In Punjab region, this conflict resolution is not very well structures like in KPK region and most
conflicts are resolved by the parties involved, sometimes market committee is also involved but this is
not formal as in KPK region.
Joint decision taking is also an important theme seen in the analsysis. As market committee are part of
hubs which are markets and they set the prices and also regulate the whole network. This shows that
decision making also centralized for big activities. In time of disruptions these committees have up to
dated information about the magnitude and destruction of the disaster because Government
representative is also part of these committees, therefore they are in much better position to adjust the
prices accordingly which reduces the ripple effect of disruption thus aligning the supply network.
However in staple food chain in KPK which consists of mostly wholesalers and retailers, this joint
decision making is missing as a result price fluctuation is much higher than Punjab region.
Overall combined activities especially conflict resolution significantly improves the bottle necks in
supply chains which bring flexibility during disruptions thus increasing resilience.
Utilizing Network Resources:
Another important component of collaboration is utilizing network resources. As the name shows this
component has activities which are related to sharing of resources and making most of the available
resources in the networks. In this analysis, we have found that availability of labor, resources haring
and sharing facilities are the activities which are important contributor towards resilience.
One thing which is mentioned by majority of the respondents is the availability of the labor. At each
hub and whole sale market level, there are labor unions with a governing body which provide the labor
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to commission agents, retailers and other players who need labor in the market. This labor is given full
training of handling, packaging, transporting, loading and unloading of the products.
Similarly at farmer level, plenty of cheap labor is available which helps in running the supply chain
functions smoothly. For example if middleman has purchased the field from some farmer then farmer
also shares the information about the labor providers which then help the middleman in taking care of
the crops. One of the middleman in fresh produce supply chain Punjab region told us, “We have the
contact of local labor provider, 40 to 50 workers are present in every field, we give them salary on daily
basis, these workers are local people who work in these fields. They stay there day and night, they take
care of crops as well as cutting and plucking is also done through them”. The significance of this labor
is even more evident by the following example where one of the wholesaler in Punjab region told us
about the labor issue in KPK region as some of the fresh produce also comes from the KPK region to
these markets, “Due to earthquake, many of the houses got damaged and we were in severe shortage of
the labor which results in crop being over ripped and delivery was also delayed”.
This example also shows the information sharing among the partners. We confirmed this labor issue
when we interviewed farmers in KPK. These farmers helped the labor by giving them financial support
and also using their linkages with Government officials helped them taking the financial aid so that they
can repair their houses.
Labor with the hub is trained to handle multiple tasks, therefore during disasters if there is a shortage
in supplies then the labor can be utilized in some other task. The supply chain partners also support
them financially by giving them load. Within the labor union if there is less work then work is divided
in way that everyone will get benefit. This flexibility helps them get to the normality after disruption.
Other than human resource, logistic sharing is prevalent in these supply networks. There were number
of instances recorded where one of the supply chain partner has arranged the transportation for their
buyer or supplier in case of emergency, “it is the duty of supplier to manage all the transportation, but
in some emergency cases we send our own vehicle to collect the supplies, (Trader-Staple Food-
Punjab)”. Other than vehicles, storage facilities are also available near all the hubs which utilized by
different players. These examples shows that supply chain partners utilized the network resources which
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leads to increase collaboration. They achieve agility through the efficient and timely use of these
resources.
Building and Maintaining Trust
We have found that ‘Building and Maintaining Trust’ is the key element which facilitates the process
of information sharing, financial support, combined activities and all other collaboration related
activities. The underlying activities involved in this component are affective commitment, fair dealing,
good will, proximity & bonding and satisfaction. As these activities are important for all collaborative
activities, therefore indirectly increasing resilience.
Our data show that affective commitment is achieved through friendly attitude, good working history
and length of relationship and repeated business. As was declared by one of trader in staple food
network Punjab region: “like you get a deal done and our partner fulfill commitment in a timely manner
then trust and confidence is developed”. Further one of the wholesaler commented when asked about
the trust as “overall the attitude of the buyer matters the most, if there is an element of respect and no
misbehaving, and also deal is done through proper negotiation then trust is developed”. This trust
building helps to get out of the difficult situation. Natural disasters are very frequent now in these
regions. And as all the network is working on credit transactions and joint investments are involved
then trust if the forces which help them understand each other. They share information based on trust
and long relationships. No doubt mutual dependency plays its part in these relations but without trust
normalcy cannot come into these networks.
Another important underlying component of trust building was proximity and bonding. Suppliers who
were in close proximity and players know each other whereabouts or living in same area increases the
trust. Good will of one organization and satisfaction with the products also add to this element. Trust
indirectly increases the agility and alignment element of resilience because it directly increases the
degree of collaboration.
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Discussion
Collaboration in form of information sharing, supporting and helping in response and recovery phases
of disaster are very important to deal with the difficult situation (Kovács & Spens, 2007; Van
Wassenhove, 2006). Our findings confirm that availability of financial support, sharing of information,
mutual dependence, shared resources leads to increase flexibility, speed , visibility, alignment and
adaptability in the supply chains which are antecedents of supply chain resilience (Ponomarov, 2012).
Abe and Ye (2013) has talked about the role of collaboration and monitoring system in achieving
visibility which is basic ingredient of supply chain resilience. Our findings shows that no doubt visibility
is necessary to achieve resilience but in these regions where there are no formal mechanism to achieve
visibility, visibility is achieved through increased interaction, information haring, site visits and by
being open and honest about the transactions. Similarly Christopher and Peck (2004) have
conceptualized agility, efficiency, flexibility, and efficiency as main factors of supply chain resilience
which can be achieved by fine tuning the supply chain base strategy, collaboration and risk management
culture. We confirm that collaboration activities help achieve agility, efficiency and required flexibility
in supply chain during disasters.
Mutual dependence is considered to be an activity which indirectly contributes to supply chain
resilience as it helps achieving communication, information sharing, financial help and resource sharing
(Scholten & Schilder, 2015), however in our analysis we found that mutual dependence directly
contributes to the collaboration. It is because system is designed in a way especially in Punjab region
and fresh produce in KPK region, there are hubs which invest on farmers and both are dependent on
each other which lead to more collaboration. There were other instances as well where there was no
mutual dependence but as they were part of the same system and through social relations they have
shared information and communicated. On the contrary, trust building is the element which contributes
towards sharing information, financial support, effective communication and shared resources therefore
indirectly increase resilience.
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Trust & Sustainability:
Continuous Benchmarking for a beneficial relationship

Nicolas van der Nest
School of Information Systems
Logistics and Supply Chain Management Group
Curtin University
Bentley, 6002, WA
nicolas.vandernest@postgrad.curtin.edu.au
+614 9812 6891
Adil M. Hammadi,
Curtin University
Bentley, 6002, WA
A.Hammadi@curtin.edu.au
Torsten Reiners,
Curtin University
Bentley, 6002, WA
t.reiners@curtin.edu.au
Lincoln C. Wood
Department of Management
University of Otago
lincoln.wood@otago.ac.nz
Research Paper
453
ABSTRACT:
With the increase of globalisation and outsourcing, supply chain management has grown
in its complexity. To reduce the impact of globalisation and to gain a competitive
advantage, organisations are focusing on improving their economic, social and
environmental factors in their supply chains. One method for improving the supply chain
is through the creation of a sustainable long-term buyer-supplier relationship which often
deteriorates even in the presence of good contract management and supplier performance
management. In this paper, we suggest investigating the socio-psychological factors that
impact relationships. We recommend using trust as a vehicle to determine the strength of
relationships along with strategies such as contract management and supplier
performance monitoring. Trust in the buyer-supplier relationship has been previously
discussed in the literature, it has yet to be utilised in the context of buyer-supplier
relationships numerically and linguistically for decision making. Determining the trust
numerically as well as linguistically based on socio-psychological factors impacting
relationships will assist the buyer to make an informed choice about the fate of a
relationship.
Keywords: Trust, Sustainability, Buyer-Supplier-Relationship

Introduction
The supply chain represents echelons of interrelated organisations and systems that
increases in complexity with each, planned or unplanned, alteration as organisations leave
or join the supply chain. This complexity creates an atmosphere of uncertainty that may
lead a company towards unnecessary risk (Cox and Chicksand, 2005, Srinivasan et al.,
2011). Particularly for managers have to cope with the risk within the supply chains under
the impact of an increasing potential of disruptions; among others caused by globalisation
(uncertain supplier base, lead time), just-in-time concepts (logistics, quality), and other
uncertainty regarding the interaction of the multiple stakeholders (Jüttner, 2005, Khan
and Burnes, 2007, Pochard, 2003, Willis, 2007). To minimise the risk within the supply
chain, it is eminent for an organisation to identify, manage, or even eliminate all causes
of disruption. In a supply chain, the quality and stability of buyer-supplier relationships
may be one of the critical components which are significantly contributing to an overall
advantage.
Within the context of supply chain and logistics environments, the buyer-supplier
relationship management (BSRM) primarily places focus on the existing relationships
between buyers and suppliers. These relationships present an important link to create a
competitive advantage as the value of the supply chain is determined by its weakest link.
Buyer-supplier relationship management is the examination of the formation,
maintenance, monitoring, and termination of the relationship between entities in the
supply chain. However, buyer-supplier relationship management currently lacks the
inclusion of a systems based tool to provide the continuous benchmarking of the state of
trust over time; not to mention the quantification of trust as a key performance indicator.
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In this contribution, we foster a discussion on the identification of relevant factors
to create and maintain long-term relationships with suppliers rather than considering them
simply as a disposable partner after they served their purpose or to be replaced with one
being more economical. To successfully create and maintain a long-term buyer-supplier
relationship both sides should develop a level of trust with one another and work towards
the achievement of shared goals.
Existing literature acknowledges the critical influence of trust, yet it is commonly
accepted to be measured using qualitative indicators (not precise and biased) rather than
having a quantitative approach (precise and non-biased) that would enable continuous
monitoring and benchmark the level of trust over time. In this paper, we analyse the
literature focussed on the current process of measuring trust between buyer and supplier,
but even more importantly indicating the relevance of investing in a methodology to
quantify the trust; i.e. to allow to react to early warning indicators that divert from an
expected development.
This research is at an early stage, presenting a conceptual discussion on the
quantification of trust to enable successful long-term buyer-supplier-relationships. This
contribution’s focus is on demonstrating the current research gap and arguing the negative
impact of not considering a shift in the present evaluation of the buyer-supplier
relationship. We argue that an improved insight into the relationship is crucial to
improving the efficiency and sustainability of the supply chain.
Background
The importance of the buyer-supplier relationship has been accentuated by the growth
and development of the global supply chain and global marketplace (Zhao et al., 2008,
Spekman, 1988). Advances in information technology and electronic communication, in
combination with the physical improvements in transportation, have increased
connectivity and efficiency for both buyers and suppliers. Which are now able to develop
stronger strategic relationships that move beyond simple transactions to powerful
collaborations and alliances (Burt, 2010). It is the interdependence of firms that brings
them together to collaborate for mutual benefits. Companies have to implement sharing
of strategic direction, information, resources and processes to gain mutual benefits;
however, these relationships increase the complexity of supply chains and, more
important, require trust as benefits are asymmetric. Thus, achievements such as cost
reduction or profit increases occur generally for one partner while the other invests with
trust that may later translate into financial compensations.
The buyer-supplier relationship, started with the conclusion of legal contracts

which are used to enforce organisations to adhere to the conditions set within the contract.
During the initial phase of the relationship (or the 'honeymoon' period), both participants
are not always able to sufficiently forecast what changes may impact the future
relationship. While contracts might include the necessary clauses to protect their
respective interests, it remains hard to enforce either partner to adhere to the spirit in
which the contract was concluded.
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For instance, a buyer may include criteria upon the supplier at the start of the
contract to provide the buyer with a predetermined number of goods, at a certain price, at
a certain level of quality, to be delivered to the location agreed. While a contract might
seem right at the conclusion, new opportunities may arise that may lead to conflict; e.g.
if the supplier is asked by another buyer to supply a substantially larger order that inhibits
the buyer to complete its statutory obligation to the original buyer and its superseding
duty to the shareholders. Should the supplier choose to end the original contract in favour
for larger profits (which may also cover the possible legal ramifications) and break the
given trust, undermining the shareholder's interest, or should the supplier create the
second relationship in parallel? Bearing the risk that the buyer representing the larger
order needs to be prioritised over the needs of the buyer with the smaller order, altering
the original trust placed in the supplier.
The idyllic buyer-supplier relationship with complete transparency and

dissemination of benefits is a myth (Wood et al., 2016) and it is more likely that one party
tries to gain an advantage at the expense of the other. We consider the disposable buyer-
supplier relationship (DBSR) to be the concept whereby a buyer utilises the services of a
supplier for only as long as the buyer can achieve maximum benefit from the relationship
with that supplier before replacing the current supplier with a more beneficial one (Heim,
1993, Sturgeon, 2008, Donada and Nogatchewsky, 2006). What sets the disposable
buyer-supplier relationship apart from the transitional relationship is that only the buyer
is opportunistically aware of the dispensability of the relationship. While the supplier, is
placed under the impression that the relationship objectives are to be lasting and more
symbiotic in nature.
Figure 1. illustrates the ‘disposable’ supplier based on the cost and quality of
goods. Where a contract cancellation occurred as a result of gaining access to a supplier
presenting either an improved financial incentive (lower price) or higher quality products.
Compared to the traditional buyer-supplier relationship, the supplier in a disposable
buyer-supplier relationship is often not aware of the short-term nature of the relationship.
Within the disposable buyer-supplier relationship the supplier is under the
impression that the relationship objectives of the buyer are to create a lasting relationship
with the supplier. As such the supplier presents the buyer with an offering that may not
be advantageous to itself in the short-term but produces significant profits over a longer
period. For instance, the supplier may need to purchase capital goods to satisfy the needs
of the buyer. The supplier calculates the cost to profit ratio for the expected period. If the
buyer terminates the agreement in a shorter period, it may completely negate the benefits
of the transaction. We should note that the exploitation can be a buyer (i.e., with rare
resources or components), however, focus on the more common direction as the scope of
this research.
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Figure 1. The Disposable Supplier
In addition to the intentional misuse (opportunism) of trust by either party, it is

also challenging to maintain a healthy buyer-supplier relationship over a long time.
Relationships, and in addition to that trust, between buyer and supplier are subject to
deterioration if no ongoing investment besides contract management and basic
performance monitoring is done to retain the relationship. Oversight mechanisms to
detect changes in trust are limited and even if applied lack to inform either party to make
informed decisions in regards to the fate of the relationship with the supplier. While
qualitative annual surveys and interviews can indicate initial problems, they often provide
insufficient support to identify the cause; i.e. as other quantitative longitudinal data is not
incorporated to assign a numeric value to the relationship and the level of trust.
In addition to traditional performance indicators, trust should be considered as

one of the cornerstones of a buyer-supplier relationship. It defines the bond and
association between buyer and supplier, especially indicating the value of the relationship
in case of disruptions or other internal and external problems. Trust builds confidence in
the strength of the relationships and that this can surpass critical stages with mutual
support. Trust itself is well researched in the literature; yet not regarding using trust as an
effective performance indicator to determine and quantify both numerically and
linguistically the degree of deterioration of the buyer-supplier relationship over long-time
periods.
As the deterioration frequently seeps unrecognised into the buyer-supplier

relationship, as we currently lack the monitoring tools, relationships might end unwanted
and on negative terms. It is required to identify how trust can be (indirectly) observed by
the behaviour and actions of the supplier or buyer (the external factors) and expressed as
a trust value or level as to gauge the status of the relationship. Also, trust is a social
concept, and it is expressed linguistically rather than a numeric value or defined scale;
i.e. if we consider the context and the time as key attributes. In the following section, we
discuss how trust or trustworthiness can be measured and converted into numeric value
to represent the strength of the relationship in a particular context over time. The trust
value can serve as an additional criterion to the traditional performance indicators to
monitor and evaluate the performance and make decisions. In this article, we have a closer
look in this matter and propose a need to define a quantification of trust and its various
aspects.
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Literature Review
The literature review utilises a multi-paradigmatic theory base as it utilises multiple
paradigms to provide the reader with a clear understanding of the concepts utilised
throughout the paper.
The Sustainable Supply Chain

Sustainable supply chain management (SSCM) is defined by Carter (2008 p.368) as: “the
strategic, transparent integration and achievement of an organization's social,
environmental, and economic goals in the systemic coordination of key inter-
organisational business processes for improving the long-term economic performance of
the individual company and its supply chain”. Empirical evidence suggests that to create
and maintain a sustainable supply chain, each element within the supply chain needs to
remain as constant as possible. The concept paper proposes that to create a sustainable
supply chain regarding its social, environmental, and economic objectives, it requires
sustainable relationships to enable it to achieve these long-term objectives that hinge on
inter-organisational coordination.
The supply chain caters for both the physical (products/goods) and non-tangible
(services) industries, however, for the sake of this discussion we restrict the focus on
tangible goods. The proposed concepts of the disposable buyer-supplier relationship
(DBSR) and the sustainable buyer-supplier relationship (SBSR) may be equally
applicable to use within both the service industry and tangible goods environments.
The supply chain needs to integrate the growing need for creating sustainable
supply chains with regards to reducing the volatility between buyers and suppliers
(Elkington, 1998), which may present a risk to the sustainability in the supply chain on
multiple interconnected dimensions. The buyer-supplier relationship for the purpose of
this article is reflected to be dyadic in nature. It focuses on the buyer and the supplier
and ignores the impact of third parties on the buyer and supplier relationship.
Types of Supply Chain Relationships

The paper acknowledges the extant literature identifying the types of buyer-supplier
relationships as the traditional /transactional buyer-supplier relationship, the collaborative
buyer-supplier relationship, and the alliance buyer-supplier relationship (Whipple et al.,
2010). The categorisation of buyer-supplier relationships primarily focuses on the
planned duration and commitment each organisation is willing to invest in the other.
The traditional buyer-supplier relationship refers to a short-term balanced
relationship between the buyer and the seller (Maloni and Carter, 2006, Whipple et al.,
2010) where the buyer and the supplier have no interest in the welfare of the other
regarding each transaction as a one-off occurrence. The collaborative buyer-supplier
relationship represents a deeper level of commitment from both the buyer and the supplier
as they are acutely aware that it is in their best interest to collaborate.
The alliance buyer-supplier relationship though similar to the collaborative buyer-
supplier relationship in nature differs in one fundamental aspect (Maloni and Carter,
2006, Spekman, 1988), an increased level of institutional trust. Institutional trust, as
coined by Dobler (2003) indicates the degree of trust in a commercial sense separating
the concept of trust from the psychological interpretation of trust.
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As the aim of the sustainable supply chain, as utilised in the research paper, is to
improve both the quality and the duration of the alliance buyer-supplier relationship
within the supply chain relationship, the focal benefits of the alliance BSR are briefly
included. Benefits such as increased communication, higher quality products, lower costs,
and physical asset specialisation (Dyer, 2000, Spekman, 1988). Physical asset
specialisation refers to a supplier creating buyer specific tools that increase the speed and
quality of the buyer’s products. A significant indication of the faith and trust the supplier
is placing in the buyer-supplier relationship as capital investments are required to be both
long-term and strategic.
Issues with Supplier Relationship Management

The volatile nature of the supply chain creates inconsistencies when buyer and suppliers
displace one another for more lucrative opportunities. That may lead to a considerable
reduction of income for the supplier and higher costs and delayed downstream sales for
the buyer. Additional expenditures for the purchaser as it is required to repeat the sourcing
process (evaluating new suppliers to fill the void by the departing supplier). Short-term
gains such as price, quality, and location (Chen et al., 2013) may devoid the buyer from
long-term benefits that may be achievable when working within a mutually beneficial
buyer-supplier relationship. Also, it may reduce the probability of encountering a
dynamic of building a buyer-supplier relationship, based on long-term goals and
objectives.
Long-term relationship maintenance

As previously mentioned to create a sustainable supply chain the organisations within the
supply chain need to remain constant (Claycomb and Frankwick, 2010). To achieve long-
term relationships the organisations involved need to actively maintain the relationships.
Tools such as contract management, communication, and conflict resolution have played
a major role in creating adherence within the buyer-supplier relationship but add little
value to creating enduring relationships (Ermisch et al., 2009, Deutsch, 1977).
Contract management
Contracts between the buyer and the supplier are essential within the buyers and supplier
relationship. It provides the relationship with stability (Rousseau et al., 1998, van der
Valk et al., 2016). Also, it sets both formal and informal rules of conduct (for both the
buyer and the supplier. It creates a layer of protection for the participating organisations
as not adhering to the set terms of the contract may lead to legal actions.
Contracts provide the buyer and the supplier with a clear understanding of the
conditions and requirements expected from each party (Chen et al., 2013, van der Valk et
al., 2016, Holtgrave et al., 2011). Finally, contracts may deter either the buyer or the
supplier from any impropriety (Rousseau et al., 1998). Despite the fact that contract
management delivers some advantages with regards to BSRs, contracts as the main tool
for supplier relationship management remain inefficient and costly (Ermisch et al., 2009)
in creating and maintaining sustainable relationships within the supply chain. Gambetta
(2000) states that contracts may, in fact, diminish trust as it prohibits each organisation's
ability to perform the duties as promised by inducing fear through financial penalties.
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Communication
Communication requires the continuous sharing of information that may be sensitive in
nature to openly address various topics between separate organisations (Oosterhuis,
2009). Communication between the buyer and the supplier is essential to enable the flow
of information, money, and goods or services. As time passes the relationship between
the buyer and the supplier improves and increases the ability of the organisations
communicate (Kotabe et al., 2003). However, when organisations distrust one another,
they may be reluctant to contact one another in a frank and honest way, restricting the
ability of the buyer-supplier relationship to benefit from the relationship.
Conflict resolution
Conflict resolution may either be constructive or destructive in nature (Deutsch, 1977,
Deutsch et al., 2011) whether formal or informal structures need to be in place to allow
organisations to identify and resolve sensitive issues that may reduce the ability of the
organisations to collaborate effectively. These structures may be costly and timely and
may not always provide the organisations with mutually beneficial outcomes. The
absence of trust between the buyer and the supplier may restrict the ability of the
organisations to resolve sensitive conflict issues as neither party are willing to provide
the other with the tools to come to an understanding.
Performance management
Shin et al. (2000) utilise both Buyer Performance (BP) and Supplier Performance (SP) to
gauge the buyer-supplier relationship. Identifying the needs of both the buyer and the
supplier as pivotal within performance management. Hald and Ellegaard (2011) states
that supplier performance evaluation processes such as evaluations systems, performance
measures, and data collection procedures are influenced by the organisations involved.
Due to this factor, the impact of the performance measurement tools may greatly rely
upon the ability of the organisations to trust one another.
Trust and the Sustainable Supply Chain

Trust
Trust, as researched by Ojha et al. (2016) and Seppänen et al. (2007) has shown trust to
be vital for long-term supply chain success. Placing an organisation’s trust in another
organisation opens the company to numerous vulnerabilities. As the success of a company
may often rest on the premise that a third party honours an agreement. The lack of mutual
trust between a buyer and supplier often leads to an unsuccessful formation of strategic
alliances between the buyer and the supplier (Gambetta, 2000, Laeequddin et al., 2010,
Pieter van Donk et al., 2010). Due to the interconnected nature of the supply chain, trust
between supply chain linkages is of high importance (Kwon and Suh, 2005). As even the
smallest impact or change from a company could seriously affect the organisations further
down the supply chain.
Trust, as an intangible social and psychological concept remains difficult to

quantify or to define due to complexity of the implications associated with the concept of
trust (Ennew et al., 2011, McKnight, 2002, Kalia et al., 2016, Laeequddin et al., 2010,
Mody, 2012, Mayer and Davis, 1999, Ruan and Durresi, 2016, Schoorman et al., 2007).
Researchers have found and attributed several definitions to the idea of trust (Ennew et
al., 2011, Cho et al., 2015, Deutsch et al., 2011, Lee and See, 2004, Ratnasingham, 1998,
460
Rousseau et al., 1998, Ruan and Durresi, 2016, Schultz, 2006, Seppänen et al., 2007).
Multitudes of environments embrace the idea of trust, and as such, the brunt of the
concepts focus in the thesis concentrates on the commercial use of the term trust, only
briefly wavering outside of the scope where the researcher found it pertinent.
Sustainable supply chain

Supply chain management is considered to play a vital role in the management of the
business as it impacts both business-to-business (B2B) and business to consumer (B2C)
relationships (Chen et al., 2016, McKnight, 2002, Ojha et al., 2016, Schoorman et al.,
2007, Tonkin et al., 2015, van der Valk et al., 2016). Due to the wide reach that the supply
chain has on the organisation's external stakeholders, it stands to reason that trust should
form the bedrock of the relationships.
The sustainable supply chain requires prolonging meaningful buyer-supplier

relationships to create and maintain a long-term consistency that will provide stability
and financial benefits that are missing from disruptive middle to short term buyer-supplier
relationships. To obtain this objective, trust between these entities should be built and
maintained over time, requiring the supply chain to be more sustainable. There is a level
of trust present within each transaction between the buyer and the supplier (Sako and
Helper, 1998), increasing in probability the longer the duration of the buyer- supplier
relationship.
Additional benefits that the sustainable supply chain may provide the organisation
through the increase of trust include improved performances and higher motivation from
the organisations involved (Capaldo and Giannoccaro, 2015, Lee et al., 2010, Melé et al.,
2011, Panayides and Venus Lun, 2009, Seppänen et al., 2007), and a higher probability
of creating a competitive advantage (Sako and Helper, 1998). Despite the clear benefits
that creating and maintaining trust provides organisations, it seems to remain rare and
reclusive phenomena with the supply chain (Abrams, 2003, Narayanan et al., 2015).
Utilised predominantly as a theoretical concept within literature.
Opportunism
Opportunism as defined by Williamson (1985)page 47 as "self-interest seeking with
guile. This includes but is scarcely limited to more blatant forms, such as lying, stealing,
and cheating. ... More generally, opportunism refers to the incomplete or distorted
disclosure of information, especially to calculated efforts to mislead, distort, disguise,
obfuscate, or otherwise confuse". Researchers have identified the relation between trust
and opportunism within interfirm relationships (Lado et al., 2008) and while applicable
may be considered too progressive for the current implementation during the initial stages
of the conceptualisation of the quantification of trust research.
Trust Measurement Methodology for Buyer-Supplier Relationships

To suggest a prospective trust methodology, one must first examine those who have
addressed the topic in the past. As indicated in literature review numerous studies have
been made on the topic of trust as the basis of a relationship, but few have endeavoured
to specifically address the topic of trust as the basis of the buyer-supplier relationship.
461
Researchers such as Ermisch et al. (2009) have approached measuring trust from
a socio-physiological perspective utilising characteristics such as age, income, home
ownership, and marital status that speak to interpersonal trust between individuals.
Though there have been numerous attempts to measure trust between supply chain
partners they have often utilised the characteristics employed in sociology and
psychology (Laeequddin et al., 2010). Despite the similarities between interpersonal trust
and inter-firm trust the two concepts remain to be unique and separate and should be
treated accordingly.
While other research to measure trust quantifiably utilised various other data such
as the utilisation of survey data. Such as the research done by Laeequddin et al. (2010)
the trust measurement concept proposed in this paper focusses on a systems-based
approach that may be utilised, in the future, through enterprise resource planning (ERP)
systems to express a trust value both numerically and linguistically.
Qualitative approach
The study of trust has remained almost exclusively within the realm of the qualitative
research. With numerous authors endeavouring to define the concept (Lee and See, 2004),
for instance, authors such as Lee and See (2004) with their bilateral perspective of trust,
Ennew et al. (2011) utilising social exchange theory to research trust, Ries (2007) in the
creation of the Certain Trust model to name but a few.
Quantitative approach
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Despite the sheer volume of trust related research there seems to be no recognised
methodology to quantifying trust between a buyer and a supplier with the intent to
create and maintain sustainable relationships within the context of the supply chain. The
concept paper proposes the creation of a quantifiable and systematic approach to trust
within the supply chain with a specific focus on the buyer and the supplier. The ability
to provide organisations with a numeric representation of trust (trust values) in regards
to their counterparts will enable organisations to create sustainable relationships with a
higher degree of accuracy concerning the needs of each organisation.
Summary of Literature Review

The topics included within the literature review discusses the sustainable supply chain to
provide the reader with the overall concept of the term within the framework of the supply
chain. The types of buyer-supplier relationships were then briefly discussed to illustrate
the various types of buyer-supplier relationships. As mentioned within the literature
review that not all buyer-supplier relationships may qualify to be sustainable utilising the
alliance buyer-supplier relationship as the qualifying exception.
Supplier relationship management often faces difficulties due to the complexity
of the supply chain. Highlighting the importance of creating long-term relationships
utilising various supplier relationship management tools that themselves often face
inadequacies. The tools highlighted included contracts, communication, conflict
resolution, and performance management. The literature review then focussed on trust
within the sustainable supply chain before exploring the measurement of trust within the
buyer-supplier relationship utilising both quantitative and qualitative methodologies.
Research Gap
The creation of the sustainable supply chain requires organisations to utilise relationship
management tools to both monitor and maintain sustainable relationships (Carter and
Rogers, 2008). Important to note that while creating an enduring relationship that certain
types of buyer and supplier relationships may not be worth the extra time and expenditure
required to facilitate for utilising as part of a sustainable relationship (Dobler, 2003,
Maloni and Carter, 2006, Narayanan et al., 2015). Examples of relationships not worth
the investments are the traditional BSR and the collaborative BSR despite being essential
to daily business activities.
The alliance buyer-supplier relationship remains the essential to facilitating a

sustainable supply chain, as it provides the buyer and the supplier with multiple
opportunities to create and maintain objectives for long-term development (Maloni and
Carter, 2006, Shin et al., 2000). While supplier relationship management tools such as
enhanced communication, conflict resolution, and contract management remain to be
practical tools for enforcing mutual objectives these tools do not effectively aid in the
creation of sustainable relationships (van der Valk et al., 2016; Autry and Golicic, 2010).
Trust was shown to be a crucial tool for buyer-supplier relationships and that it may allow
organisations to capitalise on the long-term benefits that trust within the buyer-supplier
relationship may provide through the quantification of trust into a numerical value. The
quantification of trust may provide organisations with the necessary tools to address
sustainability in the supply chain.
463
Proposed Contribution and Conclusion
The previous section discussed the need for trust measurement (both qualitatively and
quantitatively) to improve or maintain a long-term buyer-supplier relationship. We
suggest that to overcome the problem of maintaining the long-term buyer-supplier
relationship we first need to identify the socio-psychological aspects of trust that may
impact the long-term relationship in the first place. Some examples of these aspects of
trust are honesty, willingness and reliability. After the identification of the aspects of trust
which may impact long-term relationships, these aspects of trust need to be expressed as
a level of trust, that is, how these aspects may be expressed linguistically to indicate the
level of trust between parties. Corresponding to the linguistic level of trust, there is a need
for a numeric value representation of trust which not only helps to understand the strength
of the relationship but may also be implemented in predicting the fate of the relationship.
Figure 2. visualises the Levels of Trust over time with its baseline fluctuations.
Currently, the common approach to benchmark trust is the conduction of surveys and
interviews at discrete time intervals; generally, annually. The lack of data points as well
as the qualitative nature results in a limited understanding of the trust that the buyer-
supplier relationship inhibit. We propose to extend the data collection and harvest the
available big data sources to observe the Level of Trust with a far finer granularity and,
especially, continuously.
Figure 2. Visualisation of Levels of Trust between a buyer and supplier over time.
That is, to consider all data with an impact on trust. While this is supply chain
dependent, it is necessary to analyse and evaluate historical data and create a baseline.
464
Afterwards, all included aspects are observed closely on changes, which trigger an
adaption of the current Level of Trust either in a positive or negative direction.
Considered changes may include, among others, the quality level, reliability in delivery,
reaction time to mails, news reports, sentiment on the products from market data and
social media, stock changes or other financial information. While a corridor is required
to allow for fluctuations, a trend can be used to consider the empowerment of a partner
(positive trend) or by negotiating new terms or breaching the contract (negative trend).
The buyer supplier relationship, i.e. when considering sustainability, are crucial
to supply chains, yet it is common practice to keep the administration and thus the level
of trust and quality rather unattended. Annual reports try to identify problems, however
the delay between problem and solution often results in deterioration of the relationship.
A continuous observation of all relevant aspects allows to determine a trend early and
react appropriately; including a positive trend which could be used to empower the
partner.
This paper is of a conceptual nature; thus, the purpose is not to present a
comprehensive solution but to raise awareness of the importance of trust in buyer-supplier
relationships as well as emphasise the lack of research on this matter. Trust is the
backbone of the supply chain, and we should treat it accordingly. We provided thoughts
on what may and should be a focus in the field of research and within industry practice.
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Social Life Cycle Impact Assessment (SLCIA) of End of Life (EOL) ships: The case of
shipbreaking industry in Bangladesh
Moutushi Tanha
University of Canterbury
Email: moutushi.tanha@pg.canterbury.ac.nz

Email: pavel.castka@canterbury.ac.nz
Dr. Mesbahuddin Chowdhury

Email: mesbahuddin.chowdhury@canterbury.ac.nz
Abstract
Shipbreaking is an important industry for many developing countries such as Bangladesh,

India and Pakistan. At one hand, shipbreaking might be considered as a green practice (most
of the materials from ships are reused in the developing world) yet the social impact of
shipbreaking is less positive. In this paper, we map the social impact of the industry in
Bangladesh and discuss the major antecedents leading to a negative social impact. The paper
is grounded in Social Life Cycle Impact Assessment (S-LCIA) Paradigm and paves way for
future studies on social impact in the industry and beyond.
Keywords
Social, environmental, impact, shipbreaking
1. Introduction
Life Cycle Assessment (LCA) emerged as a methodological approach to assess environmental
impact of products, individual firms and industries. LCA mainly focuses on environmental
issues, and Social Life Cycle Assessment (S-LCA) has emerged from extending the
environmental focus by providing a social dimension to the assessment in line with the Triple
Bottom Line concept (Elkington, 2004). Research has been developed well on many end-of-
life (EOL) products like vehicles and electronic products found by Hamid Allaoui, Keivanpour,
Ait Kadi, and Mascle (2015). S-LCA case studies also appeared on a range of products such as
salmon (Kruse et al., 2009), orange juice (Norris et al., 2011), cheese (Paragahawewa et al.,
2009), fruit and vegetables (Feschet et al., 2010), banana (Feschet et al., 2013), coffee
(Lemeilleur and Vagnernon, 2010), roses (Franze and Ciroth, 2011), packaging (Oki and
Sasaki, 2000), biofuels (Kloverpris and Wenzel, 2007; Macombe et al., 2013), PET bottles
(Foolmaun Ramjeeawon, 2013), recycling systems (Aparcana end salhofer 2013). S-LCA also
covers industry sectors such as construction (CEN standard for S-LCA, CEN 2012, 2014;
Chang et al., 2011, Hosseinijou et al., 2013), tourism (Arcese et al., 2012), mineral sector
(Lacey and Moffat 2012), charcoal (Weldegiorgis and Franks 2012), sanitary products
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(Musaazi et al., 2013) c.f. (Sala, Vasta, Mancini, Dewulf, & Rosenbaum, 2015). However, no
S-LCA study has been conducted so far on supply chain management of EOL ships.
According to Klöpffer (2003) and Macombe, Leskinen, Feschet, and Antikainen
(2013), among the three aspects of Life Cycle Assessment (LCA): economic, environmental
and social, S-LCA is newer and is the least developed whereas S-LCA provides an additional
value to sustainability assessment by measuring its social dimension (Benoıt et al., 2009).
Assessing impact is one of the important methods for S-LCA and therefore, S-LCIA is getting
more attention and this study will attempt to identify and assess social impacts of EOL ships
in the context of shipbreaking industry.
It is particularly surprising given the social impact – especially of shipbreaking of EOL
large cargo ships - that no study has been taken so for in the area of social impacts of supply
chain management of EOL ship breaking industry. Large ships have been traditionally
dismantled in the developed world about a decade ago but the industry has been moved to the
developing world (Bangladesh, India and Pakistan) since then. In these days, shipbreaking is
an important industry in developing world countries. However, the management practices are
very poor – dominated by labour intensive practices, high rates of death and injuries and subject
to violations of international guidelines that were created by the industry. The practices of the
shipbreaking industry are slowly reaching global media coverage that is appropriate for such
violations. Yet the publicity related to shipbreaking is nowhere near in comparison to other
cases (such as textile industry in Bangladesh). Despite all negative social impacts, ship owners
are largely disinterested.
Shipbreaking is the process of dismantling an obsolete vessel’s structure for scrapping or
disposal. It involves a wide range of activities. From removing all the gear and equipment that
are on the ships to cutting down and recycling the ship’s infrastructure. Shipbreaking is a
challenging process, due to the structural complexity of the ships and the involvement of
environmental, safety and health issues. Due to cheaper labour costs and fewer health and
safety regulations that have to be followed, the developing world hosts the vast majority of ship
breaking efforts. Bangladesh is an attractive shipbreaking yard for EOL ship sellers. The ship
owners tend to sell their EOL ships to the developing countries rather than to developed
countries where stringent rules and regulations make shipbreaking costly. Before 1990s EOL
ships were broken in British yards and some EU country yards. But gradually the industry has
been shifted from this region as these countries were under several rules and regulations like
BASEL Convention, IMO rules, EU rules or Hong Kong Convention.
2. Objective and Methodology

In this paper, we aim to fill the gap in the existing literature by providing a conceptual analysis
of Social Life Cycle Assessment (S-LCA) in the context of shipping industry. The paper
focuses on the case of shipbreaking industry and scrutinizes the industry at global level and in
more detail by focusing on the case of Bangladesh. The overall aim is to map the social impact
of the industry using S-LCA in terms of working conditions, occupational health and safety
standards, accidents, child labour, and treatment and compensation of workers. The study uses
a qualitative approach and analyses the social impact based on secondary data, such as media
coverage, NGO reports and statistics from shipbreaking industry. In doing so, it provides a
conceptual background for a future field work in the industry. This paper provides useful
insights for ship breaking firms through assessing the social sustainability of the existing supply
chain of end-of-life (EOL). Theoretical contribution of the study is to enrich Sustainable
Supply Chain Management literature base by proposing a socially sustainable supply chain
model for EOL product through assessing its social impacts across EOL ship breaking
operations.
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3. Theoretical background
This section of the paper clarifies the main definitions and concepts that are used in the paper.
We firstly discuss the term “End-of-Life” (EOL) products and follow with a discussion on
Social Life Cycle Assessment (S-LCA) & Social Life Cycle Impact Assessment (S-LCIA).
3.1.End-of-Life (EOL) Products

EOL is an established abbreviation for “End-of-Life” – defined as a product retired from
functional environment due to technical, economic, social, and legal reasons (Kiritsis, Bufardi,
& Xirouchakis, 2003). The most succinct and comprehensive definition of EOL product is
given by European Economic Community directive on waste, which defines EOL product as
“any substance or object which the holder discards or intends or is required to discard” ( Waste
Directive 75/442/EEC, 2003). This definition is also adopted by directive 2000/53/EC to define
EOL vehicles.
The research on EOL products has focused mainly on EOL products like vehicles and
electronic products (Hamid Allaoui et al., 2015). However, EOL of ship vessels is not very
well researched. The structural characteristics of ships demand some well managed disposal
and therefore when ship reaches its EOL stage it is important to consider many social issue
along with the economic and environmental issues. Lack of consideration of social issues leads
to adverse social consequences. And ultimately it influences economic issues. This study
attempts to address and identify the social impacts emerged from the ongoing unfair practices
of ship breaking firms in the context of Bangladesh. To our best knowledge no prior study has
been conducted regarding the addressing and identification of social impacts of EOL ships in
the context of ship breaking industry based on the categories of social impacts specified by
Benoıt et al. (2009) in their guidelines for Social Life Cycle Assessment of products.
A ship vessel reaches its EOL stage when it is no more used for operational (Hess,
Corporation, & Institute, 2001). Most ocean-going cargo ships have a life expectancy of
between 20 and 30 years (Council). Ship breaking or ship demolition is a type of ship disposal
involving the breaking up of ships for scrap recycling, with the hulls being discarded in ship
graveyards (Love, 2006) that allows materials from the ship, especially steel, to be reused.
3.2.Social Life Cycle Assessment (S-LCA) and Social Life Cycle Impact Assessment (S-
LCIA)
According to L. Dreyer, Hauschild, and Schierbeck (2006), p.88, “Social LCA aims at
facilitating companies to conduct business in a socially responsible manner by providing
information about the potential social impacts on people caused by the activities in the life
cycle of their product.” LCA covers real and potential as well as positive and negative impacts
(Benoıt et al., 2009; L. Dreyer et al., 2006; Feschet, Macombe, & Garrabé, 2012). The scope
of S-LCA cover the entire life cycle (or at least significant parts) alongside dimensions:
behaviours, socio-economic processes and capitals (Benoıt et al., 2009).
Chhipi-Shrestha, Hewage, and Sadiq (2015), p.579, clarified that “Social life cycle
assessment (S-LCA) is a technique to assess the potential social impacts of a product or service
caused by its life cycle” where Sala et al. (2015) justified the definition of Chhipi-Shrestha et
al. (2015) by adding identifying the impacts on human capital, human well-being, cultural
heritage and social behaviour. S-LCA is a very significant approach for different types of
decision makers like business people, policy makers of a country etc. According to Sala et al.
(2015), S-LCA can be applied to explore supply chain activities at different scales ranging from
micro (product) to Meso (sector) to Macro (country) being used by various actors holding
different perspectives like policy making, business and NGO’s.
On the other hand, Benoît Norris et al. (2013), p.7 defines Social life cycle impact
assessment (S-LCIA) as: “Social life cycle impact assessment is the process by which inventory
470

data is aggregated within subcategories and categories to help understand the magnitude and
the significance of the data collected in the Inventory phase using accepted level of minimum
performance.”
Social impacts are very complex and subjective and might be perceived differently by
different stakeholders. Benoıt et al. (2009) states that social impacts are not only the function
of political, economic, ethical, psychological, legal and cultural issues but also social impacts
feed back to the production system and the society and thus change other social and
environmental impacts. The stakeholder classification for S-LCA has emerged from the
stakeholder theory. According to Lawrence and Weber (2008), p. 6, “The stakeholder theory
of the firm argues that corporations serve a broad public purpose: to create value for society”.
In this view, corporations have multiple obligations and all stakeholders’ interests must be
taken into account in contrast with the view of the ownership theory of the firm where the
purpose of the firm is to maximize returns to owners of the firm. If business people involve a
broader spectrum of stakeholders, beyond stockholders, they would get a better understanding
of the complex issues around their business and lead them successfully. This theory is widely
accepted today, as it forms the basis of many of the CSR and sustainability reporting
frameworks. It is important to apply the Stakeholder Theory in the S-LCA methodology so that
it will ensure the perspectives from all relevant groups while assessing the social and socio-
economic impacts of products throughout their life cycle.
Framework based on Stakeholder category has been considered as the backbone of the
guidelines developed by (Benoıt et al., 2009) and has been used in the methodological sheets
for subcategories in social life cycle assessment. The Table: 1 presents an overview of typical
stakeholder categories as well as categories and sub-categories of social impacts.
Table 1. The social impacts and subcategories of social impacts on workers and other
stakeholders - adapted from Benoıt et al. (2009) and Lawrence and Weber (2008)
Category of Stakeholders Social impacts

Workers Freedom of Association and collective bargaining, child
labour, fair salary, hours of work, forced labour, equal
opportunities /discrimination, health and safety, social
benefit/social security
Consumer Health & safety, feedback mechanism, privacy,

transparency, EOL responsibility;
Local Community Delocalization and migration, Community engagement,
cultural heritage, respect of indigenous rights, local
employment, access to immaterial resources, access to
material resources, safe and healthy living conditions, secure
living conditions
Value Chain Actors Fair competition, respect of intellectual property rights,
supplier relationships, promoting social responsibilities;
Government Adopting regulations and laws, issuing and permits,
allowing or forbidding industrial activity for promoting
socio-economic development
Social Activist Groups Monitoring company actions and policies to ensure that
these are compliant with legal and ethical standards for the
sake of all the stakeholders
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Media Disclosing objective news for keeping all the stakeholders
informed on all issues affected them, publicizing events
etc., monitoring actions of the companies
Industry Association Providing R &D and assistance to help companies or
industry in a changing business environment
Trade Union/Workers’ Maintaining stable working environment for all the workers
Association working in a company and in an industry.
S-LCA has two classes of impact categories: obligatory and optional. Obligatory impacts,
normatively based, are those impact categories where predetermined categories exist by
expressing minimum expectations to conducting responsible business. The other one is
optional which is by nature, self-determined class of categories that express interests specific
to the product manufacturer not already covered by the obligatory impact categories (L. C.
Dreyer, Hauschild, & Schierbeck, 2010).
Forced labour, discrimination, freedom of association and right to organize and
collective bargaining and child labour are considered as fundamental by ILO (ILO 1930, 1948,
1949, 1951, 1957, 1958, 1973, 1999). (L. Dreyer et al., 2006) argued that obligatory impact
categories should be based on the four issues of concern pointed by ILO ,which has been
identified earlier by some authors like Mazjin, (2004) (2005),Vanhoutte et al, (2004), Barthel
et al., (2005), Schmidt et al., (2004), Griesshanner et al., (2006) and Manhart & Griesshanner,
(2006) c.f. (L. C. Dreyer et al., 2010). Obligatory impacts are usually the categories of social
impacts where a company has strong possibility to make an influence.
Chhipi-Shrestha et al. (2015) identified “Performance Reference Points” and “Impact
pathway” are the two methodological approaches for addressing S-LCA and particularly S-
LCIA. Our proposed study will address both methods. As the nature of this study will affect
both the living and working conditions of mainly workers in relation to a particular stage of
life cycle phases of product, it is in line with the Performance Reference Points method
proposed by Chhipi-Shrestha et al. (2015).
ILO conventions, ISO 26000 guidelines or Social Responsibility (ISO 26000, 2010),
OECD guidelines for Multinational Enterprises can be used as basis for internationally
accepted minimum performance level while choosing the reference points (Parent, Cucuzzella,
& Revéret, 2010). They argued that this method assumes generally an empirical correlation
among production processes characterized mainly by spatial-temporal terms as well as the
occurrence of specific socio-economic conditions. This phenomenon has been reflected in the
growing ship breaking industry located in Asian Least Developed Countries (LDCs) like
Bangladesh and the unique socio-economic condition prevailing here as in Bangladesh, many
of the regulations applicable for ship breaking industry like: BASEL Convention, HONG Kong
Conventions, EU Waste Shipment Regulations, ILO are mandatory for the ship breaking
companies to follow. This study will attempt to explore this reflection largely.
Chhipi-Shrestha et al. (2015) also argued that in order to assess social impacts, as a part
of S-LCA, many S-LCA researchers have applied Performance Reference Point Methods
where they followed different techniques for assessing social impacts like Checklist method,
Scoring method and Social Hotspot Database method (SHBD). Performance Reference Point
Methods can accumulate either qualitative indicators or quantitative indicators. According to
(Benoıt et al., 2009), these methods are not amenable for cause-effect chain relations as the
authors haven’t yet confirmed about the cause-effect relationships due to the complex nature
of such relationships and sometimes due to the lack of enough precision level to allow a cause-
effect modelling. (Parent et al., 2010) found these methods included as Type 1 Impact
assessment in (Benoıt et al., 2009). Generally, Type 1 impact assessment methods use ordinal
scale for either describing risk (from very high to very low), and/or the performance (from non-
472

compliant to best practices) or the degree of management (from uncontrolled to under control).
Some methods also compare the results to the context.
On the other hand, Parent et al. (2010) found that Impact Pathways methods assess the
social impacts of a product system by using impact pathways as characterization models
consisted of midpoint and/or endpoint indicators like Environmental LCA (E-LCA) where
these methods are generally based on social effects and use cause-effect chains to assess the
impacts by using mostly quantitative indicators (Chhipi-Shrestha et al., 2015). These methods
are included in Type 2 impact assessment by UNEP/SETAC Guidelines for S-LCA of
Products. These Type 2 impact categories correspond to a model of the social impact pathways
to the endpoints human capital, cultural heritage and human well-being. Characterization
models are used by Type 2 impact categories in order to represent the impact pathways like in
E-LCA that requires the use of quantitative data and cause-effect chain modelling to aggregate
indicators to a midpoint or endpoint-level. Parent et al., (2010) also highlighted causal
relationship between the processes by identifying the midpoint and endpoint indicators that are
generally quantitative in nature found by (Chhipi-Shrestha et al., 2015) for Impact Pathways
Method used originally in environmental LCA while assessing the social impacts of a product.
This study will attempt to assess the social impacts on workers of ship breaking firms by
using Human rights, Working conditions Health and safety, - three categories out of six
categories of social impacts identified by (Benoît Norris et al., 2013) that has been used in the
methodological sheets for subcategories in social life cycle assessment- on workers- the
directly affected stakeholder of Bangladeshi ship breaking firms. In this study Performance
Reference Methods will be used by developing multi criteria model and calculating company
performance score (CP), company free rein (CFR) and company risk score (CR) in the
characterisation of “Human rights”, “Working conditions” and “Health and safety” social
impact scores for six case studies.
4. Ship breaking industry – a life cycle perspective

The shipbreaking life cycle is depicted on Figure 1. There are five important stages in the life
cycle: starting with ship building and ending with ship breaking and after-market supply chain.
We discuss each stage in the next sections of the paper.
Figure 1 A life cycle perspective of shipping industry
4.1.Ship Building
In the past, most of the activities associated with ship building were performed by vertically
integrated ship building companies. Nowadays, outsourcing model dominates ship building
and the ship building companies tend to concentrate on their core competencies to sustain its
competitiveness (Andritsos & Prat, 2000). Ship building industry involves companies across
the globe.
There is a good number of similarities between ship building and construction and
engineering industry in terms of operation to make-to-order (MTO) with fluctuating demand
cycles, project-specific product demands, uncertain production conditions, and combining a
diverse range of specialist skills (Dainty, Millett, & Briscoe, 2001). From operational aspect
point of view, shipbuilding requires large amount of information, people, equipment and
materials to be managed (Mello & Strandhagen, 2011). Engineering of complex products like
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ship demands coordination of contributions of different partners due to high interdependency
between specific tasks of the main suppliers (Gronau & Kern, 2004).
The IMO Guidelines adopted in 2003 on ship recycling recognize that it is necessary to
consider the ship throughout its lifecycle at the design stage. The IMO Guidelines also
recognise a need to minimize the use of hazardous materials already in the design, construction
and maintenance of ships, without compromising their safety and operational efficiency, and
to prepare ships for recycling in such a manner as to reduce environmental and safety risks and
health and welfare concerns as far as practicable.
4.2. Use of ship

Shipping companies utilize ships for various purposes such as cargo shipping, passenger
shipping or container shipping. Most ocean-going cargo ships have a life expectancy between
20 and 30 years (Hillier, 2006). In comparison, a sailboat made of plywood or fiberglass can
last between 30 and 40 years, solid wooden ships can last much longer but require regular
maintenance and carefully maintained steel-hulled yachts can have a lifespan of over 50 years.
As ships age, forces such as corrosion, osmosis, and rotting compromise hull strength, and a
vessel becomes too dangerous to sail. At this point, it can be scuttled at sea or scrapped by
shipbreakers.
According to Sharma (2016), top 10 largest shipping companies are A.P. Moller-Maersk
Group (APM MAERSK), Mediterranean Shipping Company (MSC)- Geneva based Italian
shipping company, CMA CGM S.A.- a French shipping company, Evergreen Marine- Taiwan,
China Ocean Shipping (Group) Company, COSCO, HAPAG-LLOYD Founded in 1970,
Hapag-Lloyd is a German shipping company, American President Lines LTD (APL), Hanjin
Shipping Co. Ltd, Korea’s largest shipping company, China Shipping Container Lines Co. Ltd,
CSCL, Nippon Yusen kabushiki Kaisha (NYK)- A Japanese carrier and core Mitsubishi
company. The statistics also list “responsible” ship owner – who send their ship to shipbreakers
who adhere to international guidelines: CSL Group Incorporated – Montreal, Canada; Grieg
Shipping Group – Bergen, Norway; Hapag Lloyd – Hamburg, Germany; Höegh Autoliners –
Oslo, Norway; Royal Boskalis Westminster N.V. - Papendrecht, The Netherlands; China
Navigation Company – Singapore; Wallenius Group – Stockholm, Sweden; Wilh. Wilhelmsen
Group - Lysaker, Norway; Wallenius Wilhelmsen Logistics, Norwegian/Swedish shipping
company; EUKOR Car Carriers, South Korea; American Shipping and Logistics, USA; A.P.
Møller – Mærsk – Copenhagen, Denmark; Det Forenede Dampskibs-Selskab (DFDS) –
Copenhagen, Denmark (NGOShipbreakingPlatform, 2016).
4.3.Brokers
When a ship reaches its end-of-life, ship owners use brokers to sell the ships for ship-breaking.
The brokers are based in Dubai, Hamburg, London (where Clarkson, the world’s largest ship
broker is based), and Singapore. The ships are typically registered under flags of convenience.
Ship breakers pay anywhere from 400 to 500 US Dollars or more per ton for the ships (Frey,
2013). Ship breakers have a financial incentive to break ships quickly so they can recover their
investments. It normally takes a workforce of 200 to 250 workers three to five months to
dismantle an average-sized ship (Demaria, 2010).
4.4.Shipbreaking Operations
In order to recover the invested capital, the ship breakers try to dismantle as soon as possible
after purchasing the ships. Generally, it takes few weeks for the ship to reach the ship breaker,
for instance, it takes two weeks to get the ship sailed posthaste to the demolition yards of
Chittagong, Bangladesh (FIDH, 2002). The procedure is the following. When the ship reaches
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the Bay of Bengal, it is anchored in international waters off Chittagong and administrative
formalities start. The ship is inspected, checked and made the ship free from gas. No ship can
be accepted by a ship breaking firm unless and until it has gas free certificate. Finally the
Chittagong port authority issues a permit for the ship to enter to territorial waters for beaching.
The ship’s captain puts the ship in position off the coast and waits for the ideal time for
beaching maneuvering. Generally vessels are beached by own propulsion power during high
tide and vessels are laid stable on their flat bottom during low tide (Hossain & Islam 2006).
To facilitate the dismantling operations of a ship, the ship must be placed in this exact
position and above all come to ground as much high as possible on the beach. According to
Hossain & Islam (2006), beaching has a crucial impact on the final cost and dismantling time
can be doubled if the beaching operation is unsuccessful. After beaching, cutters and their
helpers start cutting the vessel into parts. The breaking operation is undertaken on the basis of
the ship’s structural design (Ronning, 2000). Larger parts of the ship are dragged on shore by
using motorized pulleys. A large number of workers are engaged in this task. A group of
cutters’ helpers and workers start cutting the dragged parts of the ship into truckable parts
according to the specification provided by the buyers. Boilers, motors, capstan stocking etc.
are heavy equipment recovered from old ships and generally are carried down to stack yards
by crane. Unskilled workers generally carry metal plates, bars or pipes in their heads or
shoulders to a designated destination and pile up all the metal in stack yards or load them
directly on trucks. Supervisors generally monitor the workers. There are also some valuable
components like small motors, pumps, generators, navigation equipment, life-saving
equipment, furniture, electrical cables, utensils etc. that are generally recovered and sold to the
local second hand market. Approximately 5-6 months are needed to dismantle a typical old
cargo ship.
Thousands of migrant workers who are mostly young, male and illiterate from poor
rural areas of Bangladesh are employed in the ship breaking yards. (Demaria, 2010) and
(Puthucherril, 2011) found that depending on the level of skills workers are categorized such
as: those who use torches to cut up ships and their helpers, those who carry large iron plates,
laborers, contractors, supervisors, winch operators, crane drivers, fitters, carpenters, asbestos
workers and firemen and their daily wages ranges between US$2 to US$7 depending on the
job.
4.5.After market supply chain

Gregson et al. (2012) depicted a flow diagram of aftermarket supply chain for ship breaking
firms that can be described as: Power related equipment, boards, furniture, process facing
ferrous scrap, nonferrous scrap, electrical cables, kitchen equipment, cutleries, lifeboats,
chandlery, marine equipment are usually retrieved from the dismantled ships. Reconditioning
firms, engineering firms and repair firms are the buyers of recovered power related equipment.
These firms produce engines, crankshafts, gearboxes, brakes, boilers and compressors. The
major buyers are local SMEs, some materials and products are exported. Different types of
particle boards, plywood, partex and asbestos boards are also recovered items and are mostly
bought by furniture manufacturers and wholesalers, local SMEs and consumers. A large
number of furniture is also sold “as is” mostly to furniture dealers and some to final consumers.
Gregson et al. (2012) also moved their flow diagram further by specifying that there
are two types of markets for ferrous scrap: spot market and tied market. Secondary steel
processors like manual Re-Rolling Mills (RRMs), automated RRMs and scrap metal merchants
are the major customers. These firms focus primarily on production of Iron rods, which are
then supplied to construction industry. Commodity markets are the main buyers of scrap metal
merchants. Kitchen equipment, cutleries, lifeboats, chandlery, marine equipment are usually
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sold to wholesalers and retailers and at the end tier wiring and construction industry and SMEs
including garment industry are the buyers of electrical cables whereas restaurants and domestic
customers are the buyers of kitchen equipment and cutleries and coastal shipping fleet are the
major buyers of lifeboats, chandlery and marine equipment.
5. Socio-Economic Drivers of Social Impacts in case of ship-breaking industry

Ship-breaking activity originated as a method since 1970s (Hess et al., 2001). According to
(Buerk, 2006), ship breaking in South Asian Least Developed Countries (LDCs) has grown
due to opportunistic development and this industry has also developed due to increased
requirements on ship breakers in the developed world (Gregson, Crang, Ahamed, Akhter, &
Ferdous, 2010), A significant geographical relocation happened in ship breaking industry in
the recent two decades and at the moment, the majority of shipbreaking is performed in
developing countries such as Bangladesh and India.
During 1960s and 1970s, ships were mainly broken under mechanized and capital
intensive operations in Europe, mainly in Spain and Italy and in the USA and ship breaking
activities took place along piers in connection with ship building activities (Vedeler, 2006). As
the level of environmental regulation in industrialized countries was increasing during the
1980s, costs of complying with the standards increased as well. Consequently, most of the ship
breaking industry was being transferred to developing Asian countries, at first to China, Taiwan
and South Korea, and later (due to rising labor costs), to Bangladesh, India and Pakistan, who
became market leaders around 1988.
Vedeler (2006) mentioned that during 1980s beaching (initiated by an accidental
beaching) gradually became the most frequently applied method. This method aligns with the
infrastructural maturity of the industry: it does not require high infrastructural investment
(piers, sufficient depth of the harbour, cranes etc.). In order to take the highest advantage of the
low labour costs in the developing countries, the industry, once highly capital intensive in high-
labour-cost European countries, became a labour intensive industry.
The reason for the present geographical redistribution of demolition services is that the
economics of ship breaking are not favorable for most developed countries. (Vedeler, 2006)
argues that high labour costs, costs of protecting the environment and human health and lower
demand for second hand steel and other reusable items than Asian developing countries ensures
that the EU and other developed regions do not an important role in ship breaking. Per ton steel
prices obtainable in Asia are higher than those obtainable in Europe (Stuer-Lauridsen, Husum,
Jensen, Odgaard, & Winther, 2004). On the other hand, prices paid by Asian ship breakers for
redundant ships stood at $ US 700per tonne (Van Leeuwen et al., 2008).
The dynamics of buyer and seller decision making is influenced by many factors
(Vedeler, 2006). A ship owner’s decision to sell a vessel to the demolition market is a matter
of weighing the advantages of keeping the vessel, in terms of future expected income, against
the advantages of selling the vessel as scrap, at the achievable scrap price. On the other hand,
a ship scrapper’s decision to buy an obsolete vessel for scrap is affected by the possibilities to
sell steel and other reusable items from the vessel in addition to the scrapper’s cost structure
(Stuer-Lauridsen et al., 2004). When conditions change - like decreased steel price or increased
running costs - the breaker needs to get the vessel at a lower price and both revenue possibilities
and running costs (like labour costs, taxes, capital costs and environmental requirements) are
determined by local conditions (Stuer-Lauridsen et al., 2004). Ship breakers in some regions
are therefore able to offer a higher scrap price than breakers in other regions.
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EC DGTREN (2004) describes the dynamic nature of the shipbreaking market through
a set of market drivers like: freight rate, international regulations, steel prices and market
interactions.
Freight rate. Freight is transferred to the demolition market with a small delay. High freight
rates demotivate the ship breakers and scrappers to scrap old vessels and the supply curve shifts
to upward direction and low rates increases the incentive to scrap old vessels.
International regulations. Regulations usually force ship owners to scrap their vessels earlier
than they would otherwise have done and therefore increase the supply of vessels to the
demolition market. When ‘low cost’ scrappers’ capacity is filled up, demand from ‘high cost’,
mostly from European countries, scrappers might be satisfied. Moreover, regulations
concerned with health, safety and environment may influence the demand for obsolete vessels
by increasing running costs. Regulations very often are implemented locally but the ship
scrapping market is global. Not all the ship scrappers are affected by new regulations but in
some cases, pushing some unruly operators out of the market.
Steel price. A higher level of scrapping due to higher prices of steel is another important
determinant for the market price for obsolete ships. The price of steel is getting high all over
the world and the demand for steel and the derived demand for scrapped steel are getting high
in several countries especially in India, Bangladesh, and Pakistan – the South Asian countries
where now a days most of the ships are being dismantled. However, second hand steel
recovered from obsolete vessels constitutes only a marginal part of the total supply of steel in
European ship breaking countries, and the price of steel therefore has been considered as
exogenous in the scrapping context of European countries, which were once the destination of
EOL ships.
Market interactions: International organizations like International Maritime Organization

(IMO), International Labor Organization (ILO) or the Basel Convention or Hong Kong
Convention formulate guidelines that might influence ship owners’ decision regarding where
to scrap their vessels. Moreover, control regulations ensure that scrap yards that do not respect
health and safety regulations are pushed out of the market.
Capacity: Ship breaking industry hasn’t experienced any capacity constraints historically.
However, this might be changing. The industry is now facing an increased pressure from
regulators - new regulations on health, safety and security from international and national level
negatively affect productivity of shipbreakers.
6. Social Impacts of Ship Breaking Industry – a case of Bangladesh

Severe violation of workers’ rights is now an open secret in ship breaking industry of
Bangladesh. Lack of compliance with the existing international and national rules and
regulations as well as unethical practices of the ship-breaking firms of Bangladesh, India,
Pakistan were exposed in the media (M. S. Hossain, Fakhruddin, Chowdhury, & Gan, 2016).
For instance, labour exploitation of Bangladeshi ship breakers has been highlighted and
criticized by local and international NGOs, special interest groups and activist groups.
Shipbreaking industry represents a vital source of income for Bangladesh and a livelihood for
a significant portion of its population (Alam & Faruque, 2014) and therefore such criticism is
of high importance to the country and it is evident in the revenue records of the Government
of Bangladesh such as Government of Bangladesh earned 5.21 billion Taka (87 million NZ$)
in 2013-14 fiscal year and 6.18 billion taka ( 103 million NZ$) ) in 2012-13, 5.62 billion taka
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( 93 million NZ$) in 2011-12 and 1.41 billion Taka ( 23.5 million NZ$) in 2010-11 respectively
("The Financial express," 2014).
Workers are the most adversely affected stakeholder of the ship-breaking activities. The
impact is noticeable on many fronts: poor working conditions, low level levels of occupational
health and safety standards, use of child labour as well as insufficient compensation from the
yard owners’. In the following parts, we will discuss the most important issues.
6.1.Working conditions
Ship breaking industry is not at all worker-friendly industry in Bangladesh. Until 2011, the
government did not oversee that industry and industry specific laws, rules and regulations
everything were not in place until 2011. Migrant labourers dominate the industry’s workforce.
A significant portion of the workers come from the poverty stricken northern part of
Bangladesh, where there are limited employment opportunities (YPSA, 2014). No formal
employer-employee relationship is in place, for example, workers usually are not given any
appointment letter and there is no formal employment contract. Workers cannot enforce their
right to permanent and secured employment as they are unable to provide evidence of
employment. The wages are dependent on several factors such as: the number of hours worked,
type of work, skill level of the work etc. Workers have no entitlement to overtime, sick or
annual leave. Wages of ship breaking workers range from 1-2 NZD/hour.
6.2.Occupational health and safety standards

Shipbreaking industry is very poor in terms of the adherence to the occupational Health &
Safety standards although it is a highly labour intensive industry. Shipbreaking activities are
very risky and poor shipbreaking practices make it one of the most dangerous occupation in
the world (Roy, 2003). There are two main groups of hazards in shipbreaking: intoxication
from dangerous substances (and injuries caused by explosions of leftover gas and fumes in the
tanks) and injuries due to poor practices and limited use of safety equipment (accidents such
as falling from the ship - which can mean a 70 meter fall – as workers are working with no
safety harness as well as workers being crushed by falling steel beams and plates and electric
shocks).
According to (YPSA, 2014), a majority of workers do not wear protective gear and
many work barefoot. The beaches are generally strewn with chemicals and toxic substances,
small pieces of pointed and sharp iron splinters causing injuries as well. The use of equipment
such as cranes, lifting machinery or motorized pulley is limited. Ship breaking yards tend to
re-use ropes and chains recovered from the broken ships without testing and examining their
strength. There is no marking system of loading capacity of the chains of cranes and other
lifting machineries and their capacity are not respected. Consequently, due to very poor
occupational health and safety standards, workers suffer from several diseases including lung
problems and skin disease, which can cause temporary loss of working capacity. Occupational
and environmental exposure to the hazardous elements of ships while breaking ships and the
attendant health consequences are not fully known but undoubtedly those who are exposed are
at a high risk of death, disease, and injury because of their increased susceptibility to various
site-specific cancers, skin irritation, respiratory problems such as asbestosis, and
neurobehavioral problems (Frey, 2013).
In most cases, gas cutters and their helpers cut steel plates whole day without taking eye
protection. This make their eyes get affected by welding. Most of the time, they do not wear
protective uniform, gloves, boots etc. Unskilled workers do mostly carry the truckable pieces
of iron sheets on their shoulders Generally, carrying capacity exceeds the weights of loads
specified in the Factory Acts and Factory Rules (YPSA, 2014). Adverse health effects have
been reported by a number of researchers (Greenpeace International, 2001; Greenpeace
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International and International Federation for Human Rights, 2005; World Bank, 2010).
Reliable data on the number of accidental deaths and future deaths resulting from diseases with
long latency periods such as asbestosis are not available. Estimates indicate that one in every
six workers may have asbestosis and workers are at inflated risk of lung and related forms of
cancer (Greenpeace International and International Federation for Human Rights, 2005).
Greenpeace International and International Federation for Human Rights (2005) estimate that
thousands of workers have died in the last several decades and thousands are at risk in the
future. Maintaining occupational health and safety standards is not a priority for the yard
owners as they experience over supply of the workers who desperately seek jobs to support
their livelihood. It is a Buyer (yard owner) dominated market. Workers are easily replaceable.
The scenario is as such if one worker is lost another 10 are in the queue.
6.3.Accidents
The exact statistics on accidents is not available even though various NGOs like NGO
Shipbreaking platform, Bangladesh Environmental Lawyers Association (BELA) and Young
Power in Social Action (YPSA) provide reports on accidents. For instance, according to
(NGOShipbreakingPlatform, 2017), two shipbreaking workers lost their lives at the Chittagong
shipbreaking yards in the first two weeks of May, 2017, and the total death toll this year to six
workers. On 6 May, 26-year-old Shahinoor died at Jamuna Shipbreaking yard. He fell from a
great height when he was breaking the HANJIN ROME. Again, (NGOShipbreakingPlatform,
2016) recorded that at least five more shipbreaking workers have been killed and another five
severely injured in a series of fatal accidents in Bangladesh in the month of May only. Most of
the reports refer to various reasons of accidents such as death and/or injury from snapping
cables, chemical spills, welding fumes, falls, falling objects, fires, and explosions (Demaria,
2010; Greenpeace International and International Federation for Human Rights, 2005; (M.
M. M. Hossain & Islam, 2006); (Puthucherril, 2010) ; (Rousmaniere & Raj, 2007); World
Bank, 2010). Over the years, there has been a continuing stream of reports of the deaths of
workers in the yards. In some cases, sudden deaths are reported (workers burnt in explosions
or crushed under falling steel plates) or workers die as a result of non-fatal initial injury or to
various cancers caused by inhalation of asbestos and other toxins (Cairns, 2014).
6.4.Child labour
In Bangladesh, most of the poor families tend to depend on their children’s income along with
their own income. Several reports produced by NGO groups over an extended period of time
provide illustrations of the lives of the workers (Cairns, 2014). (Andersen, 2001; Bailey, 2000)
concluded that up to 25 per cent of the workforce comprises of children, but due to the absence
of official figures it is almost impossible to provide statistical evidence (Cairns, 2014). The
child labour is prevalent despite the high risk associated with shipbreaking jobs. Bangladesh
Shishu Adhikar Forum (BASF) identified 430 risky jobs. 67 out of this 430 occupations are
classified as very risky and 11 are as dangerous. Shipbreaking activities fall into both risky and
dangerous categories (YPSA, 2014). The following story provides an illustration of a typical
child story from ship breaking industry (as presented by child labor study by
(NGOshipbreakingPlatform, 2014):
“Kader, 16 years old, is lean and small. He seems to be much younger. Up until
last year, Kader went to school and managed to finish class 8. But when his father
was sent to jail by a powerful shipbreaker – based on false allegations – his family
faced a grim situation. Now the boy works in the shipbreaking yards himself, 12
hours a day, either from eight in the morning to eight in the evening, or the
nightshift from after dusk till dawn. He and his young fellow workers are “cutter
helpers”: they assist the older workers who dismantle the ships with blowtorches.
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They carry gas cylinders and other equipment for the cutters. “I am afraid to be
struck dead by a falling steel plate”, Kader says. “Often, the other workers do not
tell us before they cut a large piece and it just falls down without warning”. Kader
knows about the risk of fires that can burn and kill workers and about toxic gas
explosions which suffocate the workers, sometimes to death. In the last few years,
NGOs have recorded several fatal accidents at S. Trading shipbreaking yard, the
yard where Kader works.”
In shipbreaking yards, child workers generally work as assistants of gas cutters and move small
iron pieces from one place to another. Sometimes they do their job from dawn to dusk,
sometimes night shifts. On average, they receive wages equivalent to 1NZD/day. YPSA’s
baseline survey in 2003, 10.94% of the labor force consists of labor child (age up to 18 years).
Mostly child workers come from poor families and poverty stricken northern region of
Bangladesh (YPSA, 2014). On the other hand, yard owners prefer to recruit children as they
are cheaper than their adult counterparts although they are supposed to follow United Nation’s
Convention on the Rights of Child (UNCRC) 1990 adopted by Bangladesh where article 14
and 15 of the constitution has specified that a child has the right to social security rights and
Act number 34 has prohibited the coercion of children into doing hard labor and the Children
Act 1974 ha banned the use of vulnerable child labor.
6.5.Treatment and compensation

Due to no or inadequate medical treatment facilities, workers are not receiving proper treatment
after their injuries. When a worker gets injured, some primary treatment is usually provided
but no long term treatment facilities are provided for those who get long term or permanent
injuries. In terms of compensation, workers get a nominal amount of compensation
occasionally and often firms are being forced to compensate when pressurized by public and
sometimes they have to leave the yard without getting any compensation
(NGOShipbreakingPlatform, 2016).
7. Discussion
Social impacts of ship breaking industry have been slowly moving to public awareness realm
and only just started to create a public interest. The practices are only a concern to the ship
breaking firms, shipping industry at large as well as a large number of stakeholders. According
to (Lawrence & Weber, 2008), the emergence of a new public issue often indicates that there
is a gap existing between firms’ practices and expectations from their stakeholder base.
Therefore, practices of workers exploitation in ship breaking are, now a days, getting serious
attention from various stakeholder groups as these are against human welfare: locally,
nationally, regionally and internationally. The pollution and dangerous working practices of
the South Asian shipbreaking beaches has been exposed in many international and national
media – most recently in National Geographic’s issue of May’14. Both ship owners and
shipbreaking yard owners should take note that public awareness is growing, also in
Bangladesh, and that it is high time that respect is paid to environmental human rights
(Platform, 2016).
Ship breaking industry of Bangladesh is a typical example of this industry in the developing
world: highly labour intensive instead of capital intensive and high reliance on manual labour.
The labour supply exceeds the demand and the ship breaking firms are exploiting the situation
by getting over demanding and less compromising on labour rights, labour practices and health
& safety. Social irresponsibility of ship breaking firms is quite visible as they are using child
labor, employ workers for extensive working hours with less than minimum wages, no right to
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overtime, sick or annual leave, and lack of job security, no right to join or form a trade union.
It is horrific to come to know that the death toll in Bangladeshi yards which the Platform was
able to document reached 22 in 2016, with another 29 workers having suffered severe injuries.
Not enough has been done to prevent the dangerous working conditions, nor to prevent the
employment of children. The latest records of death and injury of the last three years are
alarming and showing (Table 2) a well-known pattern: the most common serious and fatal
accidents in the Bangladesh shipbreaking yards are caused by fires and explosions, falling from
great heights, falling of heavy parts and iron rods and crushing workers, toxic gases, and the
rift of iron ropes used to pull heavy parts from the intertidal zone further up the beach.
Ship owners (largely from the developed world) however continue to sell their obsolete
ships to Bangladesh despite being aware of the social impact of shipbreaking in the developing
world. The practices remain unchanged for last decade, when developing countries entered the
shipbreaking market. And all that despite a number of rules and guidelines that were introduced
by international authoritative bodies.
Social impacts of the ship breaking industry can be discussed in terms of the categories of
social impacts identified by (Benoıt et al., 2009): Human rights, Working conditions, Health
and safety, Governance and Socio-economic repercussions.
Human rights: Bangladeshi ship breaking firms are violating human rights by violating
fundamental labour laws – both national and international. There is a total disrespect of
domestic and international labour rights. Since the early days of ship breaking industry, it has
been a common practice. Whilst claiming to be “green” and boosting themselves with various
certificates, such as ISO 30000 for Ships and Marine technology, on-the ground the reality is
quite different and issues of pollution and poorly enforced workers’ rights remain major
concerns. As we presented in this paper, child labour still makes up a large proportion of the
workers at the yards. The records of deaths and injuries are alarming.
Working conditions: As working conditions are not worker friendly since the industry’s
inception and not yet improved, it has been really a great concern for workers directly and
others indirectly. Yard owners out of their greed for profit are using manual labors instead of
mechanizing many activities especially the risky ones.
Health and safety: As yard owners are maintaining occupational health and safety standards
they are making their yards death traps where deaths and injuries are common. Negligent
behaviour and poor management practices of yard owners are totally inhuman. Workers, in
most cases, are not aware of the underlying health hazardous issues of ship breaking activities.
Governance: Government of Bangladesh (GOB) is acting very slowly regarding these
issues. As a Least Developed Country (LDC) GOB is struggling with many interests,
sometimes conflicting interests of the socio-economic condition of Bangladesh. However, as
the industry is considered as a very important industry GOB already took some initiatives and
some are in the pipeline for boosting up of this industry which are reflected in some initiatives
like: recognizing this industry as an industry, enforcement of labor law, ILO and other rules
and regulations. Policy of Tolerance and corruption from several units of Government body is
common phenomenon where noncompliance of rules and regulations are not getting addressed
immediately or sometimes not at all addressed for a long period. And the unfair practices of
yard owners are kept going on smoothly.
Socio-economic repercussions: The negative repercussions of the severe violations of
labour rights are obvious. The alarmingly increasing number of deaths, injuries and diseases
are indicators of poor maintenance of occupational health and safety standards not only for the
industry but also for the country. The ship breaking industry of Bangladesh and the country
Bangladesh now have been associated with labour exploitation and business at the cost of
human life to the world where noncompliance, corruption are common practices. At one side,
country’s unemployment problem is getting solved but at another side, workers risk their lives
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by engaging themselves in such health hazardous jobs. The whole society is paying for this.
The vicious cycle has been created as poor and unskilled people can’t but engage themselves
in such risky jobs for very little income because they prefer low income employment rather
than being unemployed totally. Bangladeshi ship breaking firms are facing world-wide
criticism. This industry will be vanished if necessary actions are not taken immediately.
Already the EU countries are preparing themselves through formulating and stringent rules and
regulations.
8. Conclusion
Social impacts are important to know for being socially sustainable. Ship breaking industry is
considered a very green industry but this green is getting black due to some severe violations
of labour rights. It is badly needed to establish an international framework that ensures that
businesses are directly bound by international human rights law throughout their value chain.
This study has attempted to identify the social impacts of the ship breaking industry in the
context of Bangladesh where greening tasks are going on at the cost of human life. The
unacceptable abuses of workers and risks ship breaking workers should be stopped at any cost
for the sake of sustainability as social sustainability is one of three pillars of being sustainable.
The study will provide important insights for ship breaking firms, Government of Bangladesh,
local and international NGOs and other stakeholders.
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Title How product centric manufacturers pursue servitisation in order to achieve a

competitive edge.
Authors and Affiliations

Julie Donovan, University of Canterbury,
julie.donovan@pg.canterbury.ac.nz, M. +64 272745119
Associate Professor Pavel Castka, University of Canterbury,
pavel.castka@canterbury.ac.nz, Phone: 03 369 3761
Submission type Research Paper
This paper investigates how product centric manufacturers pursue servitisation in order
to differentiate their offerings to achieve a competitive edge. Servitisation is a process
where there is an increased offering of customer focussed combinations of product and
services in order to add value to core product offerings. Six New Zealand Manufacturing
(NZM) firms were interviewed as examples of companies that were currently
implementing servitisation. Different industry types were chosen so that the research
questions could be examined in a broad spectrum of settings. Findings suggest that there
are specific antecedents and capabilities needed at different stages of servitisation and
that certain decisions are made both organisationally and operationally when transitioning
to include services.
Keywords Servitisation, Service Innovation, Manufacturing

Topic OSCSM and Innovation
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Introduction
Management literature is almost unanimous in suggesting that product manufacturers
should integrate service innovation into their core product offerings to sustain and
enhance value of their organisations. It has been referred to as a process called
“servitisation”, that provides an "increased offering of fuller market packages or bundles
of customer focussed combinations of goods, services, support, self-service, and
knowledge in order to add value to core product offerings (Vandermerwe and Rada, 1989).
Services in general, have higher margins than products and provide a more sustainable
source of revenue. It is how services are combined with products that provide high-value
integrated solutions and achieve competitive advantage (Davies, 2004, Penrose, 1959).
This research is important for several reasons. Firstly, the literature suggests that there
are gaps in our understanding of this transition. Especially, it pays little attention to the
transformation process from standalone products to product/service portfolios
(Gustafsson et al., 2005, Oliva and Kallenberg, 2003, Bustinza et al., 2013). Secondly,
the literature also lacks the insight from the transition process in relation to the
development of firms’ capabilities (Prakash, 2011, Davies, 2004, Oliva and Kallenberg,
2003). Thirdly, this transition has also significant practical relevance. The global market
forces have been changing; for instance strong East Asian competition in high-volume
manufacturing, stagnating product demand and a growing selection of similar products
(Davies, 2004, Wise and Baumgartner, 1999). This is also apparent in NZ, where this
transition is seen as highly important for the NZ Government. The importance of service
innovation is recognised by many governmental initiatives. For instance, the NZ
Government lists this issue as one of the key success factors in the growth of NZ’s High
Value Manufacturing sector (Ministry of Business, 2013).
Literature Review
Many researchers recognise that introducing servitisation brings about disruptive change
and this brings its challenges to the organisation (Oliva and Kallenberg, 2003, Ettlie and
Rosenthal, 2012, Johnson and Gustafsson, 2003). The required change for a product-
orientated organisation to become service-orientated is to transform from a culture of
design and delivery of complex products, to understanding and focusing on servicing
when traditionally services are often thought of as ‘add-ons’ and given away during the
negotiations to sell the product (Oliva and Kallenberg, 2003). “Manufacturing is a
specialised case of services and that this recognition is important because traditionally
manufacturing and services are considered a disjoint set of operations”(Prakash, 2011, p.
373). The manufacturing organisation has to learn new capabilities that are service-
orientated, to value services, build customer relationships, how to sell, deliver on time
and bill for them. New services are often initially attractive because of less capital
requirements than other innovations, this means entry barriers may be lower or easier to
imitate, or innovate around and so subsequent appropriation becomes more difficult
(Johnson and Gustafsson, 2003). This conflict can be overcome by integrating product
and service innovation to become a core competency offering a unique proposition, a
dynamic capability, which is hard to imitate, this is when competitive advantage is created
(Teece et al., 1997).
When an organisation has identified that they need to acquire new capabilities and
groups within them overcome product-orientated collective norms; they can achieve this
by adding skills external to the organisation either by acquiring or collaborating with their
respective supply chain partners as well as collaborating with other organisations such as
tertiary institutions. It is suggested that the manufacturing organisation structure must
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align with their supply chain partners in order to provide the overall product/service
experience to the customer (Johnson and Gustafsson, 2003). The critical decision is on
which capabilities to maintain and develop and this is influenced by the current
knowledge of the focal organisation. Typically the challenge is that, “most manufacturing
organisations limit the span of control and interaction to their immediate customer and
fail to observe the complete distribution channel through to the final customer”(Bustinza
et al., 2013, p. 619). When organisations choose to collaborate outside of organisational
boundaries, multi-functional coordination can be fragmented and unorganised. To
overcome this a network of supply chain partners should adopt a system that creates an
integrated solutions platform that can bring information and ideas together. Integration
is one of the most difficult but high pay-off challenges of the innovation process. A
system that creates seamless functional boundaries allows initiatives to flow across
traditional silos promoting the spread of new ideas for continuous improvement (Ettlie
and Rosenthal, 2012). Forwards integration along the supply chain into activities
previously handled in-house by the customer entails a risk that customers will not share
their business information and discusses problems with their suppliers if they have any
reason to fear that the supplier may become a competitor (Penrose, 1959). Conversely
suppliers face the risk of customers integrating backwards. Giannakis (2011) stated that
customer participation presents a potential source of uncertainty and also gives the
customer an insight into provider processes. Suppliers can overcome this by providing
high quality products or service and selling at a price that makes backward integration
unprofitable for customers (Oliva and Kallenberg, 2003). Another challenge working
with customers is there is a tendency to never really leave the testing stage of new-offering
development and are difficult to standardise. As the venture grows and establishes a
grounding of success the labour intensity becomes a liability because services do not
enjoy the economies of scale like products (Johnson and Gustafsson, 2003).
The organisation needs to be able to replicate the human resource, knowledge
management capabilities. Services tend to be labour intensive and as a service grows,
their complexity challenges management focus (Johnson and Gustafsson, 2003).
Therefore network providers have to make an explicit decision about the degree of
standardisation of the service offer in order to balance between the transferability of
services across markets vs. customisation for individual end-users (Oliva and Kallenberg,
2003). In some industries, suppliers have been prevented from moving downstream
because they sell their products through independent organisations that control the
channels to market. They reveal the match between order penetration point of the supplier
and value offering point of the customer (Davies, 2004). In response the supplier will
build a network of strategic partner relationships which will overcome geographical and
distribution channel issues.
Sandholtz (2012) study suggests that a challenge can arise as to how these groups are
asked to integrate by management. If management forces the organisation to adopt new
change from a top down approach, rather than endorsing it and implementing the change
taking a bottom up approach in the organisation, then the professionals become the agents
of change rather than the objects of change (Sandholtz, 2012). As mentioned previously
management need to recognise that occupational collectives and their routines make up
their organisations (DiMaggio and Powell, 1983). Then there is a need to develop cross-
functional leadership teams who take ownership from the bottom up managing the
portfolio of services and product technologies. They must also use technologies that
enable and improve by constantly by measuring and monitoring; whether at the
innovation stage, maintenance stage or performance improvement stage (Johnson and
Gustafsson, 2003).
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Researchers agreed that servitisation needs dedicated sponsorship from the CEO level
otherwise the change will naturally create organisational resistance and will not be
adopted by the rest of the organisation (Ettlie and Rosenthal, 2012, Oliva and Kallenberg,
2003, Johnson and Gustafsson, 2003). Penrose (1959) described organisational growth as
a “result of manager’s strategic decisions together with resource choices that determines
the ultimate performance of the organisation” (Penrose, 1959). Long term survival
involves a complex trade-off between current profitability and investing in future
capability. Stiglitz (1987) suggested a strong reliance on current profitability can deflect
from the wider development of capabilities (Kogut and Zander, 1992). There is a “hazard
where substantial investment in extending the service business leads to increased service
offerings and higher costs, but does not generate the expected correspondingly higher
returns” (Gebauer et al., 2005, p. 14). A cautious, steady approach to change can be seen
as safer and less risky but in reality could be more hazardous than the revolutionary
approach suggesting that incremental changes to the system because it does not change
the system structures that have evolved to support the manufacturing business
(Gustafsson et al., 2005). Oliva and Kallenberg (2003) recommend that an organisation
should create a separate service organisation with its own sets of principles, processes
and systems in order to be successful (Oliva and Kallenberg, 2003) while Ettlie and
Rosenthal (2012) believe the central challenge to any organisation “is leveraging the
strong development culture and that without a cohesive shared value system, new venture
creation is unlikely to be sustained” (Ettlie and Rosenthal, 2012, p. 450). Literature would
suggest that Ettlie and Rosenthal (2012) view of a tightly coupled shared value system
incorporating all levels of the organisation is the most successful way in implementing
service innovations rather than a step by step, steady, evolutionary type process as
suggested by Oliva and Kallenberg (DiMaggio and Powell, 1983, Sandholtz, 2012, Kogut
and Zander, 1992, Prakash, 2011, Gustafsson et al., 2005).
Research Methodology
Barratt, Choi and Li’s 2011 examination of 204 inductive and deductive case studies
published between 1992 and 2007 found that the use of the qualitative case studies
research approach has made contributions to the Operation Management (OM) field in
terms of integrating existing theory (manufacturing strategy) with new contexts
(servitisation). “This approach has appealed to OM researchers, as the field has many
emerging areas of the supply chain” (Barratt et al., 2011, p. 329).
This research is based on the Barratt et al, study in which six NZM firms were
interviewed who represent “a real world setting so that contextually rich data may be
derived” (Eisenhardt, 1989). Using this approach meant that commonalities and
differences were observed and the emergence of norms as to how and why they have
been successful or not in this transition. Where necessary, findings are triangulated by
speaking to departments within the firm, supply chain partners, as well as studying other
secondary sources such as firm’s press releases and internal documentation to assist in
the development of formal propositions. In addition to theory and interview, where
possible, company documentation may be reviewed to assist in the measurement of firm
performance as a result of the service innovation.
“While systematic data creates the foundation of our theories,
it is the anecdotal data that enable us to do the building. We
uncover all kinds of relationships in our hard data, but it is only
through the use of soft data that we are able to explain them”
(Mintzberg, 1979, p. 587).
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Initially a literature research has been conducted where a process based framework of
questions was derived in order to encourage the interviewees to explain their experiences
and opinions about the transition. The intent is to build and extend on theories and to
explore and better understand emerging, contemporary issues in their real world settings
(Eisenhardt, 1989).
It is relevant that NZ firms have been selected because the NZ government is
supportive of this sector finding ways to innovate in their niche markets as they have
already captured customer loyalty and therefore have better opportunities to increase firm
profits. Also it is important to choose an “appropriate population which controls for
extraneous variation and helps to define the limits for generalising the findings”
(Eisenhardt, 1989, p. 537). The inductive qualitative case study approach allows for the
exploration of a more contextual understanding of the rationale and subsequent journey
that companies have undertaken to get a more broad understanding of what has happened
beyond simple interactions that would only be obtained from deductive survey approach.
The number of cases shown is in line with the ideal number, i.e. between 4 to 10
cases, prescribed (Eisenhardt, 1989). The limited number of cases is deliberate so that
there may be in-depth analysis on each case and to whether these observations are likely
to replicate or extend the emergent theory (Eisenhardt, 1989, Voss et al., 2002).
Interviews were approximately 60 minutes long. This is because the participants were
CEO’s and senior managers and their time is precious. It was explained that the results
of the research will benefit the industry in that there may be the emergence of norms
that could be used as guidelines in successfully transitioning into the service sector.
In studies such as this one, researchers follow a deliberate theoretical sampling plan
where they choose polar types of successful and not so successful firms (Pettigrew, 1990).
This particular sampling plan will be the adopted approach of this research demonstrating
varying degrees of success and failure in performance as a result of transitioning into
product/service business model.
“Early identification of the research question and possible
constructs is helpful but it is equally important to recognise
that both are tentative in this type of research” (Eisenhardt,
1989, p. 536).
This encourages open mindedness and assists in limiting bias and therefore prevents
influencing the findings. The following questions are as a result of the extant theory from
the literature review and are open-ended so that discussion can take place; this is where
the ‘rich data’ lies.
 Why did your company decide to add services to your product offering?
 What type of services do you offer?
 How did you know what type of services to offer?
 How did the company transition to including services into the business?
 How was the company set up structurally to deliver services?
 What changes did you make to your original strategic objectives?
 How would you describe your product/service offering?
 Who sponsored and led the service innovation from beginning to end?
 How did you monitor and measure the service innovation progress?
 How have you used technology to assist in providing services?
 What types of strategic partnerships do you have to assist in delivery of the
services?
 How are these strategic relationships managed?
 How is information transferred between strategic partners?
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 What challenges have you encountered in incorporating services into your
business?
 How have you overcome these challenges?
 Are there any plans in the future to extend services, bring in new service
innovations? If so, then what are they likely to be?
The interviews were transcribed into a detailed narrative by quotations from
interviewees. This allows for a ‘stream-of-consciousness commentary’ about what is
happening in the research, involving both observation and analysis. At the core of theory
building is data analysis. It needs to occur simultaneously and incrementally with data
collection (Eisenhardt, 1989). This overlaps data analysis with data collection giving the
researcher a head start in analysis and allows the researcher to take advantage of flexible
data collection. This allows the freedom to make adjustments to probe particular
discussions when they emerge as the researcher tries to understand each case on an
individual basis as well as on a comparable basis to each other in order to derive resultant
trends and themes. Within case analysis will involve detailed case study write-ups for
each case. These will be descriptive but central to the insight needed early on in the
process of collecting the data and to generalising patterns across cases at a later stage.
Cross-case analysis will allow the researcher to observe the data in many divergent ways
instead of unilaterally observing each case on its own merits. Cross-case comparison is
where the rich data for this research lies. To list the similarities and differences between
them will force the researcher to look for subtle similarities and differences between cases
(Eisenhardt, 1989). Forcing comparisons may lead to new categories and concepts which
were not anticipated.
Data Collection
Six New Zealand Manufacturing (NZM) firms, profiled in Table 1, were chosen for the
data sample which was collected between 2015 and 2017. The limited number of cases
allows for the researcher to generalise while remaining cognitively manageable for
qualitative data analysis. The cases used were identified from the NZ Ministry of
Business Innovation and Employment Sector Reports 2012 as being examples of niche
companies that were servitising. Others were identified through the various discussions
with industry professionals as being good examples of servitisation. They are all
profitable and have a record of long term viability. All of the organisations face an
uncertain environment as core product manufacturers, particularly with competition from
mass production manufacturing in Asia. Complex trade-off decisions have had to been
made due to a limited resources when servitising both organisationally and operationally.
By redirecting resources or acquiring them there are decisions of forgoing profitability
today for profit sustainability in the future. It was important to observe NZ owned
companies because of the need to understand the common drivers, antecedents and
operational capabilities needed in pursuing servitisation particular to this country.
Different industries were chosen as this allowed for the examination of the research
questions in a broad spectrum of settings.
The data sample have been described in accordance with the Australian, New Zealand
Standard Industrial Codes (ANZSIC) which has been developed for use in both countries
for the production and analysis of industry statistics. The codes are used to describe an
individual business entity to an industry based on its predominant activity. The term
business entity is used in its widest sense to include any organisation undertaking
productive activities, including companies, non-profit organizations, government
departments and enterprises. In this case ANZSIC code, letter “C is the predominant
490

activity for manufacturing, the next hierarchical level being numbers “24 for Machinery
and Equipment” and “22 for Fabricated Metal Product Manufacturing”.
Table 1: Six NZM Companies

Case ANZSIC Size/ Description
Code Ownership
A C242200 Large/ Delivers and manages solutions that support
Private the operations of utilities and public safety
organisations
B C241200 Medium/ Design, quality assurance, regulatory as well
Private as manufacturing
C C222900 Medium/ Building design, software programming,
Private detailing, engineering, manufacturing and
delivery. Operates an integrated service and
manufacturing model.
D C244100 Medium/ Provides financial and maintenance services.
Private Designs and manufactures complex hospitality
and food solutions
E C249900 Medium/ Engineering, procurement and construction
Private contract with a maintenance option.
Consulting services include efficiency testing,
computational modelling, analysis and
business support.
F C246100 Medium/ Manufacturing of high technology products
Private and services including designing,
manufacturing and marketing products and
solutions designed to increase the efficiency
and profitability of the agricultural sector.
Findings
Interviewing the CEO’s allowed for an intimate reflection between interviewer and
interviewee on their respective companies. Within case analysis has allowed the
researcher to look at each company as a standalone entity. It was necessary to
understand the unique patterns of each case prior to generalising patterns across cases,
this familiarity accelerates cross-case comparison. The six cases described in Table 1
have each been analysed separately in the following paragraphs. These will be
descriptive but central to the insight needed early on in the process of highlighting
servitisation characteristics both from an organisational and operational perspective.
The findings from each case are described in phases as each of the firms are at different
stages of the servitisation process. The phases are named as the Realisation stage,
Implementation stage and Operational Stage which the definitions have been given
below.
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Table 2: Servitisation stages of development
Realisation Phase
The Realisation phase represents the beginning or sense-making stage of the servitisation
transition where the company recognise and responds to the need to differentiate by
adding services in order to stay competitive. This phase describes why the company has
decided to servitise. It also looks at what type of services they will choose to complement
their core product/s, an assessment of current in-house capabilities and also how new
capabilities might be internally integrated or acquired externally if needed.
Implementation Phase
The implementation phase represents the carrying out, execution of a strategic plan as a
result of the investigation and analysis carried out in the realisation phase. It is the
prototyping of a plan that must follow any preliminary collaborative thinking in order for
something to actually happen. This phase the firms are working with their existing
customers who they have built up a relationship with previously and are partners in co-
creating and prototyping new solutions to satisfy the needs of the customer.
Operational Phase
Servitisation is fully implemented where the firm is able to tailor the servitised solution
in order for it to be sold in the greater marketplace to new customers.
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Ongoing Monitoring and Assessment
The monitoring and assessment that is carried out throughout the stages of servitisation
development allows managers, to realise the size of the service market and account for
services’ contribution to the organisations operations (Oliva and Kallenberg, 2003). This
creates transparency within the organisation and gives the organisation a clear sense of
direction, a view to success or failure of the service innovation changes. Internally, the
ability to measure the profitability potential and benchmarking competition allows the
organisation to make decisions about progressing further. Externally, the improvement
in quality of existing services through the service innovation establishes a business
reputation among customers as a reliable and responsive service provider. When
measuring and monitoring service quality a hybrid of service quality and performance
metrics such as customer query time, delivery performance flexibility to meet needs and
servitised suppliers assistance in solving the problems, number of claims, number of
orders delivered on time, and percentage of orders fulfilled. Performance based on the
behaviour of servitised suppliers involves determination of the effects of operational
activities such as procurement, delivery, inventory management and manufacturing on
perceptual factors such as customer satisfaction.
Case A
Realisation phase:
The path to servitisation commenced 5-6 years ago when the company realised that it
couldn’t compete on standalone products. They recognised that technology leadership in
the electronics sector in NZ was not viable and competitive on a global scale. There was
also a desire for the company to have a sustainable, ongoing revenue stream. The
realisation was that the selling of services would add revenue and that they were currently
giving away for free to their clients to bolster the sales of their products. If they were
going to provide specific communication solutions they would need to narrow down their
offerings to smaller group of clients which meant reorganising their existing
organisational and operational boundaries. They needed to restructure, realign internal
resources in order to acquire specific service capabilities. Restructuring the company was
driven partly by demographics and partly by need to acquire the right skills. The company
pursued building their service capability internally with existing resources by retraining,
as opposed to acquiring it, as in the example of IBM acquiring PWC consultancy where
they bought a company to bring the skill in. It is not uncommon for a company to acquire
track record and credibility instead of building it from within which requires additional
financial capital. On the other hand the advantage of building capability from within
might be easier because the company will instil the culture and values they require.
The initial strategy was that there was a “build it and see what happens mentality” and
there was large investment. Their aim is to compete at number 1 or 2 in that marketplace.
Worldwide revenue from this industry is approximately $200 million with NZ
representing only 5% of total turnover so they observe a lot of room to manoeuvre and
grow. They invested heavily in the new service division of the business looking at ways
of co-creating with their clients rather than simply adding on software maintenance to
existing products. The company knew how to design networks using their products
because they sell infrastructure and equipment which was their own equipment so there
was already a design capability and did not need to heavily rely on third party equipment.
The next step was to put together a project team of about four or five people from different
departments within the company to explore what it meant to provide services and to
define what a service is.
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The company’s initial service proposition was managing a large customer
organization’s network. The challenge was that the customer had traditionally owned and
operated their own networks. The company had built a trusting relationship with the
customer on previous projects and shown that they were competent in what they were
doing they which allowed them to look after and manage their network. They used this
as a prototype to develop other managed service propositions with existing customers.
They grew their service business by including the customer for brainstorming sessions
where solutions are created by thinking “outside of the square”. From there they moved
into the design phase to make it happen. The challenge was at the same time they have
to maintain business as usual. To counter this they conduct rapid prototyping, conceptual
design, to make it tangible so that the customer will be comfortable to invest in the new
service before it is case-hardened. This only comes from building up long term
relationships with existing customers.
Implementation phase:
After initial investigation they launched a separate services division and appointed a
general manager. In order to build the services capabilities they restructured and retrained
a lot of existing staff that now work in the services division. One advantage the company
had was their close relationships with their customers. This allowed them to work
together on a creating a servitised solution in providing not only the product but the
analysis of the data that came with it.
When a company move towards developing an operations type contract, there is an
opportunity to look at all sorts of related competencies which “you wouldn’t build at all
into your organization until you find great partners to work with”. They recognised that
there was a strong element of partnership required and that any manufacturer who comes
from creating their intellectual property around their own products typically does not have
a high partnership index.
Services now account for a quarter of the company’s revenue at 25% (TIN100, 2016) up
from 5% in 2013 (Ministry of Business, 2013). The insight or “realisation phase” was
the easy part to the transition compared to the implementation stage which has created
many challenges for the organisation. This stage takes time to manage mainly due to
having to change mindsets of employees who have always operated in the same way and
with the same relationships.
Operational Phase
The company believe their best margin of profitability will be when the company can
scale services to the marketplace and reiterates that to achieve this must the company
must segment within the utilities’ marketplace (with the adage you can’t be everything to
everyone). As a result, the company specifically targets public safety agencies.
It was a big risk for the company to build the services division outright and expect that
work would follow. In hindsight they would have wished it be more incremental.
The company has recognised if the solution is not price-structured correctly to include
valuable services then margins will be minimal. The planning must be done from offer
through to solution delivery and it must be profitable. The worst that can happen is the
perception that a provider company will take total responsibility for the solution and
deliver it back to the client for less than the cost that the client company was doing it in
the first place which is disastrous for the solutions provider.
494

Case B
Realisation Phase
As a company, their decision was made early to become a medical device company and
jettison all work that wasn’t attached to the medical industry. Soon after the company
realised that there had to be a depth of product or knowledge in a particular medical
speciality otherwise the market was too broad “spreading ourselves thin across a broad
market” was not viable. The decision then was to focus on a speciality niche within the
medical product industry.
At first they provided contract manufacturing work for clients who came to them
because they weren’t having their specific needs met by the larger corporations in Europe
or the US e.g. the timely delivery of goods was not being met by the suppliers. As the
relationships and trust in the partnership grew, requests for work came in that included
other value added work such as providing the design work for the products. The company
vertically integrated to include the designing capability as well as manufacturing. Various
other value added services have expanded from there when clients identified the bespoke
skills of the company; the customers then wanted to create a product to suit their specific
needs and therefore making the solution more specialised again.
The company was now completing all the regulatory requirement of process, as well as
designing, manufacturing for the product. There are few companies in the world that
provide the whole bundling of services, the design, regulatory, quality assurance and
manufacturing in this particularly market. The company has grown very close to their
customers as they became part of the research and development team for major customers.
They work closely that the clients will know the individual designers by name, “I would
know most of their wives/ partners birthdays”. They provide the whole “start to finish”
package and have labelled this “bespoke manufacturing”.
The company had to change their strategic focus from being product centric to selling
the total value added package which meant a cultural change as well as a structural one.
Eventually the marketing manager left and someone from an engineering background
took on the marketing side of the business. They have progressed to creating a “third
string to their bow” by providing their own signature products without the design and
regulatory services needed, and sell these products to the general medical market.
However this type of contract manufacturing does not happen first without providing
bespoke manufacturing for specific clients. “Bespoke manufacturing work is the arrow
head to getting other business but only provides 45% of the revenue”. The company state
that they will maintain bespoke work because it initiates other type of work including
their signature products where the company sees the investment and the growth
happening in the future. There was a recognition over time that there were different
capabilities involved in their work, recognising that there was contract, bespoke and
signature manufacturing and that clients required different services.
Their clients are typically engineering managers or product managers, their budgets
don’t have a consulting component in their budget. So they factor the price of the services,
design, regulatory as part of the overall package sell. In a bespoke sale they generally
aim for a 50+% gross margin, signature is a 60% gross margin.
495

Operational Phase
The risks in doing business are mainly from contract manufacturing. If a contract
manufacturing job goes wrong and the customer does not like the way the company
performed, they can go to another contract manufacturer. With a bespoke manufacturing,
there is a limited ability for the customer go elsewhere because it is highly specialised to
the client’s requirements, the customer cannot buy it from another competitor. By adding
the company’s signature line the company are identifying market needs and trying to
create a product they can sell to a larger marketplace therefore divesting that particular
risk of one unsatisfied client. The growth and investment in the signature range is where
the company hopes to expand in the future.
Case C
Realisation Phase
The company originally was a product company crudely selling machines and materials.
They were eager to bring Intellectual Property (IP) into the business that would add value
to their business because their current market position was threatened because “building
a machine can also be made in Taiwan or India and then cannibalised by low price
competitors”. At that point they bought in software from a third party that enabled their
design process. The company had a close relationship with one of their design partners
for 10 years and took the opportunity to acquire the company when the previous owner
retired. Following that acquisition they also acquired an Australian software company
who provided software for computer modelling and engineering, structural design and
analysis.
The first priority for the company was to provide the new services for 500 existing
clients. The operating challenge in NZ is that they export 98% of their products
internationally and do business in 65 countries. The first big question for them was how
to provide services to 65 countries. They had already located close to their customers and
used local people who communicated directly with them creating a growing a culture of
cross collaboration within the organisation. The company believe that it is important to
have commercial international skilled people to lead the teams. However in the
manufacturing sector employee’s skills are largely in the area of mechanical engineering.
The challenge is bringing together the culture of engineering and computer science are
which are very different.
The company employs people from around the world some have full university
qualifications and others are trade certified with field experience and service training.
One challenge is to keep updating the service technicians on the technology, the other is
dealing with a developing country. Each country has a different standard to how a field
technician should be trained. To eliminate this the company will fly NZ technicians
around the world to train locals.
The evolution from a product manufacturer to becoming a servitised company has
occurred over a 12 year period. The company demonstrates the importance of specialised
services to their customers by selling them the concept of the total package of product
and services. It is very easy to sell the product at the capital investment stage however
discussing budgets and establishing a platform that after sales service is required is hard
as most clients do not allow for this in their budgets. The challenge is to demonstrate
what represents value to your customers. They do this by understanding customer
empathy and testing conceptual models with the customer. In NZ they promote the
496

“better by design process” collaborated by Auckland University and other likeminded
entrepreneurs which uses a customer led design process. The challenge of which is instil
that ethos into the business and developing it with the customer on site.
Currently the company offerings are made up of approximately 15% services and 85%
physical product. They intend on increasing services to 30% where they believe is the
company meets a critical mass, the next step is to start scaling out services to the
marketplace.
Operational
The company operates as an integrated service and manufacturing model which includes
the design and software programming around the product. By working closely with
customers and strategic partners (software engineers), they recognised that the design,
software programming and service element was an integral part of their ongoing business
and that they could provide an end to end solution for their clients. The company believes
their future is in the software, by enhancing the business automation, service of software
and know-how, they need to employ staff that have the ability to consult and advise clients.
The company sees its next move as providing customers with an online software
solution i.e. the know-how to deliver design process, automate engineering standards
globally and providing manufacturing efficiency in business automation. The idea is that
the customer will buy the licensing and software technology progressing initially from a
beginner to an intermediate level to an advanced level.
Case D
Realisation Phase
Historically the company had been very strong in product selling because that’s how the
company started and grew because “we kept grinding away until we got it, not because
we were geniuses”. The company had earlier tried to enter into other markets such as
providing maintenance but struggled due to conflict and barriers within their dealerships
who were claiming to have the direct relationship with the customer.
There is a huge segment of the market which they weren’t approaching which was an
anomaly that they are constantly trying to work to expand. The company goal is to grow
these services. The company think it is important that they interact your customers and
end users by personally representing the branded products and convincing the customer
to buy the product. “Once you have their trust then you have to be able to sell these other
services”. They admit they are not the best sales organisation. “We have a slight
challenge in that we are not a particularly good sales organisation”. They have survived
on the equity of the brand and quality of their product.
By creating a strategic sales/account management team, it was the first time the CEO had
got to see how to sell services other than just products. There was a more intelligent
approach to selling, however it was more demanding. The marketing team have to know
their customers better, the level of interaction and knowledge about the customers what
they need is at a much higher level. By adding services the additional skill set has allowed
the company to bring in additional income and increased margins that they didn’t
previously have but there are also risks around selling.
The organisational structure is that the service and financial businesses are run
completely separate from the manufacturing side of the business. The service company is
a completely separate legal entity but it has identical shareholders. They have a primary
497

executive team that looks after the companies i.e. the administration team of human
resources, sales and marketing, finance, operations. The financial CFO is also the leader
of the finance company and a separate service manager who is the head of services.
“Because if you’re in manufacturing, services makes no sense to you”.
Their strategic relationships comprise of dealerships that form part of their newly
adopted Priority Partnership Programme (PPP). PPP was brought in to formalise the
relationship between the company and their dealerships so that expectations are clear for
each party. The idea behind it is to limit the sources that sell the product. Dealerships
that form part of this partnership will have the advantage of buying the products at a
reduced price compared to other customers giving them a potential strategic advantage
over anyone else in the market.
Operational Phase
A challenge the company identified early on is that you have to know when you can
charge for services. There is a balance, particularly with customers that are the dominant
player in the industry who have huge bargaining power. This needs to be managed
carefully, in particular with large orders, that they are wanting the services for free.
Another issue is that as a business the first client interaction is with their manufacturing
business and not their service business. Sometimes there is confusion as to the services
they can provide in-house. The cross functional operation will come, but it has to be a
presence of mind but it isn’t quite there yet, it is something for the company to work on.
Case E
Realisation Phase
The company has a vision to become a total solutions provider of hydro equipment. To
that end, they set about acquiring a local engineering company. When they acquired that
business they also acquired the business operations and contracts of that company. At
the recommendation of the end customers they took on the supplier’s people and the
contracts and brought the two companies together to provide a seamless offering.
The finalisation of the acquisition and merging of the two companies took well over a
year from when that was first mooted to when they finalised the deal in May 2015. All of
the employees from the manufacturing company were kept fully informed through
communication plans.
Even though the negotiations took a long time there was an anticipation that the
acquisition was going to happen in the near future. At the same time, the firm co-located
to the building the engineering company. They communicated how the supervision of
staff was going operate six months before the acquisition was finalised. The choice to co-
locate was deliberate, the longer amount of time to finalise the acquisition wasn’t planned
but it had one positive side effect and that on day one they immediately put in place a 100
day plan with clear goals to achieve in the first three months.
Leadership was very important in being able to convey a direction that was clear about
the future vision of the company and the employees and sharing that vision, setting
expectations. This is still ongoing and there are still some cultural changes to occur. It
is important for the engineering employees to feel like they are part of the staff. There
was positive level of engagement and higher levels of motivation as management made a
presence in the workshop, talking to people and showing an interest in what was
happening there. The challenge was to empower the supervisors so they could make
498

decisions and open their minds to the new way of doing things. The supervisors been
there for many years and being used to a top down leadership, “being told exactly what
to do”.
Management recognise they need to bring more skills into the company as well as
additional skills into building a sales and marketing team. They are now attracting design
engineers and machinists for work as a result of winning an award for a clean technology
hydro installation.
Their vision includes becoming more of an “end to end provider” which means
providing a solution. The intent is that it will be an additional revenue line. The company
feel they are only about half way to becoming completely fully servitised, but feel they
are ahead of schedule with their goal. They raised venture capital on the basis that they
were taking a design company and coupling it with a manufacturing line to have an end
to end solution and want to grow it to a $75 million company. The company now provides
services but it currently comes with a narrow definition.
Operational Phase
Taking on full cost of ownership is another business model that doesn’t fit with their
current strategic business plan. However they are considering it. The company discussed
how to possibly approach this as a business. The company recognises that it would need
the right investor, a group of people to recognise this proposition as a profitable business
model.
There have been massive changes but that has been a deliberate move as part of the
company’s growth vision. Eighteen months ago the design company had been turning
over $1.5 million for the year. The year to March 2015, revenue was $2.3 million. The
acquisition of the engineering company has meant that the current financial year will turn
over revenue of $12 million, with a forecast of $18 million next year with confirmed
orders. They do operate mainly in New Zealand, Australia and the Pacific and also plan
to expand to Asia and the Americas. The difference between them and their competitors,
who can make a turbine to an existing design, is that most of them cannot design a turbine
and also manufacture it. They are the only company in New Zealand, Australia and the
Pacific that can both design and build a turbine for smaller projects.
In NZ, eighty percent of energy is generated by Hydroelectricity. There is potential to
provide the same in Australia as they have as much capacity for hydroelectricity as NZ
and we have a strong reputation of know-how in this industry where we are known as the
being the “centre of excellence”.
Case F
Realisation Phase
The company entered the services market when they acquired a business that they found
had a product set that aligned closely with their own but also a services division which
provided supply and installation as well as a comprehensive maintenance services
contract for the life of the product. Providing services to customers was merely the
consequence of acquiring the new product set.
They entered a market where they were not only providing services for their own
customers who had bought their product but for other users in the marketplace who had
bought a competitor’s product. Initially the services unit was a loss making exercise but
then they saw what opportunities that services provided e.g. good profit margins, their
focus became more orientated towards the services market.
499

Approximately 10 years ago they were selling a product and the customers were finding
their own way of collecting data and utilising the information. In the last 5-6 years it
became apparent to them that they needed to support the customers by offering advice,
showing them how to utilise the information and sharing it with the customers.
They have found the transition from selling product only to solution based offerings has
been slow due in part because the company was the driving force behind the change and
not the customer “ we have been driving it , farmers tend to loathe change”. Initially they
didn’t alter the company structure by operating the service business separately. “We ran
it separately, as a standalone entity for the very reason that services are different to
products and we plan to keep it separate”. As a result of these changes the company found
they needed people with more marketing and customer skills as well as technical skill, “it
was more of a help desk type service but you also have some product knowledge as well
rather than someone just answering on the end of a phone”. The engineering graduates
make up the product team of the business and marketing people sell the products and
services. However it is the solution selling which they are still learning about. “It’s more
about trying to coach the selling people how to sell a solution and we would love to do it
better”. This is a big leap in thinking compared to the initial strategy which was to create
an entity for no other reason than just to provide a help desk. Currently the service
division consists of providing a help desk for a farmers who need assistance with the
technology and they also provide consulting and analysis in conjunction with complex
data programming.
Operational Phase
The company is 2 to 3 years into the transition of taking total cost of ownership and
providing solution based offerings. They are initially prototyping in New Zealand but
have plans to expand on a global basis. NZ is very much the testing ground for the
services.
There have been some challenges, the customers initially were resistant to change
particularly when customers were being asked to pay for services. The company found
the challenge was to create a pricing package and demonstrating the reason is due to the
company’s ongoing services and that this value is worth more the sum total of just buying
the unit that the farmer originally factored in.
The existing relationships with their customers allowed for them to get around the table
to discuss the proposition to get the customer on board. They did this through showing
the customer how it worked.
500

Cross Case Analysis
The servitisation process is likened to a transformational process whereby a manufacturer
seeks innovative capabilities and processes to create mutual value with customers (Neely
et al., 2012). During the realisation phase companies examine what type of service they
will choose to complement their core product/s. Olivia and Kallengberg (2003) propose
a typology based on competitive motivations (market driven), demand-based(customer
driven) motivations and economic (financial) motivations. While each company had
more than one motivation to add services, the comparable analysis is based on what type
of service they chose for their servitisation journey.
Table 3 presents the four servitisation types that have been identified from the six NZM
firms.
Table 3: Servitisation Types

Type Description Company
1 Product and Analysis (Consulting and Help Desk) A and F
2 Product and Software Solutions C
3 Product, Financial and Maintenance D

4 Product, Procurement and Regulatory Assistance B and E
Type 1: These are high technology manufacturing companies who have smart products
that can hold data and information that can be analysed to assist their customers. They
have responded to customer, market and financial drivers in order to provide a solution
based offering to their customers.
Type 2: This company once manufactured machines and materials. They were eager to
bring Intellectual Property (IP) into the business that would add value to their business
(market driven). They now operate an integrated manufacturing and service model
whereby they provide a design and build programme through Computer Assisted Design
(CAD) software.
Type 3: The company designs and manufactures complex food and hospitality solutions.
They have recently bought service companies so they can provide comprehensive
maintenance throughout the product lifecycle. They have also moved into the finance
arena where they provide financial assistance for buyers of their products.
Type 4: These are design and manufacturing companies whose products have a regulatory
and bespoke nature to their products. They work as part of their client’s design team and
will often be involved from conception through to manufacture of their specialised
products.
501

Discussion and Further Research
Organisations are finding new ways to attract markets by incorporating services into their
product offerings. This is known as servitisation which is described as a transformational
process whereby a manufacturer seeks innovative capabilities and processes to create
mutual value with customers (Neely et al., 2012). The literature on servitisation lacks the
insight from the transition process in relation to the development of firms’ organisational
and operational capabilities (Prakash, 2011, Davies, 2004, Oliva and Kallenberg, 2003).
This paper is at the beginning of a longitudinal study of looking into how these firms
have progressed on their servitisation journey logging the successes and challenges they
have experienced along the way. As they move through the different stages (realisation,
implementation and operational) the plan is to continue to collect data by revisiting and
interviewing the organisations for an updated locus.
502

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Abstract Abstract Abstract

Abstract Abstract Abstract

Abstract Abstract Abstract

This paper investigates how product centric

Abstract Abstract Abstract

The purpose of this research is to investigate the

Queenstown Winter Festival 22 Jun 2017 - 25 Jun 2017

Eliciting and re-distributing information along the forestry value

Supply 800 characters / 100 words same.

Keywords: markets, forecast, supply, demand, forestry

Results and Discussion

AgriHQ (2017). AgriHQ forestry market report. Available at

Christians, V. A. (2017). Collaborating with competitors: Value through coopetition in

Scion (2017). Scion Log Price Outlook. Available at

Samar Al Adem, Paul Childerhouse* and Bill Wang

Keywords: Supply chain collaboration, partnerships, humanitarian, domestic NGOs,

Article Classification: Research paper

Nihal P. Jayamaha (corresponding author)

Nisansala M. Pallawala Massey University, School of Engineering and Advanced

Keywords: Toyota Way, Lean, Culture, Hofstede’s National Cultural Dimensions

Power Individualism Masculinity Uncertainty

Cultural LOW MEDIUM HIGH Total

Professor Prakash J. Singh

Keywords: Real-time labour allocation, schedule recovery, retail execution

Research background/literature review

Nisansala M. Pallawala (corresponding author)

Paper Type: A conceptual paper (a doctoral research outline)

Research limitations/challenges: Study will be limited to manufacturing organisations. The

Yuanfei Kang, Department of International Business, College of Business, Massey University,

Submission type: Extended Abstract

4.2 Managerial implications

Faculty of Business and Economics

A frequently cited reason for poor performance of lean implementation is the

Based on a case study of a lean implementation project in a large Australian public

EMPIRICAL CONTEXT AND METHOD

Åhlström, P. (1998). "Sequences in the implementation of lean production."

Bhasin, S. and P. Burcher (2006). "Lean viewed as a philosophy." Journal of

Fereday, J. and E. Muir-Cochrane (2006). "Demonstrating rigor using thematic

R. Jadhav, J., et al. (2014). "Exploring barriers in lean implementation." International

Tortorella, G. L. and F. S. Fogliatto (2014). "Method for assessing human resources

Quan Spring Zhou

Affiliation: Department of Industrial Management and Innovation, School of

Telephone: (64) 9 213 6581

Tava Lennon Olsen

Affiliation: Department of Information Systems and Operations Management, Business

Submission type: extended abstract

Topics: supply chain management

Our study compares the effects of substantive implementation and symbolic

Discussing certification without understanding implementation modes raises

Managers favouring symbolic implementation believe that ISO 14001

The measures for symbolic implementation, and substantive implementation are

Scale Validity and Reliability

We conducted a confirmatory factor analysis (CFA) to simultaneously validate

Structural Equation Modelling

The structural equation model (SEM) underlying our theoretical framework is

Discussion of the findings and theoretical contribution

This study contributes to the literature on implementation of ISO 14001. Our

ALBERTINI, E. 2013. Does environmental management improve financial performance?

Md Maruf Hossan Chowdhury* (maruf.chowdhury@uts.edu.au)

Mohammed A. Quaddus** (m.quaddus@curtin.edu.au)

* Lecturer, UTS Business School, University of Technology Sydney, Australia.

** Research Professor, School of Marketing, Curtin University, Australia.

Corresponding Author: Md Maruf Hossan Chowdhury* (maruf.chowdhury@uts.edu.au)

Figure1: Research model