Navigating through turbulent business environments: strategies and capabilities of dynamic supplier portfolio management

Abstract

In the current era of turbulence, the efficiency principles upon which supply chain management (SCM) theory was developed are no longer valid. Therefore, implementing various partner development programs within relatively stable supplier portfolio is not sufficient to continuously deliver superior value (e.g. achieving successful innovation) in volatile business environments. Thus, the agility (i.e., the capacity to adapt and react in a speedy way to market changes, disruptions and opportunities) is recognized as an important feature of competitive supply portfolio management. Reconfiguring the supplier portfolio by, for example, outsourcing, initiating relationships with new suppliers or ending them with existing ones, may be required to address frequent external changes such as new customer demands or changes in technology. We therefore adopt a dynamic capability view of the firm and argue that to remain competitive firms need the ability to dynamically manage their supplier relationship portfolios. In other words firms need to be able to restructure, reconfigure and realign their suppliers in response to external changes that present threats or opportunities to their business. Firms are thus expected to develop a triple-A supply chain (SC), i.e., an agile, adaptable and aligned SC. Flexibility and resilience are other important characteristics for effective supply chain management (SCM) discussed in the literature, and thus we extend the Triple-A SC concept to include these features. However, for such capabilities to be effective they need to be put into action within the context of an appropriate strategy. Specifically, we distinguish between two important supplier portfolio management strategies: exploitation and exploration and evaluate under which circumstances one is preferable over the other as well as explore potential optimal levels of ambidexterity. In other words, dynamic supplier portfolio management capabilities and strategies need to be aligned for effective navigation through turbulent business environments. This is particularly important for emerging economies such as Brazil, characterized by high volatility, uncertainty, and risks. To address these issues, and thus to understand how in practical terms a firm can develop a Triple-A SC and effective SCM, a nomological model, integrating dynamic supplier relationship management capabilities and different strategy types will be developed. A quantitative model is employed to test this model, using data from a panel of supply chain managers in 250 Brazilian companies from different industries. This study thereby contributes to the literature in supply chain management as well as strategic management by assessing the interplay between important portfolio management capabilities and strategies for dynamically managing supplier portfolios in light of turbulence. This is important, as it will enable managers to focus firm resources better on developing crucial aspects of supplier relationship management capabilities. In summary, managers will this way be able to turn the supply chain strategically more flexible and agile, and thus not only more efficient but also more effective. (AU)