Matching plant flexibility and supplier flexibility: Lessons from small suppliers of U.S. manufacturing plants in India

Abstract This is a study about the flexibility of manufacturers and their small suppliers; a subject of growing interest today (Swafford, P.M., Ghosh, S., Murthy, N., 2006. The antecedents of supply chain agility of a firm: Scale development and model testing, Journal of Operations Management 24 (2), 170–188.) The study is based on empirical data collected from U.S. manufacturing plants operating in India and their small suppliers. While globalization is causing hundreds of multinational firms from developed countries to locate manufacturing facilities in developing countries such as China and India, the supply chain environment in China and India is different from domestic supply chains environments familiar to U.S. manufacturers venturing to such countries. For global ventures of multinationals to succeed, multinational firms must strive to understand the supply environment and practices in countries such as China and India. The literature on supply chain has two shortcomings. First, studies have not investigated the result of matched plant and supplier flexibility. Second, although, supply chain in the U.S. has been investigated by numerous researchers, the same is not true about the supply chains in developing countries such as China and India. This paper strives to fill these two voids. A survey of U.S. manufacturing plants in given SIC classifications found that U.S. plants preferred the following: (1) stable JIT suppliers and (2) proximate flexible suppliers. An Additional finding was that suppliers were engaged in: (1) JIT material supply and (2) automated material supply. Our regression model explains up to 38% of the variance in profitability (power = 0.7). A notable finding about fit is that profitability is highest when an inflexible plant uses small inflexible suppliers. Profitability is above average when a flexible plant uses flexible small suppliers. In contrast, if there is a mismatch of plant flexibility with supplier flexibility, the profitability is below average. The regression model for WIP inventory explains over 44% of the variance (power = 0.9). Lower levels of WIP inventory were associated with JIT practices of small suppliers. The mismatch between factory and supplier flexibility is associated with lower WIP inventory, a finding that deserves further investigation. This study demonstrates one practical method of studying the fit between a factory and its suppliers. Methodological contributions of this paper are twofold. First, it demonstrates how to select and use appropriate research tools to conduct scientific studies using borderline samples. This is a useful contribution to the OM area when OM empirical research is routinely shying away from borderline samples. Second, interaction effects are investigated at great depth using methods not seen in OM literature.