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Developing Manufacturing Flexibility through Supply Chain

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Total Quality Management
Vol. 18, No. 9, 957 –972, November 2007

Developing Manufacturing Flexibility

through Supply Chain Activities:
Evidence from the Motherboard
Industry

CHEN-LUNG YANG
, C. H. LIN
& CHWEN SHEU

Department of Technology Management, Chung-Hua University, Taiwan; Department of Management,
Kansas State University, USA

ABSTRACT This study extends the knowledge of manufacturing flexibility regarding its integration
with supply chain activities. Specifically, we investigate the relationship between supplier
collaboration and manufacturing flexibility in the motherboard industry. Three motherboard
companies were benchmarked to decipher the impact of supply chain activities on different
dimensions of manufacturing flexibility. Our findings indicate that supplier collaboration plays a
major role in the development of a firm’s manufacturing flexibility. More importantly, we find
that not all supplier collaborative activities contribute equally to the development of different
types of manufacturing flexibility, and supplier collaboration could affect the interrelationships
among new product, product mix, and volume flexibility. A causal-loop diagram is developed to
align supplier involvement with various types of manufacturing flexibility. Accordingly, several
research propositions and managerial implications are offered.

KEY WORDS : Manufacturing flexibility, supplier collaboration, supply chain management, case
studies, high-tech industry

Introduction
In today’s fast-changing environment, characterized by global competition, rapid
technological changes, short product lifecycles, and increasing product variety,
manufacturing organizations are in fierce competition, facing high uncertainty and
continuous change. The literature suggests developing manufacturing flexibility to deal
with the constantly changing and increasingly uncertain manufacturing environment
(Anand & Ward, 2004; Beach et al., 2000; Bechek & Brea, 2001; De Toni & Tonchia,

Correspondence Address: Chwen Sheu, Department of Management, Kansas State University, Manhattan, KS
66506, USA. Email: csheu@ksu.edu

1478-3363 Print=1478-3371 Online=07=090957–16 # 2007 Taylor & Francis

DOI: 10.1080=14783360601150024
958 C.-L. Yang et al.

1998; Jack & Raturi, 2002; Upton, 1994; Vokurka & O’Leary-Kelly, 2000; Wadhwa &
Rao, 2000). Many believe that a high degree of manufacturing flexibility could enable
firms to respond to rapid market changes quicker and with lower effort and cost. Flexibility
has become an effective weapon to gain competitive advantage in an uncertain
manufacturing environment (De Meyer & Hooland, 1990; Gerwin, 1993; Narasimhan
et al., 2004; Ariss & Zhang, 2002). Meanwhile, supplier collaboration has been touted
as necessary to improve supply chain effectiveness and a firm’s competitiveness. In
practice, supplier collaboration includes a wide range of activities such as just-in-time
delivery, quality improvement, new product design, green purchasing and so on
(Krause, 1997). Supplier collaboration can be an important facet in developing
manufacturing flexibility, and previous studies have acknowledged the effect of supplier
involvement (Narasimhan & Das, 1999; Sanchez, 1995; Suarez et al., 1996; Zhang
et al., 2002).
Missing from the literature, however, is the knowledge of how these two strategic
components, supply chain management and manufacturing flexibility, can be integrated.
The premise of this study is that both supplier collaboration and manufacturing flexibility
are multidimensional concepts; managers must understand how various supplier activities
correspond to different dimensions of manufacturing flexibility. Furthermore, there are
tradeoffs between different types of flexibility, and not all types of manufacturing
flexibility are desirable in all environments (Chang et al., 2002; Koste & Malhotra,
2000; Narasimhan et al., 2004). It is not sufficient simply to recognize there is a
relationship between manufacturing flexibility and supplier involvement. Rather,
managers must be able to prescribe the formation of such a relationship. Figure 1
illustrates the hypothetical relationships between these two constructs. The knowledge
of such relationships can enable firms to align their supply chain efforts with their
manufacturing flexibility programs. It is, therefore, the primary objective of this study
to identify the one-to-one relationship between supplier activities and types of
manufacturing flexibility.
The remainder of the paper is organized as follows. The next section reviews the
literature as it is related to supplier collaboration and manufacturing flexibility. Case-study
based research is then introduced to gather information from the motherboard industry to
verify the relationships in Figure 1, followed by a discussion of the results and managerial
implications.

Figure 1. Basic model: mapping supplier collaboration with manufacturing flexibility

 Developing Manufacturing Flexibility through Supply Chain Activities 959

Literature Review

Inter-organizational collaboration has been touted as the driving force behind

successful supply chain management. (Dyer, 1997; Narasimhan & Kim, 2002; Stank
et al., 2001). More and more companies are beginning to recognize the potential
benefits of collaborating with other supply chain parties in various aspects of business.
For instance, Wal-Mart and Proctor & Gamble received substantial collaboration
benefits from implementing Collaborative Planning, Forecasting, and Replenishment
(CPFR) (Fliedner, 2003; Holweg et al., 2005), a business model designed to assist
supply chain members to collaborate at both tactical and strategic levels. The
results of implementing CPFR have been very successful in increasing a firm’s
responsiveness to consumer needs.
In the manufacturing environment, the Japanese automobile industry demonstrated the
potential benefits from partnership between manufacturers and suppliers. The concept of
‘Keiretsu’ offers a backbone for implementing Just-In-Time (JIT) systems, where
suppliers collaborate with manufacturers in various activities, including quality
management and production scheduling (Wisner et al., 2005). Inspired by the success
of JIT systems, many studies subsequently investigated various collaborative programs
firms can implement to improve their competitive advantage (Handfield et al., 1999;
Krause, 1997; Wong, 2001). Evidently, manufacturing firms are increasingly obtaining
volume, design, and technology capabilities through strategic supply chain collaboration.
For instance, supplier involvement early in the design process is a way to leverage the
supplier’s knowledge and, thus, reduce costs and lead times (Handfield et al., 1999).
Strategic alliances or long-term relationships (e.g. Choi & Hartley, 1996) are also ways
to leverage the supplier’s unique capabilities to improve firms’ performance and to
share risk for reducing uncertainty. Additional factors, such as supplier partnering
practices, trust, assistance in supplier development, acquisition of personnel skills, the
strategic orientation of purchasing, and supplier optimization, have been found valuable
in leveraging supplier capabilities for competitive advantage.
While the literature in supply chain management confirmed that supplier
collaboration directly or indirectly enhances a firm’s competitive edge, information
regarding the relationship between manufacturing flexibility and supplier collaboration
is rather sparse and incomplete. Specifically, the linkages between specific dimensions
of manufacturing flexibility (e.g., volume flexibility) and various supplier collaborative
activities have never been established. For instance, Narasimhan et al. (2004)
proposed a list of supplier-related activities that could impact the development of
manufacturing flexibility: supplier’s ability to modify products to meet customer
needs, responsiveness to schedule delivery changes, responsiveness to schedule
volume changes, assistance in product design, and assistance in process design and
innovation. Wathne & Heide (2004) argued that supplier involvement enhances a
manufacturer’s responsiveness to downstream customer changes. Zhang et al.
(2002) suggested that better coordination of product design, production, and delivery
could improve flexibility and add value to customers.
All these studies confirm the relationship between supplier program and flexibility but
offer no insights as to how supplier activities contribute to developing different dimensions
of manufacturing flexibility. Manufacturing flexibility is a multidimensional construct and
could be measured in many different ways (De Toni & Tonchia, 1998; Gerwin, 1993; Sethi
960 C.-L. Yang et al.

& Sethi, 1990). The feature of multidimensionality suggests that manufacturing flexibility
cannot be studied on the aggregate level (i.e. high versus low level). For example,
constantly changing customer demand would lead to short product lifecycles and
creates a great degree of uncertainty in a firm’s operations. This type of uncertainty, in
turn, drives firms to develop new-product flexibility but not volume flexibility. Our
research premise is that there is a particular alignment between certain types of supplier
collaborative activities and particular dimensions of manufacturing flexibility, as
presented in Figure 1.

The Case Study

Eisenhardt (1989) explicated the importance of case studies in exploring new areas of
research, where theory is still emerging. Yin (2004) also suggested that case studies
provide a rich set of data (both quantitative and qualitative) that allow for a detailed
investigation of new research issues. The literature review in the previous section confirms
that the effects of supply chain activities on manufacturing flexibility has never been
extensively investigated, which implies that case-based research might be the most
suitable methodology for exploring and understanding the relationship between supplier
activities and manufacturing flexibility. Figure 2 outlines the five stages of the research
process followed in this study.

Flexibility in the Motherboard Industry

We selected the motherboard industry in Taiwan to study the relationship between
supplier involvement and manufacturing flexibility for two primary reasons: the
significance of manufacturing flexibility and historically close manufacturer –supplier
relationships. First, Taiwan is the largest motherboard producer in the world,
accounting for approximately 80% of market share. The majority of motherboard
manufacturers in Taiwan are OEMs, and their clients are mostly large multinational
PC firms such as HP, IBM, NEC, Sony, Gateway, Dell, etc. Similar to OEMs in
other high tech industries, motherboard manufacturers are known for being flexible
in adjusting their strategies and operations to meet constantly changing customer
demands. Figure 3 displays the supply chain system for the computer industry. The
motherboard industry is an ‘intermediate industry’ with most of its components
purchased from a large number of suppliers and its customers are manufacturing
firms rather than the actual end users. Its suppliers include producers of chipsets,
PCBs, resistors, light diodes, connectors, memory cards, etc. Along with the
motherboard producer, there are several other component producers including
monitor, keyboard, mouse, and chassis that are referred to as intermediate
industries. Approximately 75% of the production from the intermediate industries is

Figure 2. Case research process

 Developing Manufacturing Flexibility through Supply Chain Activities 961

Figure 3. Supply chain structure – the computer industry

provided to notebook or desktop computer manufacturers, while the remaining 25%

goes to component retailers. Many motherboard manufacturers have traditionally
engaged in various supply chain activities with their suppliers, such as coordinating
design for manufacture (DFM) and design for assembly (DFA) committees, to
facilitate product design and production planning activities.
Note that three types of external manufacturing flexibility are considered most
critical to a motherboard firm’s competitive advantage: new product flexibility,
product mix flexibility and volume flexibility. Table 1 summarizes the definitions,
measurement, and significance for these three types of flexibility in the motherboard
industry. The flexibility is measured based on Suarez et al.’s (1996) suggestions. In
the motherboard industry, new product flexibility refers to the ability to develop
new motherboards based on various newly introduced CPUs. For instance, Intel
could introduce six new CPUs, including Intel 875P, 856PE, 865G, 856P, 865PE,
and 875PE. Some motherboard manufacturers with high levels of new product
flexibility are able to design and manufacture new motherboards based on all six
CPUs. Others with lower levels of new product flexibility may only be capable of
introducing three of them. The lifecycle of a new motherboard product is typically
very short, ranging from three to six months. As soon as the new products become
outdated, companies must actively renovate the original design to meet the needs
of low-end PC users (e.g., students, small businesses, video games).
The capability of producing a large number of revised motherboards is called product
mix flexibility. Historically, demand in the motherboard industry has high uncertainty.
Finally, due to the short lifecycle of the motherboard products, downstream buyers
(e.g., PC and notebook manufacturers) tend to take a ‘wait-and-see’ attitude and place
962 C.-L. Yang et al.

Table 1. Flexibility in the motherboard industry

Type Definition Significance

New product † The speed (in months) to
flexibility develop new motherboards
based on newly introduced
CPUs
Product mix † The capability of producing
flexibility a large number of revised
motherboards
† The number of revised
models
Volume † The ability to adjust
flexibility production levels to
effectively and economically
satisfy customer need
† Volume fluctuations and cost
associated with handling
such fluctuations
† Produce lifecycle is short (3– 6 months)
and it is critical to design and
manufacture new motherboards fast or
the new CPUs lose value.
† Companies must actively renovate the
original design to meet the needs of
low-end PC users.
† Downstream buyers always place
orders in large quantities at the last moment
with a request for fast delivery. The demand
level differentiation between peak and
low seasons can be as much as 60% of the
average production level.

orders in large quantities at the last moment with a request for fast delivery. The demand
level differentiation between peak and low seasons can be as much as 60% of the average
production level. Consequently, volume flexibility is necessary to adjust production levels
to satisfy customer needs in the motherboard industry.

Selected Cases
Three motherboard manufacturers were selected because of their extensive supplier
involvement practices. Table 2 provides the background information of these motherboard
companies and consultants. While all companies are similar in terms of their products and
processes, Company A is larger than B and C in terms of number of employees and annual
sales. With the size difference, we can examine whether the size factor affects the
relationship between supplier activities and manufacturing flexibility. A structured
interview protocol was prepared prior to the site visits (Table 3). For each firm, we
interviewed its plant manager and production manager regarding various supplier
collaborative activities and the level of their manufacturing flexibility. Based on the
data collected, we examined the effect of supplier involvement on manufacturing
flexibility. We then discussed the case study results with industry experts to confirm the
effect of supplier involvement. In general, the case findings provided valuable evidence
of supplier participation in the development of manufacturing flexibility. The next
section presents the findings of the case study.

Case Results
Data analyses were performed at two levels: within-case analysis and cross-case analysis.
Within-case analysis is central to the generation of insights into each case, because it helps
 Developing Manufacturing Flexibility through Supply Chain Activities 963

Table 2. Case study background information

Manufacturer A Manufacturer B Manufacturer C

(a) Companies
Products Motherboard, Note Motherboard Motherboard, Applied
book, Applied computing platform
computing platform
Headquarters Taiwan Taiwan Taiwan
Sales US$597million US$80 million US$90 million
Number of employees 7,000 650 700
Number of years in 16 12 23
industry
Average age of equipment 6 years 4 years 3 years
Nature of the business OEM/ODM (SONY, OEM (Compaq, Dell, OEM (IBM, Toshiba,
HP, Compaq, Dell) Apple) NCR)
(b) Industry experts
Expert A Expert B Expert C
Education (Degree/Major) College, IE Master, IE College, EE
Years of industry 14 years 11 years 13 years
experience
Experience Production planning, Sales, Purchasing (in R&D, Manufacturing
Manufacturing (in motherboard (in motherboard
motherboard industry) industry)
industry)
Current job/position Production plant Sales manager Industry analyst
manager

to deal with the analysis of a large volume of data (Eisenhardt, 1989). In this study, within-
case analysis involves the description of an individual firm regarding its supplier
collaborative activities. Such description provides an overview of various collaborative
activities currently practiced in the motherboard industry. Table 4 summarizes the findings
from the within-case analysis.
While we measured three types of flexibility following the suggestions from Suarez et al.
(1996), managers requested that the real measurement results not be revealed. As a result,
the ratio to the industry average is used to denote level of manufacturing flexibility. For
instance, Company A has a ratio of 1.3 (Table 4), which represents 30% more revised
models produced by the company than did the average motherboard manufacturers.
Overall, the three firms display similar degrees of new product and product mix flexibility,
while Company A exhibits a significantly higher level of volume flexibility. Using the
information in Table 4, we then performed a cross-case analysis to search for contingent
factors (e.g. size) that may affect the relationship between supplier collaboration and
manufacturing flexibility. This section reports the supplier collaboration practices
(within-case analysis) and discusses factors critical to the relationship between supplier
collaboration and manufacturing flexibility (cross-case analysis).

Supplier Collaboration: Chipset Suppliers and Dependent Part Suppliers

The suppliers to the motherboard manufacturer can be classified into two groups: chipset/
CPU suppliers and dependent parts suppliers (Chang et al., 2006). One unique feature of
964 C.-L. Yang et al.

Table 3. Outline of the interview protocol

I. General Information
The purpose of this section is to understand the company in terms of its size, products, and
production method.
A. Interviewers
B. Company Background
II. Manufacturing Flexibility
The purpose of this section is to understand the significance of manufacturing flexibility in the
industry. Additionally, we are also interested in assessing the company’s current level of new
product flexibility, product mix flexibility, and volume flexibility.
A. New product flexibility: How critical is new product introduction to your business? How do
you measure new product flexibility?
B. Product mix flexibility: How critical is product variety to your business? How do you
measure product mix flexibility?
C. Volume flexibility: How often do you need to change your production volume in response
to customer demand? How do you measure volume flexibility?
III. Supply Chain Activities
The purpose of this section is to understand the current supplier activities pertinent to the
development of manufacturing flexibility.
A. CPU/Chipset suppliers: Are your chipset suppliers currently engaging in any activities that
would affect the three types of manufacturing flexibilities? Do you perceive any potential
contributions from them in the future?
B. Dependent parts suppliers: Are your component suppliers currently engaging in any activities
that would affect the three types of manufacturing flexibilities? Do you perceive any potential
contributions from them in the future?
IV. Business Performance
The purpose of this section is to measure current business performance.

this supply chain is that chipset manufacturers virtually dictate the frequency and pace of
new motherboard development. Specifically, whenever chip manufacturers, such as Intel,
develop and introduce new chipsets, the motherboard companies respond accordingly and
design new motherboard products. In other words, chipset suppliers trigger and advance
the entire cycle of new product design and production in the motherboard industry.
Dependent parts suppliers then provide necessary component parts for the new
motherboard production. In general, the relationship between chipset and motherboard
manufacturers is different from conventional supplier– manufacturer relationships,
where manufacturers initiate product design and production cycle and suppliers provide
necessary components for production.
To ensure the proper function of new chipsets, chipset manufacturers must actively
participate in new motherboard design and testing. Consequently, almost all chipset
suppliers are aggressively involved in various committees (e.g. design for manufacturabi-
lity (DFM), design for testability (DFT), and design for assembly (DFA)) that mother-
board firms organize primarily for facilitating new product development. Proactive and
aggressive participation from the chipset manufacturers speeds up new motherboard
design and production, leading to an improvement in new product flexibility. For instance,
through these committees, chipset manufacturers are able to simplify chip design by
building in the functions of some dependent parts in their next version of a CPU. All
the companies we interviewed estimated that a simplified chipset design could reduce
 Developing Manufacturing Flexibility through Supply Chain Activities 965

Table 4. Case results: supplier collaboration and manufacturing flexibility

Manufacturer A Manufacturer B Manufacturer C

Supplier Collaboration
Chipset † Participate in DFM,
suppliers DFT & DFA
† Provide chipset data
sheet
† Assist software
development for
debugging quality
problems
† Assist with new chipsets
and dependent parts
compatibility test
† Suggest layout for new
motherboard
Dependent † Share production plan,
Part schedule, available-
Suppliers to-promise, inventory &
forecasting information
† Exchange information
on the quality of
dependent parts
† Regularly participate in
DFM, DFT and DFA
Manufacturing Flexibility
New † Time between new
product product introductions:
flexibility 1 – 2 months
Product † Average number of
mix revised motherboards
flexibility (2003 – 2005): Industry
ratio
¼ 1.3 : 1.0
Volume † Maximum range /
flexibility Minimum range (2003 –
2005): Industry ratio ¼
1.8 : 1.0

† Primary approach to
deal with volume
fluctuations:
collaboration commerce


All companies requested real data not be revealed and preferred the ratio to the industry average be used. For
instance, 1.5 denotes 50% more revised models than the industry average.
† Participate in DFM, † Participate in DFM,
DFT & DFA DFT & DFA
† Provide chipset data † Provide chipset data
sheet sheet
† Assist software † Assist software
development for development for
debugging quality debugging quality
problems problems
† Assist with new chipsets † Assist with new chipsets
and dependent parts and dependent parts
compatibility test compatibility test
† Suggest layout for new † Suggest layout for new
motherboard motherboard
† Share Inventory † Share Inventory
information information
† Exchange information † Exchange information
on the quality of on the quality of
dependent parts dependent parts
† Sporadically participate † Sporadically participate
in DFM, DFT & DFA in DFM, DFT & DFA
† Time between new † Time between new
product introductions: product introductions:
2 – 3 months 2– 3 months
† Average number of † Average number of
revised motherboards revised motherboards
(2003 – 2005): Industry (2003 – 2005): Industry
ratio
¼ 1.2 : 1.0 ratio
¼ 1.3 : 1.0
† Maximum range / † Maximum range /
Minimum range (2003 – Minimum range (2003 –
2005): Industry ratio ¼ 2005): Industry ratio ¼
1.0 : 1.0 1.2 : 1.0
† Primary approach to † Primary approach to
deal with volume deal with volume
fluctuations: fluctuations:
overtime/outsourcing overtime/outsourcing

the number of dependent parts by 1.2%, leading to a shorter cycle time for new mother-
board design.
The reduction of dependent parts also leads to greater product mix flexibility.
Specifically, with more space available on the motherboard, all three firms interviewed
had the flexibility to insert alternate dependent parts (e.g., memory expansion slots) on
the motherboard that would increase the variety of products offered to customers.
966 C.-L. Yang et al.

Furthermore, chipset suppliers often provide motherboard manufacturers a ‘chipset data

sheet’ with detailed product specifications and testing information. Such knowledge
facilitates compatibility testing for various combinations of chipset and dependent parts,
each combination being a modified motherboard model to satisfy the special needs of a
particular customer group.
To illustrate better the relationships between supplier activities and manufacturing
flexibility, a causal-loop diagram constructed to display the relationships between supplier
activities and three types of manufacturing flexibility is provided in Figure 4. The diagram
was developed based on System Dynamic (SD) theory (Forrester, 1961). In practice, a
management system often contains numerous variables (e.g., supplier activities and flexi-
bility) related to one another in nonlinear fashions (Roberts, 1978). The behavior of such
systems is often complex far beyond the capacity of intuition. For the managerial use, SD
seeks to integrate individual areas or variables of a system into a conceptual and
meaningful whole, which provides an organized and quantitative basis for analyzing
and designing more effective organization policies. Accordingly, an integral systems
framework, expressed as a causal-loop diagram, can be constructed by tracing
cause-and-effect links between variables through relevant flow paths. In developing a
causal-loop diagram, each link is given a þ or – directional sign, generally shown near
the tip of an arrow and is referred to as a plus (positive) or a minus (negative) linkage.
The flow structure orientation enables managers to view a system across organizational
boundaries. One should refer to Roberts (1978) for more details regarding the applications
of SD and the development of causal-loop diagrams.
Overall, the diagram in Figure 4 highlights the underlying flows of supplier
collaborative activities, materials, information flows, and policies in relation to those
three manufacturing flexibilities in the motherboard supply chain system. The diagram
treats manufacturing flexibility as an endogenous variable and it is affected and defined
by three loops representing three dimensions of flexibility: new product, product mix,
and volume. All three loops present positive interactions with manufacturing flexibility.
Namely, the increase of any one of these three improves the overall system manufacturing
flexibility. Each loop (flexibility) shows how various exogenous variables (supplier
collaboration) connect, based on the case study, with a particular dimension of
manufacturing flexibility. For instance, ‘Suggest layout for new motherboard,’ ‘Assist
compatibility test,’ ‘Participate in DFM, DFT and DFA,’ ‘Participate in DFI,’ ‘Provide
chipset data sheet,’ and ‘Assist software development’ are supplier programs that
trigger the development of new product flexibility. Similarly, ‘Provide chipset data
sheet,’ ‘Assist compatibility test,’ ‘Develop collaboration commerce platform,’ and
‘Participate in DFM, DFT and DFA’ are supplier activities contributing to product mix
flexibility. For developing volume flexibility, ‘Sign up long-term contract,’ ‘Develop
collaboration commerce platform,’ and ‘Assist in new tool design’ are found to be critical.
Note that the diagram not only highlights the relationships between supplier activities
and flexibility but also illustrates how the three types of flexibility are related. As an
example, motherboard manufacturers could ‘Develop [a] collaboration commerce
platform’ to share production planning, inventory, and forecasting information with
their suppliers. Such information sharing would effectively enable suppliers to prepare
necessary dependent parts to deal better with demand fluctuations, which, in turn,
improves volume flexibility. In addition, the collaboration commerce platform promotes
the exchange of quality information, which would subsequently improve product mix
 Developing Manufacturing Flexibility through Supply Chain Activities 967

Figure 4. Supplier collaborative activities and manufacturing flexibility

flexibility. Some other supplier activities – such as providing chipset data sheet; involving
supplier in DFM, DFT, DFA; and participating in design for compatibility test programs –
could enable the development of both new product and product mix flexibility.

Supplier Collaboration and Manufacturing Flexibility

The results of the cross-case analysis reveal some variations among the three firms with
regard to level and type of supplier participation (see Table 4). All three firms are very
close with regard to their levels of new product flexibility and product mix flexibility
achieved, but varied in their levels of volume flexibility. The managers in all three
firms specifically discussed their heavy reliance on investing in SMT, recruiting and
retaining high-skilled employees, and working with government-sponsored R&D
institutions to increase their responsiveness to market uncertainties and new product
development. However, Company A, the largest firm, has more resources and far better
recognition for the significance of supplier involvement to its manufacturing flexibility.
Consequently, the company took an aggressive approach by initiating many collaborative
programs specifically designed for information sharing (e.g., demand forecasting and
production planning) and supplier development activities (e.g., regular meetings, on-site
training, and quality assistance).
968 C.-L. Yang et al.

In contrast, Companies B and C, restricted by resource availability, did not engage in

such extensive supplier collaboration. In particular, most of their supply chain activities
were primarily associated with chipset suppliers but were limited with dependent part
suppliers. Note that the participation of chipset suppliers is virtually mandatory in order
to facilitate new motherboard design. Chipset suppliers, for their own benefit, usually
initiate necessary collaboration with motherboard manufacturers. Even without requests
from motherboard manufacturers, chipset suppliers would automatically provide
information and offer assistance in quality and compatibility tests. Those activities, as
Figure 4 indicates, assist in the development of new product, as well as product mix,
flexibility.
On the other hand, the participation of dependent part suppliers demands more initiat-
ives and resource investment from motherboard manufacturers. As a result, firms like B
and C were clearly far less active in searching for collaboration with their dependent
part suppliers, which ultimately affects the level of their manufacturing flexibility. For
instance, neither firm had actively engaged in ‘collaboration commerce’ types of programs
for information sharing with dependent part suppliers, and their supply chain operations
were not synchronized to respond to volume fluctuations. Instead, both firms rely
heavily on excess capacity, inventory, overtime, or outsourcing to absorb demand
fluctuation, which is obviously an expensive option to develop volume flexibility.
In summary, all firms interviewed exhibited high levels of new product and product mix
flexibility because their chipset suppliers, such as Intel, proactively initiated various
collaborative activities (Table 4). Chipset suppliers seem to contribute primarily to the
development of new product and product mix flexibility, but not volume flexibility, in
the motherboard industry. Meanwhile, collaboration from dependent part suppliers is
extremely critical to developing volume flexibility, as illustrated in Figure 5. Neither
Companies B nor C engaged in co-planning and information sharing activities extensively
and their suppliers were usually slower in responding to their replenishment needs. In
contrast, Company A practiced intensive collaboration – commerce-related activities
with suppliers through sharing information on production plans, forecasting, capacity,
quality, and inventory levels. As several empirical studies have indicated, sharing both

Figure 5. Supplier collaboration and volume flexibility.
All three firms display relatively high
levels of new product and product mix flexibility due to active participation from chipset suppliers.
 Developing Manufacturing Flexibility through Supply Chain Activities 969

strategic and tactical information with suppliers enables firms to better align demand and
supply (Fliedner, 2003; Holweg et al., 2005), which may explain why Company A is able
to adapt to demand fluctuations more effectively. Obviously, further studies are necessary
to verify the missing link between small- and medium-sized firms and dependent part
suppliers.

Conclusions
From the perspective of the supply chain, suppliers clearly play an important role in
moving goods through the whole chain in less time and at lower cost. For instance,
Dell speeds up production and delivery cycle time by performing several collaborative
activities with suppliers, such as sharing demand information and pre-reserving factory
capacity (Magretta, 1998). Upton (1995: 77) estimated that 40% of flexibility
improvement efforts are unsuccessful, and claimed that one of the major causes of poor
performance is inability to identify ‘which factors most affected it (flexibility)’. The
premise of this study is that supply chain collaboration is a valuable resource for
developing of manufacturing flexibility. We investigated the relationship between supplier
collaboration and manufacturing flexibility in the motherboard industry. Three mother-
board companies were benchmarked to decipher the impact of supply chain activities
on different dimensions of manufacturing flexibility. Our findings indicate that supplier
collaboration could be a valuable avenue to developing capability-based flexibility that
is difficult to imitate. While the literature acknowledges the effects of supply chain
activities on manufacturing flexibility (Handfield et al., 1999; Narasimhan & Das,
1999; Suarez et al., 1996; Vickery et al., 1999), our findings extend the understanding
of this issue by identifying specific associations between supplier activities and different
types of flexibility. Specifically, we found that not all supplier collaborative activities con-
tribute equally to the development of different types of manufacturing flexibility, and
different flexibility types should be achieved through different supplier activities. For
instance, Figure 4 shows that most collaboration activities with chipset suppliers have
less or no impact on volume flexibility but have greater impact on new product flexibility.
While this finding requires further verification, it has significant managerial implications
for a manufacturing flexibility program. Managers must understand the one-to-one
relationship and assess the impact of their current supplier development programs on
their manufacturing flexibility.
The following additional research issues and managerial implications are derived from
the findings of this study.

Supplier Alliance Should be an Antecedent to Manufacturing Flexibility

Apparently, to attain the level of flexibility desired, firms must look beyond internal effort
and include collaborative activities with suppliers. As supply chain management continues
to evolve with the aid of more advanced information technology, the effect of supplier
involvement on manufacturing flexibility could increase. Future research should study
supplier activities as an antecedent to manufacturing flexibility more carefully.
We also propose that the content and intensity of supplier collaboration can be used for
analyzing the relationships between different types of manufacturing flexibility. Suarez
et al. (1996) observed relationships among different types of manufacturing flexibility
970 C.-L. Yang et al.

in the PCB industry, but they did not find supplier involvement to be the cause of the
relatedness. In this study, we interviewed several industry experts and confirmed that,
on average, every new motherboard introduced into the market could subsequently
generate 3.6 more modified models. There is clearly a strong correlation between new
product flexibility and product mix flexibility. The case results summarized in Figure 4
and Table 4 seem to indicate that supplier involvement could offer a basis for analyzing
the relationships between types of manufacturing flexibility. For instance, some supplier
collaborative activities (e.g., information sharing, participation in DFM/DFT/DFA)
may affect more than one dimension of flexibility. Understanding such relationships
can enable managers to be more proactive in prioritizing their supply chain and flexibility
programs.

The Development of Manufacturing Flexibility must be Supply-Chain-Wide Effort

We found that many firms in the motherboard industry worked with research institutes and
universities for new product development. Most motherboard firms in Taiwan are OEM
and oftentimes their product development programs are not individual efforts but,
rather, the efforts of ‘communities of individuals from engineering, marketing, and
other functional areas across the supply chain of OEM and its myriad subassembly and
component suppliers’ (Bechek & Brea, 2001). This observation reinforces the need to
take an integrated view of those two strategic programs; supply chain management and
manufacturing flexibility. We propose that manufacturing flexibility needs to be
planned, managed, and aligned with a firm’s supply chain management.

IT is Increasingly Important to the Development of Supplier Collaboration and

Manufacturing Flexibility
Previous research discusses various avenues available for developing manufacturing
flexibility. The underlying assumption is that selected actions will stay effective over
time regardless of any environmental and economic changes (Jack & Raturi, 2002). For
instance, Swafford et al. (2006) found IT to be valuable for developing new product
flexibility by assisting in sharing of design information among design teams. This study
finds that, over a period of years (1980s to 1990s), overtime and outsourcing used to be
applied to develop volume flexibility in the motherboard industry. In the early 2000s,
the economic environment in Taiwan began to change and the wages increased
dramatically, thus the overtime/outsourcing strategy became costly and resulted in a
decrease in net profits. Additionally, our case study indicates that most motherboard
manufacturers have not taken advantage of emerging information technology to
enhance collaboration with their suppliers for improving their manufacturing flexibility.
For instance, Company A is the only firm that developed a collaboration commerce
platform for information sharing with suppliers. Such collaboration clearly paid off as
the company was able to work with suppliers more closely to respond to demand
fluctuations more effectively. With the advent of e-collaboration concepts such as
Vendor Management Inventory (VMI), Continuous Replenishment (CR), and CPFR,
manufacturers have the opportunity to synchronize and streamline their supply chain
operations and subsequently upgrade the manufacturing flexibility program. Future
 Developing Manufacturing Flexibility through Supply Chain Activities 971

research should investigate the specific impact of IT-related collaboration on manufactur-

ing flexibility.
In summary, as the environment, information technology, or economic conditions
change, the original strategy for developing flexibility may become obsolete and
require revisions. Managers must, in a more proactive manner, constantly review and
revise their flexibility program.
Finally, this study is primarily exploratory in nature and the case results should be taken
as no more than a preliminary step toward understanding the relationships between
supplier collaboration and manufacturing flexibility. Specifically, while we have carefully
selected three motherboard manufacturers for benchmarking and consulted with three
experienced industry experts, the information and analyses (especially those presented
in Figures 4 and 5) must be verified on a larger scale in different industries. Regardless
of the potential shortcomings, there is sufficient evidence to support the existence of
one-to-one relationships between supplier collaborative activities and types of
manufacturing flexibility. The findings and the propositions could serve as the base for
further study of integrating manufacturing flexibility with supply chain management.

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