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Supply chain flexibility and firm

performance
A conceptual model and empirical
study in the automotive
industry

Supply chain
flexibility and
firm performance
681

Angel Martnez Sanchez and Manuela Perez Perez

Departamento de Economa y Direccion de Empresas,
Centro Politecnico Superior, Zaragoza, Spain
Abstract
Purpose To explore the relationship between the dimensions of supply chain flexibility and firm
performance in a sample of automotive suppliers.
Design/methodology/approach Empirical survey of a representative sample of 126 Spanish
automotive suppliers during the months of September and October 2003. Data gathered through a mail
survey to purchasing managers by using a structured questionnaire. Spearman correlation coefficients
were used to analyse the relationship between the different supply chain flexibility dimensions,
between supply chain flexibility dimensions and firm performance dimensions, and between supply
chain flexibility dimensions and environmental uncertainty dimensions. A multivariate analysis
studied the determinants of supply chain flexibility.
Findings The research has found a positive relation between a superior performance in flexibility
capabilities and firm performance, although flexibility dimensions are not equally important for firm
performance. On the other hand, the results show that companies enhance more the basic flexibility
capabilities (at the shop floor level) than aggregate flexibility capabilities (at the customer-supplier
level). However, aggregate flexibility capabilities are more positively related to firm performance than
basic flexibility capabilities. Thus, companies might miss opportunities to improve competitiveness
by underestimating customer-supplier flexibility capabilities. Finally, the results indicate that
flexibility capabilities are enhanced in supply chains with higher environmental uncertainty,
technological complexity, and mutual understanding, but with lower interdependence among the
agents involved in the supply chain.
Research limitations/implications There are other factors not included in the model that could
impact the relationship between flexibility, supply chain characteristics and firm performance. On the
other hand, the research has used cross-sectional data, which are limited in order to explain causal
relationships. Another limitation of the research is that we did not use any secondary data (like manual
financial reports) to crosscheck firm performance.
Practical implications The results of the research contribute to a better understanding of the
forces and constraints that companies face with flexibility capabilities.
Originality/value The paper analyses the relationship between supply chain flexibility
dimensions and firm performance. The model provides a framework of supply chain flexibility
dimensions that may be used as a test base for further research.
Keywords Automotive components industry, Supply chain management, Flexible organizations, Spain
Paper type Research paper

The authors thank the comments and suggestions made by two anonymous referees on an
earlier draft of this paper.

International Journal of Operations &

Production Management
Vol. 25 No. 7, 2005
pp. 681-700
q Emerald Group Publishing Limited
0144-3577
DOI 10.1108/01443570510605090

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1. Introduction
As diversity and uncertainty in the environment increases, companies are responding
by adding flexibility as a dimension to their operation strategies. Flexibility may be
defined as the ability to change or react with little penalty in time, effort, cost or
performance (Upton, 1994). Flexibility can improve the companys competitiveness,
particularly for the decision-making process of implementing technologies (Jaikumar,
1986; Alvarez Gil, 1994). But managers do not have a comprehensive view of flexibility
because they focus more on machine flexibility than on total system flexibility (Slack,
1987; Upton, 1994). Focusing flexibility on the implementation of technology does not
lead necessarily to competitiveness (Gupta and Somers, 1996).
To this regard, some scholars (Brill and Mandelbaum, 1989; Gerwin, 1993) think
that a flexible operations system requires the management and control of different
flexibility dimensions, by analysing the total system flexibility. Enhancing a flexibility
dimension does not necessarily lead to a flexible operations system (Gupta and Somers,
1996). Because flexibility is viewed as a reaction to environmental uncertainty (Riley
and Lockwood, 1997), in a global scenario, not only manufacturing, but also supply
chain logistics and management can be an important source of competitive advantage,
since material flows strongly affect business performance. For example, different
logistic channels of the supply chain can be activated in order to face emergencies such
as demand peaks. Then, the production order assignments to the plants, the
organisation of transports and other decisions are critical factors that can decrease the
performance of a wide range of products. However, contrary to flexibility in
manufacturing systems, which has been widely researched, it seems that research on
supply chain flexibility has been conspicuous by its absence (Barad and Sapir, 2003).
Flexibility in supply chains may well represent a potential source to improve the
companys efficiency and may be a significant measure of supply chain performance
(Vickery et al., 1999). Supply chain flexibility is defined to encompass those flexibility
dimensions that directly impact a firms customers and are the shared responsibility of
two or more functions along the supply chain, whether internal (marketing,
manufacturing) or external (suppliers, channel members) to the firm. There are very
few studies on supply chain flexibility and there are even fewer studies about the
relationship between supply chain flexibility and firm performance, which offers a
research opportunity (Dangayach and Deshmukh, 2001).
The purpose of this paper is to analyse the determinants of supply chain flexibility
and its impact on firm performance in a sample of Spanish automotive suppliers. The
paper is structured in the following way. Section 2 reviews the literature on supply
chain flexibility and proposes the research questions. Section 3 explains the
methodology of the empirical study. Sections 4 and 5 provide results and discussion.
Finally, the paper concludes with the limitations of the study and directions for further
research.
2. Supply chain flexibility: research framework and questions
2.1 Flexibility: concept and types
As commonly shared by the literature on manufacturing systems, flexibility is a
complex and multidimensional concept, difficult to summarise. De Groote (1994)
defined flexibility as an attribute of a system technology for coping with the variety of
its environmental needs. According to Upton (1994), flexibility reflects the ability of a

system to change or react with little penalty in time, effort, cost or performance. In
recent years the literature on flexibility has tremendously increased. Most of the
published articles deal with flexibility of manufacturing systems. Naturally this shows
the complexity of this concept as well as its importance. There has even been a
proliferation of papers that review the flexibility literature (Gupta and Goyal, 1989;
Sethi and Sethi, 1990; Kaighobadi and Venkatesh, 1994; Barad and Nof, 1997; De Toni
and Tonchia, 1998; Parker and Wirth, 1999; DSouza and Williams, 2000). The
published reviews consider different aspects of flexibility such as definitions,
classification and measurement of flexibility, choices, interpretation and requests for
flexibility.
Referring to the several papers which have proposed useful taxonomies, different
aspects of flexibility can be outlined, such as functional aspects (flexibility in
operations, marketing, logistics), hierarchical aspects (flexibility at shop, plant or
company level), measurement aspects (focused on global flexibility measures vs
context specific ones), strategic aspects (centred on the strategic relevance of
flexibility), time horizon aspects (long-term vs short-term flexibility), and object of
change (flexibility of product, mix, volume).
The two most agreed upon dimensions for measuring flexibility of any type are
range and response (Gerwin, 1993; Upton, 1994). The range dimension measures the
variety of available alternatives for the system adaptation, so that it may continue to
operate. This dimension is associated with the system effectiveness and is typically
measured by counting the number of options or by a normalised index. The response
dimension measures the easiness with which the adaptation can be carried out in terms
of the reaction time (or cost) needed to respond to the change that occurred. This
dimension may thus be associated with the system efficiency.
Flexibility types in the manufacturing literature can be reviewed through different
frameworks (Olhager and West, 2002). The classical early approach to flexibility
frameworks has a bottom-up structure related to a manufacturing hierarchy, which is
besides easily adaptable to a bottom-up supply chain oriented hierarchy. According to
this structure the three hierarchical flexibility levels are: basic, system and aggregate
levels.
The basic flexibility types comprise flexibility of the system components. The main
components of a manufacturing system are its machines, the material handling units
and the transporting network. The system flexibility types are composites of the basic
flexibility types at the manufacturing system level. An important type of system
flexibility with implications for the supply chain system is routing flexibility. Finally,
the aggregate flexibility types represent the aggregated attributes of the
manufacturing system technology enabling it to cope with the variety of changes
and needs at the strategic level.
Zhang et al. (2003) divided dimensions of flexibility into those defined internally
defined as flexible competencies and those perceived by the customer defined as
flexible capabilities. Zhang et al. (2003) were able to demonstrate empirically that
internal dimensions of flexibility (like machine or labour) are translated into flexible
capacities (volume and mix), which in turn have a significant positive impact on
customer satisfaction. Their results suggested that firms that considered flexibility
both from an internal and external viewpoint were more likely to specify the flexible
competencies required to achieve the flexible capabilities required for customer

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satisfaction. Jordan and Graves (1995) also demonstrated that flexibility initiatives
carried out over a chain of plants (external flexibility) substantially outperform
flexibility initiatives carried out within a single plant (internal flexibility). Similarly,
Olhager and West (2002) have recognised the importance of extending the notion of
flexibility beyond the factory floor linking it to market requirements and customer
needs. Thus, as supply chain flexibility needs to integrate internal and external
flexibility dimensions, its analysis may be more appropriate to study the influence on
firm performance.

2.2 Dimensions of supply chain flexibility

The analysis of supply chain flexibility involves the consideration of the flexibility of
the supply chain components and their relationships, in order to evaluate their impact
on the whole system. Supply chain flexibility takes into account two main aspects:
(1) process flexibility of each supply chain plant, concerning the number of product
types that can be manufactured in each production site (supplier or assembler);
and
(2) logistics flexibility, related to the different logistics strategies which can be
adopted either to release a product to a market or to procure a component from a
supplier.
While process flexibility is a well known type of manufacturing system flexibility,
logistics flexibility can be referred to the routing flexibility at the shop floor level, that
is the ability of using alternative routes to move the work-in-process through different
resources offering the same processes (Das and Nagendra, 1997). Logistics flexibility is
then intended as the possibility of shifting the production of an item (component or
final product) to different sites of a given stage of the supply chain, allowing reduction
of the negative impact of demand and process variability on supply chain performance.
The attempts to research flexibility in logistic systems have not added novel angles to
the analysis and measurement of this concept. Though not presented as such, in fact
they rely on flexibility elements defined in manufacturing systems (Barad and Sapir,
2003).
The logistics performance of a supply chain is affected by the supply strategy: for
instance, components can be delivered to a production plant from a local and/or from a
distant supplier, as well as by single, double, or multiple sourcing. The choice of a
supply strategy depends, for instance, either on the critical role of the component or on
the logistics complexity (for instance, commodity parts and big components are
usually provided by local suppliers).
There are very few empirical papers available on the specific subject of supply
chain flexibility (Vickery et al., 1999; Barad and Sapir, 2003; Das and Malek, 2003;
Garavelli, 2003). In these papers the various types of supply chain flexibility analysed
are usually associated with corresponding types of flexibility in manufacturing
systems. Other authors have developed conceptual models of supply chain flexibility.
For example, Duclos et al. (2003) and Lummus et al. (2003) examine flexibility
classification schemes and the commonalities of flexibility typologies to identify the
cross-enterprise nature of supply chain flexibility and the need to improve flexibility
measures across firms.

Following the work of Duclos et al. (2003) and Vickery et al. (1999), this paper
develops a framework of supply chain flexibility dimensions that includes both process
flexibility (similar to manufacturing flexibility) and logistics flexibility (not included in
manufacturing flexibility). Figure 1 shows the conceptual model. Based on the
bottom-up classification of flexibility as in manufacturing systems basic, system and
aggregate types it is possible to suggest different types of supply chain flexibility
dimensions, which concern mainly the context of supply/demand relations. According
to Figure 1, the first three flexibility dimensions are shop floor capabilities that impact
on supply chain (basic flexibility); the following three dimensions are hierarchically
located at company level (system flexibility); the top four flexibility dimensions are
linked to the customer-supplier relationships in the supply chain (aggregate flexibility).
Next, each flexibility dimension is briefly defined or explained in order to propose the
papers research hypotheses.
(1) The first of these flexibility dimensions is product flexibility, which is very
frequent in the manufacturing flexibility literature. Vickery et al. (1997) define
product flexibility in a supply chain framework as the ability to handle difficult,
non-standard orders, to meet special customer specifications, and to produce
products characterised by numerous features, options, sizes, and colours. While
product flexibility is a key competitive priority in the operations literature, it
requires the effective collaboration of other functional players, including
marketing, product design and development, and engineering.
(2) A second type of flexibility touted in the operations literature is volume
flexibility, defined as the ability to effectively increase or decrease aggregate
production in response to customer demand (Cleveland et al., 1989). Volume
flexibility may require close coordination between a manufacturer and its
suppliers, especially in the face of increasing demand. Volume flexibility
directly impacts supply chains performance by preventing out-of-stock
conditions for products that are suddenly in high demand or by preventing high
inventory levels (obsolete stock).

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Figure 1.
Supply chain flexibility
dimensions

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(3) A third flexibility dimension in supply chain is routing flexibility. It is the

capability of processing a part through varying routes by using alternative
machines, flexible material handling, and flexible transporting network. This
flexibility reduces the negative impact of environmental uncertainty and
unforeseen inefficiencies in the production process (Gupta and Buzacott, 1989).
(4) Delivery flexibility is the companys capability to adapt lead times to the
customer requirements. An example of high delivery flexibility is just in time,
when suppliers deliver the products to the customer at the right quantity, place
and time.
(5) Trans-shipment flexibility involves movement of stock between locations at the
same echelon level where physical distances between the demand locations and
the supply locations are small (Barad and Sapir, 2003).
(6) Postponement flexibility implies the capability of keeping products in their
generic form as long as possible, in order to incorporate the customers product
requirements in later stages (Barad and Sapir, 2003).
(7) Sourcing flexibility is related to the companys ability to find another supplier for
each specific component or raw material. Some scholars (Narasimhan and Das,
2000) observe that for a company to compete through flexibility, the sourcing or
supply practices are quite important.
(8) A flexibility dimension suitable to many industries is responsiveness to target
markets (response to market flexibility). This flexibility captures the overall
ability of the firm to respond to the needs of its target markets (McDonald,
1993). Responsibility for this flexibility is spread throughout the supply chain;
effective performance on this dimension hinges on a firms ability to leverage
the capabilities of its supply chain to meet or exceed customer requirements.
(9) Another important type of supply chain flexibility is launch flexibility. The
ability to rapidly introduce many new products and product varieties is a
strategically important flexibility that requires the integration of numerous
value activities across the entire supply chain. As product life cycles decrease,
increasing strategic emphasis is being placed on bringing many new products
to market as quickly as possible. Being first to market generates a variety of
competitive advantages: scale and experience economy advantages, innovation
leadership advantage, quality image perception advantage, and market share
and profitability advantage (Lieberman and Montgomery, 1988; Robinson et al.,
1992).
(10) The last critical supply chain flexibility included in the model depicted in
Figure 1 is distribution or access flexibility the ability to provide widespread or
intensive distribution coverage. This flexibility is facilitated by the close
coordination of downstream activities in the supply chain whether performed
internally or externally to the firm.

2.3 Research hypotheses

The purpose of the paper is to analyse the supply chain flexibility in the automotive
supplier industry and its relationship to the companys business performance and the

supply chain characteristics. Figure 2 depicts the theoretical research model, and the
following paragraphs develop the research hypotheses.
A first research issue concerns the relationship between supply chain flexibility and
firm performance. Flexibility the ability to adapt to change is critical to the
long-run survival of an organisation (Upton, 1994). In the short run, flexibility affects
the competitive posture of the firm and may impact its overall profitability. Flexibility
becomes particularly relevant when the whole supply chain is considered consisting of
a network of supply, production and delivering firms. In this case, many sources of
uncertainty have to be handled (Giannoccaro et al., 2003). Flexibility allows switching
production among different plants and suppliers, so that management can cope with
internal external variability (Chen et al., 1994). Emphasis on various dimensions of
supply chain flexibility may be directly linked to overall firm performance.

Supply chain
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H1. Supply chain flexibility is positively related to firm performance.

The relationship between uncertainty and flexibility is a critical issue since flexibility
is often viewed as an adaptive response to environmental uncertainty (Gerwin, 1993;
Upton, 1995; Prater et al., 2001). Flexibility should enable a manufacturer to respond
quickly and efficiently to dynamic market changes (Swamidass and Newell, 1987).
Increasing flexibility in logistic systems may be a strategic response to environmental
uncertainties (Barad and Sapir, 2003). Jung et al. (1999) found that a supplier who faces
a smaller demand with high variation would invest more in flexible facilities. Das and
Patel (2002) estimate the needed flexibility by linking it to the uncertainty experienced
by the companys manufacturing operations. All this suggests that higher levels of
perceived environmental uncertainty might engender a greater emphasis on one or
more supply chain flexibility capabilities.
H2. Supply chain flexibility is positively related to higher levels of perceived
environmental uncertainty in the supply chain.

Figure 2.
Research model

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Supply chain reorganisation processes derived from the mutual understanding and
commitment of members in the automotive supply chain may impact their responses to
environmental uncertainty. Inter-organisational transactions are based on mutual
trust, whereby the parties share a unit bonding. Successful production networks use a
variety of mutual understanding processes that facilitate knowledge transfer among
members in the supply chain or network (Dyer and Nobeoka, 2000). These
socio-political processes may contribute to reduced partnership uncertainty. Petroni
and Bevilacqua (2002) found that supplier involvement in new product design
increased the companys manufacturing flexibility. On the other hand, Das and Malek
(2003) state that supply chains are expected to reduce the net risk level in the chain as a
consequence of better coordination and planning. Each entity in the supply chain
should see a reduction in their individual risk level as the commitment increases. Then,
the reduction of risk perception may diminish the need for flexible capabilities.
H3a. Supply chain flexibility is positively related to higher levels of perceived
mutual understanding in the supply chain.
H3b. Supply chain flexibility is negatively related to higher levels of perceived
interdependence between firms in the supply chain.
The degree of technological complexity may also influence the companys need for
flexibility. High technological complexity increases the need for cooperation in the
supply chain in order to share resources and lead times. In the automotive industry,
product innovation technology makes automotive manufacturers involve first-tier
suppliers in new product development. The suppliers also improve their operations
and negotiate supply contracts with cost reduction conditions after efficiency and
quality improvements (Dyer, 1996). As a consequence, customer-supplier relationships
may be enhanced (Bensaou and Venkatraman, 1995; Liker and Wu, 2000), which
requires flexible management practices such as the interchange of technical employees
between companies (Dyer, 1996). Increasing relationships may enhance some
flexibility capabilities like, for example, product flexibility to incorporate technical
features or sourcing flexibility to change suppliers for critical components and
subsystems. Narasimhan and Das (2000) found that delivery and volume flexibilities
benefited from both supplier responsiveness to delivery changes as well as supplier
involvement in product design.
H4. Supply chain flexibility is positively related to higher levels of perceived
technological complexity in the supply chain.
In the automotive industry, there is also a continuous pressure to reduce the supplier
base and increase the market concentration. This has implications for the flexibility in
the supply chain because the remaining suppliers have to adapt to changes with fewer
agents in the supply chain. On the other hand, some first-tier suppliers in the
automotive industry are involved in the design of components, and at the same time
the automotive companies help to improve the manufacturing processes of these
suppliers. Both practices result in greater partner knowledge. A higher level of partner
knowledge may result in higher frequency of channel communication between trading
firms. Thus, the reduction of the number of suppliers and the development of suppliers

with the automotive companies may increase and diversify the flexibility dimensions
in the supply chain.
H5. Supply chain flexibility is positively related to higher levels of perceived
supplier dependence in the supply chain.
Figure 2 also includes some control variables, which may impact on the relationship
between supply chain features and flexibility: information and communication
technologies (ICT) use, firm size, and automotive dependence. Firms that use more
intensively the ICT may enhance their flexibility capabilities like delivery flexibility.
Firm size may also influence flexibility because of the availability of resources in large
firms and the ability to quick adaptation in smaller firms. Finally, the companys
dependence on the automotive manufacturers may increase its need for flexibility to
cope with industry standards.
3. Methodology
The paper analyses the results of a mail survey to Spanish automotive suppliers. The
automotive industry was chosen for several reasons. First, the automotive industry is
of economic significance to many countries and is one of the largest manufacturing
activities in the world. Second, the history of this industry is fairly well disseminated
(Womack et al., 1990), which facilitates a general understanding and knowledge of the
industry. Finally, this industry has experienced the diffusion of innovation like
high-performance workplace practices along the supply chain (MacDuffie and Helper,
1997) and offers the potential to simultaneously examine different dimensions of
flexibility (Koste and Malhotra, 2000).
This study is focused on strategic business units (SBUs), autonomous divisions, and
individual firms. A sample of 356 firms was taken from the Spanish Associations of
Automobile Suppliers SERNAUTO and ODETTE. All companies were chosen to be
suppliers of automotive systems/components to OEMs. A questionnaire was mailed to
the purchasing manager of each firm during the months of September and October
2003. The cover letter requested the manager to either participate him/herself or to
pass the questionnaire to the individual most qualified to participate in the study. Prior
to the actual data collection, a draft version of the questionnaire and cover letter was
examined by five industry experts from three automotive suppliers, in order to
eliminate confusing questions and identify interpretation difficulties. To avoid
confusing interpretations, all items to be measured like supply chain flexibility or firm
performance were defined in the questionnaire. A copy of the questionnaire is available
from the corresponding author on request.
After a follow-up process and a second mailing, 126 useful questionnaires were
received. The response rate was 35.4 percent, which is high considering the response
rates of mail surveys in Spain, which is around 10 per cent (Grande, 1996). Analysing
the sample by size of business, 24 suppliers (19 percent) have less than 50 employees,
59 suppliers (46.8 percent) have between 50 and 250 employees, and the 43 remaining
suppliers (34.2 percent) have more than 250 employees. The sample encompasses
diverse manufacturers working with different industrial sectors and developing
multiple activities. The electronics, plastic and steel industries are well represented and
most of the companies carry out some assembly processes. Spanish automotive
suppliers are concentrated in the three major industrial areas in Spain Madrid,

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Table I.
Operationalization of
scale variables

Barcelona, and the Basque Country and tend to be located around the five large
manufacturers established in Spain (Ford, GM-Opel, PSA, Renault, and VW).
A telephone call was randomly made to non-respondents, and we found that there was
not any apparent pattern in the type of companies that did not respond, or in the reason
given for not responding.
The questionnaire asked the respondents to rate the companys performance of each
flexibility capability and other environmental and industry variables using a
seven-point Likert scale. Then the variables used in the empirical study to explore the
research questions were operationalized according to the description of Table I which
also shows the reliability of all constructs (Cronbachs alpha over 0.7 according to
Nunnally (1978)). Most variables were measured through managerial perceptions with
seven-point Likert scales (Table I). Environmental uncertainty was assessed using five
items from Vickery et al. (1999): volatility in marketing practices, product obsolescence
rate, unpredictability of competitors, unpredictability of demand and tastes, and
change in production or service modes. The mean of these five items was taken to
represent overall environmental uncertainty. Each item was measured with a
seven-point Likert scale where high numbers indicated high uncertainty. The other

Variable

Items
(Cronbachs a)

Flexibility

10 (a 0.849)

Environmental uncertainty

5 (a 0.789)

Technological complexity

4 (a 0.778)

Mutual understanding

3 (a 0.822)

Interdependence

3 (a 0.889)

Supplier dependence

4 (a 0.764)

Description
Extent to which flexibility dimensions are important
in the company: product, volume, launch, response,
sourcing, access, delivery, transhipment,
postponement, and routing (seven-point scale from
least important to extremely important)
Extent to which there is volatility in marketing
practices, product obsolescence rate, unpredictability
of competitors, unpredictability of demand and
tastes, and change in production or service modes
(seven-point scale from strongly disagree to strongly
agree)
How likely are major changes to occur in the
component in four areas: functionality
improvements, major product innovations, major
manufacturing innovations, price/performance ratio
improvements. It was measured using 7-point
interval scales ranging respectively from very
unlikely to very likely
Extent to which both firm and customers understand
each other goals and priorities, products, and
processes (seven-point scale from strongly disagree
to strongly agree)
Extent to which there is an equal sharing between
the firms of risks, burden, and benefits (seven-point
scale from strongly disagree to strongly agree)
Extent to which a single supplier is very frequent for
the companyCs products, and there few competitors
and the market is highly concentrated (7-point scale
from strongly disagree to strongly agree)

supply chain characteristics were measured through scales used by the authors in
other empirical work (Martnez and Perez, 2004).
Similarly, respondents were asked to rate overall firm performance using the
following measures: return on investment (ROI), ROI growth, market share, market
share growth, return on sales (ROS), and ROS growth. The firms performance relative
to its major competitors was assessed with a seven-point Likert scale with endpoints
worst in industry ( 1) and best in industry ( 7). In spite of using managerial
perceptions in our research, past research has found managerial assessments are
consistent with objective internal performance (Dess and Robinson, 1984;
Venkatraman and Ramanujam, 1986).
Finally, the following variables were used as control variables in the multivariate
analysis: ICT use (percentage of sales and purchases electronically managed with EDI,
Web-based EDI, ERP and Internet), company size (number of employees), and
automotive dependence (percentage of sales to automotive manufacturers). Because
this study is exploratory, the statistical analysis carried out was basically descriptive,
and correlations and regression analysis were used to validate the research hypotheses.

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4. Results
The mean performance ratings, as well as the standard deviations for the ten flexibility
capabilities, are given in the first two columns of Table II. Also, the final column gives
the percentage of the sample that answered 6 or 7 on each of the seven-point Likert
scales. These respondents were considered top performers on each flexibility
dimension. The results show that the most rated flexibility was delivery flexibility
(5.94), followed by volume flexibility (5.64) and routing flexibility (5.60). The least
important dimensions are launch flexibility (4.64) and sourcing flexibility (4.49).
These flexibility dimensions can be summated according to the model depicted in
Figure 1. The results indicate that basic flexibility is the most important in the
surveyed companies (5.51), followed by system flexibility at company level (5.22), and
aggregate flexibility in the supply chain (4.90). On the other hand, the relatively high
value of standard deviation (1.76) for postponement flexibility in comparison to the low
value for routing flexibility (1.12) indicates that there was more divergence in
understanding the connotation for external measures of flexibility than for internal
measures like routing flexibility.
Flexibility dimension
Delivery flexibility
Volume flexibility
Routing flexibility
Response to market flexibility
Product flexibility
Access flexibility
Transshipment flexibility
Postponement flexibility
Launch flexibility
Sourcing flexibility

Mean

SD

Percentage of answering 6 or 7

5.94
5.64
5.60
5.45
5.30
5.04
5.00
4.74
4.64
4.49

1.33
1.14
1.12
1.21
1.40
1.59
1.70
1.76
1.58
1.47

69.9
60.3
54.7
52.8
50.9
41.5
45.2
39.6
41.5
22.6

Notes: Seven-point Likert scale. Higher values indicate better capacities related to competitors

Table II.
Descriptive statistics of
supply chain flexibility

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Table III.
Descriptive statistics for
firm performance (mean
and correlation values)

Table III gives the mean and correlation for the six indicators of firm performance. The
mean values indicate a slight greater importance of market share than ROI or ROS.
The correlation values, which range from 0.37 to 0.84, are all statistically significant
( p , 0.01). The wide range of the correlation values supports the use of six different
firm performance measures, as it appears that different aspects of performance are
being enhanced by the flexibility capabilities.
The first research question asked whether performance on each of the ten supply
chain flexibility dimensions affected the firms performance overall. To answer this
question, Table IV shows the correlation of the performance ratings for the flexibility
capabilities versus overall firm performance. The results show that product, access,
launch, and responsiveness flexibility is each one significantly correlated with every
indicator of firm performance. Other flexibility capabilities are significantly correlated
with three or four out of six indicators of firm performance. Nevertheless, the construct
of flexibility (average of ten flexibility dimensions) has a statistically significant
positive relationship to each performance measure. This result supports our H1.
Besides, regarding each category of flexibility dimensions depicted in Figure 1 basic,
system, aggregate Table IV indicates that the aggregate flexibility type (located at
chain level) is the only one significantly related to all performance ratings. The system

(1)
(2)
(3)
(4)
(5)
(6)

ROI
ROI growth
Market share
Share growth
ROS
ROS growth

Mean

(1)

(2)

(3)

(4)

(5)

4.79
4.70
4.81
4.81
4.40
4.43

0.428**
0.405**
0.378**
0.437**
0.387**

0.615**
0.731**
0.573**
0.589**

0.836**
0.718**
0.716**

0.684**
0.792**

0.844**

Notes: Seven-point Likert scale from 1 (worst in industry) to 7 (best in industry); and **p , 0.01

Flexibility dimension

Table IV.
The relationship
(correlations) between
supply chain flexibilities
and firm performance

Product flexibility
Volume flexibility
Routing flexibility
Delivery flexibility
Transshipment flexibility
Postponement flexibility
Access flexibility
Sourcing flexibility
Launch flexibility
Response to market flexibility
Flexibility (construct)
Basic flexibility (construct)
System flexibility (construct)
Aggregate flexibility (construct)

ROI

ROI
growth

Market
share

Market share
growth

ROS

ROS
growth

0.494**
0.266**
0.301**
0.211*
0.121
0.055
0.425**
0.125
0.321**
0.352**
0.384**
0.318**
0.215*
0.439**

0.359**
0.151
0.226*
0.266**
0.243*
0.164***
0.322**
0.103
0.360**
0.357**
0.418**
0.301**
0.209*
0.475**

0.390**
0.239*
0.264**
0.134
0.211*
0.270**
0.405**
0.297**
0.585**
0.393**
0.330**
0.434**
0.143
0.336**

0.341**
0.290**
0.274**
0.260**
0.254**
0.187***
0.457**
0.335**
0.597**
0.350**
0.393**
0.300**
0.259**
0.401**

0.259**
0.209*
0.154
0.060
0.045
0.136
0.310**
0.091
0.315**
0.209*
0.195*
0.223*
0.066
0.238*

0.236*
0.226*
0.148
0.150
0.255**
0.154
0.320**
0.140
0.455**
0.192*
0.254**
0.167***
0.175***
0.258**

Notes: ***p , 0.1; **p , 0.01; *p , 0.05 Spearman correlation coefficients

flexibility type is not significantly related to two firm performance criteria market
share and return on sales whereas the basic flexibility type is not related to each
performance factor at a 0.05 level of significance. This reinforces the importance of
aggregating supply chain flexibility dimensions in order to explain firm performance.
The second research hypotheses focused on whether higher levels of perceived
uncertainty result in greater emphasis on one or more supply chain flexibility
dimensions. To address this issue, first the correlation of the importance ratings on the
ten flexibility dimensions with the uncertainty ratings were determined (Table V).
At the construct level, flexibility and environmental uncertainty are positively related
(r 0.183; p , 0.05), which supports the H2. The results also show that only some
flexibility dimensions are overall correlated with environmental uncertainty: product,
responsiveness, sourcing, postponement, and routing flexibility. Other dimensions of
supply chain flexibility are only correlated with partial dimensions of environmental
uncertainty but not with overall uncertainty. Regarding the categories of flexibility
dimensions basic, system, aggregate the basic and aggregate types are
significantly related to the construct of environmental uncertainty.
Finally, a linear regression was also carried out to test the second and the following
research hypotheses under a multivariate analysis. Table VI shows the results.
The companys supply chain flexibility is positively explained by the environmental
uncertainty, technological complexity, and mutual understanding. Flexibility is also
negatively explained by the commitment in the supply chain. These results validate
the hypotheses H2, H3a, H3b, H4 but not H5. The control variables are also
significant: flexibility capabilities are enhanced at larger suppliers and by more
dependence on the automotive manufacturers.
Table VI also shows the linear regressions for each category of flexibility
dimensions: basic, system, and aggregate. Environmental uncertainty and mutual
understanding significantly explain each category. Other variables only explain one of
them: technological complexity positively explains aggregate flexibility, and
commitment negatively explains basic flexibility.
5. Discussion
This paper has focused on flexibility in the supply chain according to the research
model depicted in Figure 2. The first research hypothesis addressed whether high
performances on supply chain flexibility improves firm performance. Overall, excellent
performers on supply chain flexibility are rewarded at the bottom line. Often, it is
difficult to justify research and development investments to develop flexibility, but the
results of this study suggest that superior performance in flexibility capabilities does
impact a firms bottom line and thus the investment appears justified.
Nevertheless, our results also indicate that not every flexibility dimension is equally
related to every firm performance measure. As a consequence, logistic and production
managers should plan the effects of each flexibility dimension to highlight the
outperforming dimensions for the companys competitive advantage. It is therefore
advantageous to tailor a flexibility strategy precisely to the characteristics of a given
supply chain. A frequent handicap common to firms developing a flexibility strategy is
to increase in flexibility in a way that is not necessary for a given environment, and/or
to miss out on opportunities to enter an area of the market requiring greater
responsiveness (Venderhaeghe and Treville, 2003).

Supply chain
flexibility and
firm performance
693

Table V.
The relationship
(correlation) between
supply chain flexibility
and environmental
uncertainty
Competitors
0.270**
20.008
0.216*
0.071
0.182***
0.210*
0.087
0.100
0.212*
0.261**
0.103
0.098
0.130
0.149

Notes: ***p , 0.1; **p , 0.01; *p , 0.05 Spearman correlation coefficients

Product
0.097
20.025
0.252**
0.081
20.085
0.220*
0.188***
0.439**
0.291**
0.118
0.236*
0.051
0.098
0.337**

Demand/tastes
0.140
0.316**
0.277**
0.086
20.027
0.335**
0.038
0.260**
20.101
0.163***
0.139
0.232*
0.138
0.105

Production
0.514**
0.172***
0.095
20.052
20.041
0.247*
0.056
20.013
0.014
0.227*
0.100
0.368**
0.084
0.066

Marketing
0.235*
0.041
0.162***
0.032
0.147
0.216*
0.190*
0.102
0.082
0.138
0.112
0.101
0.154
0.106

694

Product flexibility
Volume flexibility
Routing flexibility
Delivery flexibility
Transshipment flexibility
Postponement flexibility
Access flexibility
Sourcing flexibility
Launch flexibility
Response to market flexibility
Flexibility (construct)
Basic flexibility (construct)
System flexibility (construct)
Aggregate flexibility (construct)

Environmental uncertainty
Overall
0.395**
0.158
0.319**
0.070
0.052
0.390**
0.177***
0.286**
0.158
0.286**
0.183*
0.257**
0.149
0.202*

IJOPM
25,7

Variable
Environmental uncertainty
Technological complexity
Mutual understanding
Interdependence
Supplier dependence
ICT use
Company size
Automotive dependence
Model results
R2
R 2 adjusted
F
p
N

Total supply chain

flexibility

Basic flexibility

System
flexibility

Aggregate
flexibility

0.313** (4.043)
0.164* (1.824)
0.419** (4.849)
2 0.205* (2.452)
0.048 (0.536)
20.163*** (1.966)
0.265** (3.004)
0.215* (2.613)

0.322** (3.696)
0.129 (1.276)
0.459** (4.728)
20.289** (3.079)
0.117 (1.164)
2 0.168*** (1.801)
0.173*** (1.744)
0.008 (0.087)

0.244** (3.229)
0.058 (0.662)
0.413** (4.888)
20.109 (1.334)
0.105 (1.199)
20.211* 2.610)
0.191* (2.209)
0.412** (5.210)

0.242* (2.570)
0.205* (1.878)
0.239* (2.274)
20.151 (1.493)
20.056 (0.519)
20.059 (0.587)
0.277* (2.583)
0.100 (1.004)

0.542
0.505
14.376
0.000
126

0.422
0.374
8.848
0.000
126

0.563
0.527
15.638
0.000
126

0.326
0.270
5.854
0.000
126

Notes: Standardised beta coefficient; t-student values between parenthesis; and ***p , 0.1;
**p , 0.01; *p , 0.05

The relationships among flexibility dimensions suggest consideration of a companys

flexibility initiative as a type of portfolio. When extra flexibility is required along one
dimension, then it may be possible by reducing flexibility along other dimensions to
minimise the disruption from the increased flexibility (Adler et al., 1999). The results of
the study show that supply chain flexibility is positively related to firm performance,
which reinforces other empirical studies about this issue (Vickery et al., 1999) and
about the convenience to divide flexibility among several units in the supply chain
(Jordan and Graves, 1995). In comparison to the results found by Vickery et al. (1999) in
the furniture industry, our results suggest that the automotive industry is more
advanced in their supply chain activities because it exhibits greater flexibility
capabilities and stronger positive relationships between flexibility and firm
performance. Our study contributes to the literature of supply chain flexibility by
analysing the relationship of more flexibility dimensions with firm performance than
other studies (Vickery et al., 1999; Duclos et al., 2003) and by testing at the same time
the determinants of flexibility capabilities in the supply chain.
Our results also indicate that greater uncertainty as perceived by managers is
associated with a greater emphasis on supply chain flexibility. This empirical evidence
follows conclusions from other studies in manufacturing settings (Swamidass and
Newell, 1987; Das and Patel, 2002) and supply chain (Vickery et al., 1999). This result
was enhanced with some uncertainty and flexibility dimensions. For example, volume
flexibility as a response to demand uncertainty, or launch flexibility as a response to
competitors uncertainties. Although overall uncertainties enhances the companys
response throughout flexibility in the supply chain, this research indicates that only
some flexibility capabilities are potential responses to environmental uncertainty in the
automotive supplier industry. Then, companies should focus on specific flexibility
capabilities in order to cope with the uncertainties in the supply chain.
The results also indicate that aggregate flexibility type is the only type that is
positively related to each firm performance measure at a 0.05 level, and one of two

Supply chain
flexibility and
firm performance
695

Table VI.
Regression of supply
chain flexibility

IJOPM
25,7

696

types associated with environmental uncertainty. However, the surveyed companies

have lower aggregate flexibility capabilities than basic and system flexibility
capabilities. This means that the surveyed firms are paying more attention to
flexibility dimensions that have lower impact on firm performance and environmental
uncertainty. Firms focus more on basic flexibility but underestimate aggregate
flexibility.
There are some characteristics of the supply chain that enhance the companys
flexibility performance. While some of these characteristics are not overall influenced
by the companys strategy and policies, others may be positively influenced. For
example, technological complexity is not directly influenced by the companies
themselves and increases the need of flexibility capabilities (such as launch flexibility),
but mutual understanding may be indeed promoted by the players in the supply chain.
As a consequence, the increased level of mutual understanding in the supply chain
seems to influence positively the level of flexibility, which suggests that trust (from
knowing each other) is more beneficial to cooperate and reduce uncertainty along the
supply chain.
On the contrary, the level of interdependence between firms may reduce the need for
flexibility in the supply chain. High-interdependence companies in the supply chain
interchange information more frequently and intensively than low-interdependence
companies, and are in need of lower flexibility because of formal agreements. The
interchange of information between companies facilitates the decision-making process
in developing new products or delivering supplies. Thus, interdependence between
firms may compensate the companys deficit in flexibility capabilities, while at the
same time environmental uncertainty increases the need for such capabilities.
Another variable that reduces the need for flexibility capabilities (system type) is
the use of information technologies. Companies working in environments characterised
by high uncertainty and technological complexity may find it risky to invest in
information technologies. Instead they may rather develop flexibility capabilities to
cope with that uncertainty.
The results of this study can be extended to other supply chains that face high
environmental uncertainty and where manufacturers have diffused flexible workplace
practices along the supply chain. These supply chains offer the opportunity to involve
suppliers in operations decisions that increase the companys flexibility through better
coordination and planning.
6. Concluding remarks
Two objectives were outlined in the introduction and both were met throughout the
paper. The first objective was to quantitatively analyse the relationships between
supply chain flexibility and firm performance. The research has found a positive
relation between superior performance in flexibility capabilities and firm performance.
But flexibility dimensions are not equally important for firm performance. For
example, while volume flexibility is likely to be an important response to uncertainty in
highly cyclical industries, launch flexibility may be more important to high uncertainty
in industries like the automotive industry.
On the other hand, the results show that companies enhance the basic flexibility
capabilities (at the shop floor level) more than aggregate flexibility capabilities (at the
customer-supplier level). But aggregate flexibility capabilities are more positively

related to firm performance than basic flexibility capabilities. Thus, companies might
miss opportunities to improve competitiveness by underestimating customer-supplier
flexibility capabilities.
The second objective was to quantitatively analyse the impact of some supply chain
characteristics on flexibility performance. The results indicate that flexibility
capabilities are enhanced in supply chain with higher environmental uncertainty,
technological complexity, and mutual understanding, but with lower interdependence
between the agents involved in the supply chain. The results contribute to a better
understanding of the forces and constraints that companies face with flexibility
capabilities.
Although the model is highly significant due to the values of R 2, there are other
factors not included in the model that could impact the relationship between flexibility,
supply chain characteristics and firm performance. The paper has not included other
operations objectives like quality or efficiency which also impact on firm
performance. On the other hand, the research has used cross-sectional data, which are
limited in order to explain causal relationships. A longitudinal study would be more
suitable to confirm the exploratory results obtained in the paper. Another limitation of
the research is that we did not use any secondary data (such as financial reports) to
crosscheck firm performance.
In spite of the limitations of this study, it provides a framework of supply chain
flexibility dimensions which may be used as a test base for further research. For
example, it would be useful to analyse which flexibility dimensions are the most
critical responses (if any) to environmental uncertainty across industries. Besides, this
paper focuses on supply chain flexibility and did not include basic flexibility
dimensions at the shop floor level, such as machine or labour that can also impact on
firm performance. Future research might also develop objective measures of supply
chain flexibility since a possible limitation of the current study is its reliance on
perceptual data.

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