Netchain analysis

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Netchain analysis is a theoretical concept integrating supply chain management and network analysis which was introduced by Lazzarini, Chaddad and Cook in 2001. [1] While supply chain analysis focuses on vertical and network analysis on horizontal interdependencies across companies, netchain analysis incorporates both type of interdependencies into one concept. Netchain analysis emphasizes value creation and coordination mechanism sources corresponding to different kind of interdependencies. In practice, netchain analysis is often used in a more general way referring to the perspective that takes into account chain and network characteristics as well. However, it differs in the focus and in the tools used from network science.

Contents

Netchains

Netchain is a set of networks consisting of horizontal ties between firms within a particular industry or group, which are sequentially arranged based on vertical ties between firms in different layers. [1] In practice, the phrase netchain is often used in a more general way referring to a system which has chain and network characteristics as well. From that point of view, the perspective is even more important than the object itself. [2]

In the more practical perspective netchain is used instead of "chain and network". The simplest situation is for companies to form a supply chain or network in which they are selling product to each other. The phrase netchain captures two main aspects of collaborations. Chain reflects the hard aspect, where products and money is flowing (chain) and network reflects the soft aspect, the network of people having informal relationships. [2] The usual representation of netchains shows the horizontal and the vertical interdependencies across companies as well. Specific networks with mainly horizontal interdependencies are sequentially arranged based on their vertical ties between firms in other networks.

Interdependencies in netchains

Three kind of organizational interdependencies can be distinguished to examine the relationships of companies. Pooled interdependence is a mutual, weak and indirect connection of several entities. Sequential interdependence occurs, when the output of one unit is necessary for the next other unit to operate. Reciprocal interdependence combines pooled the previous two resulting in strong, direct relationships. [3] Netchain analysis builds on the phrases above and focuses mainly on all type of interdependencies. [1]

Examples

Buyer-supplier relationships

Probably the simplest netchain is the one examining buyer-supplier relationships. Traditional supply chain management focuses on sequential interdependencies between a specific buyer and supplier, however the relationships among suppliers can be important as well. Usually, suppliers and buyers are connected via sequential dependencies, whereas suppliers depend on each other reciprocally. Supplier associations and knowledge exchange groups provide good examples for reciprocal interdependencies among suppliers. [1]

Interorganizational food chain

Storer, Holmen and Pedersen describes a netchain built around a food processor. The food processor uses the output of a meat and a vegetable processor and sells food to restaurants. The meat and vegetable processors are using the output of primary producers, whereas the restaurants serve consumers and are connected to the vegetable processor and the meat processor as well. Moreover, primary producers also share information with the food processor. The main purpose of the entire food chain/network is to serve consumer needs and they need to cooperate to achieve this. As a result, a strongly connected system is formed, which can be described as a netchain. [4]

Further developments

The strictly defined netchain analysis could not become popular in the field of supply chain management. After its introduction the netchain concept was widely used in the agribusiness sector. Nevertheless, the perspective of network science and network analysis is used more and more generally to examine supply chains/networks. First of all, as information technology develops communication becomes easier. Second, more and more companies start to realize the importance of collaboration with firms operating in the same environment. This change provides an opportunity for supply chain analysis to integrate the knowledge and tools of network science.

Customer horizons

Customer horizon indicates the market orientation of a company in the case of netchains. In a chain and network environment it reflects the ability of companies to identify downstream customers and what they need. The phrase and two measurements of customer horizons, breadth and length, were introduced by Storer, Holman and Pedersen in 2010. The importance of market orientation becomes more complicated in a netchain environment, because it is harder to identify the customers of a specific unit. Therefore, it is even more important for companies to allocate resources for this purpose in netchains. [4]

Social netchains in the agribusiness environment

The concept of social netchains focuses on interpersonal relationships rather connections among companies. Talamini and Ferreira designed it mainly to the agribusiness sector, where personal relationships are more important. [5]

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, so that the raw materials can be converted into a finished product and delivered to the end customer. A more narrow definition of the supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is a part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Horizontal integration</span> Business process

Horizontal integration is the process of a company increasing production of goods or services at the same level of the value chain, in the same industry. A company may do this via internal expansion, acquisition or merger.

<span class="mw-page-title-main">Vertical integration</span> When a company owns its supply chain

In microeconomics, management and international political economy, vertical integration is an arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It contrasts with horizontal integration, wherein a company produces several items that are related to one another. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership but also into one corporation.

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

A value chain is a progression of activities that a firm operating in a specific industry performs in order to deliver a valuable product to the end customer. The concept comes through business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Agribusiness is the industry, enterprises, and the field of study of value chains in agriculture and in the bio-economy, in which case it is also called bio-business or bio-enterprise. The primary goal of agribusiness is to maximize profit while satisfying the needs of consumers for products related to natural resources such as biotechnology, farms, food, forestry, fisheries, fuel, and fiber.

A value network is a graphical illustration of social and technical resources within/between organizations and how they are utilized. The nodes in a value network represent people or, more abstractly, roles. The nodes are connected by interactions that represent deliverables. These deliverables can be objects, knowledge or money. Value networks record interdependence. They account for the worth of products and services. Companies have both internal and external value networks.

<span class="mw-page-title-main">Business-to-business</span> Commercial transaction between businesses

Business-to-business is a situation where one business makes a commercial transaction with another. This typically occurs when:

A lead time is the latency between the initiation and completion of a process. For example, the lead time between the placement of an order and delivery of new cars by a given manufacturer might be between 2 weeks and 6 months, depending on various particularities. One business dictionary defines "manufacturing lead time" as the total time required to manufacture an item, including order preparation time, queue time, setup time, run time, move time, inspection time, and put-away time. For make-to-order products, it is the time between release of an order and the production and shipment that fulfill that order. For make-to-stock products, it is the time taken from the release of an order to production and receipt into finished goods inventory.

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.

Supply-chain operations reference (SCOR) model is a process reference model developed and endorsed by the Supply-Chain Council as the cross-industry, standard diagnostic tool for supply chain management. The SCOR model describes the business activities associated with satisfying a customer's demand, which include plan, source, make, deliver, return and enable. Use of the model includes analyzing the current state of a company's processes and goals, quantifying operational performance, and comparing company performance to benchmark data. SCOR has developed a set of metrics for supply chain performance, and Supply Chain Council members have formed industry groups to collect best practices information that companies can use to elevate their supply chain models.

<span class="mw-page-title-main">Supply chain network</span> Evolution of the basic supply chain

A supply-chain network (SCN) is an evolution of the basic supply chain. Due to rapid technological advancement, organizations with a basic supply chain can develop this chain into a more complex structure involving a higher level of interdependence and connectivity between more organizations, this constitutes a supply-chain network.

Third-party logistics is an organization's long term commitment of outsourcing its distribution services to third-party logistics businesses.

A global value chain (GVC) refers to the full range of activities that economic actors engage in to bring a product to market. The global value chain does not only involve production processes, but preproduction and postproduction processes.

<span class="mw-page-title-main">Evolution of management systems</span>

This article outlines the evolution of management systems. A management system is the framework of processes and procedures used to ensure that an organization can fulfill all tasks required to achieve its objectives.

Global Production Networks (GPN) is a concept in developmental literature which refers to "the nexus of interconnected functions, operations and transactions through which a specific product or service is produced, distributed and consumed."

Co-opetition or coopetition – simultaneous competition and cooperation – is an important philosophy or strategy that goes beyond the conventional rules of competition and cooperation to achieve advantages of both. Global co-opetition, an application of co-opetition in a global context, is first systematically addressed in Luo’s (2004) book “Coopetition in international business”. According to this book, global co-opetition refers to the simultaneous competition and cooperation between multinational enterprises (MNEs) and their geographically dispersed business stakeholders such as global rivals, global suppliers, global distributors, global alliance partners, and foreign governments as well as among foreign subsidiaries within an MNE.

In supply chain management, supply chain collaboration is defined as two or more autonomous firms working jointly to plan and execute supply chain operations. It can deliver substantial benefits and advantages to collaborators. It is known as a cooperative strategy when one or more companies or business units work together to create mutual benefits. There are two main types of supply chain collaboration: vertical collaboration and horizontal collaboration. Vertical collaboration is the collaboration when two or more organizations from different levels or stages in supply chain share their responsibilities, resources, and performance information to serve relatively similar end customers; while horizontal collaboration is an inter-organizational systemrelationship between two or more companies at the same level or stage in the supply chain in order to allow greater ease of work and cooperation towards achieving a common objective.

References

  1. 1 2 3 4 Lazzarini, Sergio G.; Chaddad, Fabio R.; Cook, Michael L. (June 2001). "Integrating supply chain and network analyses: The study of netchains". Journal on Chain and Network Science. 1 (1): 7–22. CiteSeerX   10.1.1.111.3851 . doi:10.3920/JCNS2001.x002.
  2. 1 2 Hofstede, G. J. (September 2006). "Experimental learning in chains and networks". Production Planning & Control. 17 (6): 543–546. doi:10.1080/09537280600866561.
  3. ↑ Murray, LaToya J. "Three Types of Interdependence in an Organizational Structure". Chron.
  4. 1 2 Storer, Christine E.; Holmen, Elsebeth; Pedersen, Ann‐Charlott (December 2003). "Exploration of customer horizons to measure understanding of netchains". Supply Chain Management. 8 (5): 455–466. doi:10.1108/13598540310500286.
  5. ↑ Talamini, Edson; Ferreira, Gabriel Murad Velloso (2010). "Merging netchain and social network: Introducing the'social netchain' concept as an analytical framework in the agribusiness sector". African Journal of Business and Management. 4 (13): 2991–2993.
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