Selecting the right supply chain for a customer in project business : an action research study in the mobile communications infrastructure industry

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Dissertation series / Helsinki University of Technology, Industrial Management and Work and Organisational Psychology, 2003 / 1
This thesis is about integrating a supply chain to a customer's implementation project. The study is to identify and describe key factors that influence supply chain choices for project businesses. The aim is to explain the selection criteria for the right chain for an individual customer under different circumstances. The research problem, a highly relevant theme in the Internet age, is how to select the most appropriate supply chain for a customer in different business conditions. In addition to contributing to the scientific literature, this research also aims to support practical business situations in the industry by creating a normative decision-making model. The scope of this study is, thus, restricted to supply chains in project businesses where the success of logistics processes is largely dependent on how well physical deliveries are integrated into the implementation schedules of a project. The focused product type is typical of high-tech and innovative products with relatively short life cycles. Furthermore, the business environment of the scope is characterised by fast-growing turbulent markets. This study is an action research conducted in the GSM network business in Europe during 1999 and 2000. The research is an inductive, theory-building multiple-case study. The supplier case company is Nokia Networks, one of the leading suppliers of fixed and mobile telecommunication systems, and the customers consist of major European mobile phone operators, which however are anonymous in the thesis for the sake of business confidentiality. The research material was collected from customer-specific implementation projects that were individually carried out as part of an extensive supply chain re-engineering program inside the case company. The program, called BIRD (Breakthrough Inventory Rotation Days), aimed to streamline the process for high-volume base station deliveries and implement one of alternative supply solutions for a customer to best fit its individual needs. An individual process implementation for a customer (N=11) is considered to be the unit of analysis in this study. The basic axiom in the thesis is the Contingency Theory of Organisations that briefly says: "There is not one best way to organise something, but rather it depends on the environment". A customer's environmental requirements should determine the appropriate structure for the supply chain. The study maintains that there are two effective means to differentiate supply chain solutions for an individual customer. The first means is the well-known concept of Order Penetration Point (OPP). The second one is the value offering point (VOP), which is still a rather fresh and theoretical concept in the supply chain management literature. The study demonstrates how the positioning of these two points impact on the three dimensions of supply chains, i.e. on customer service, capital employment and total costs. The research results drawn from the in-depth case analysis are as follows: Three types of customer demand chains, distinguished by the position of the value offering point, can be identified among customers in project business. These are (1) call for project planning, (2) call for project execution and (3) call for project inventory management. Alternative supply chains are being used in different customer projects, quite intuitively, without a proper justification for the choices made. This is mainly due to contradictory target setting in project and supply chain systems (e.g., time buffers vs. material buffers) that makes it extremely complex to find the "right" supply chain solution for a customer. The accuracy of project planning and the implementation of a pre-defined execution trigger for ordering are actually sufficient selection factors to specify the right combination of value offering and order penetration points. However, as these selection factors are on a highly operational level, it is difficult to estimate their behaviour in a project beforehand. The technology life-cycle stage (which in this instance is represented by GSM penetration) and the level of the customer-supplier process collaboration are business conditions that can be used to estimate the behaviour of the selection factors in a project beforehand. Furthermore, these are considered to be necessary conditions in moving the value offering point further downstream in the chain. As a conclusion this study provides companies with a useful model to implement successful supply solutions for individual customers, especially applicable in the project business environment for innovative and high tech products. The study provides a set of normative rules to specify the right supply chain for a customer and defines the underlying pre-conditions to apply the rules. In addition to these normative results, the study provides new insight on the existing body of knowledge on integrating equipment deliveries into a customer's implementation project - which seems to be a fairly untouched area in the literature. According to the selected research approach, these conclusions are valid within the case study settings and their generalisation to a wider context should be further studied.
demand chain, supply chain, project management, value offering point, order penetration point
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