Firms’ integrating efforts to mitigate the tradeoff between controllability and flexibility

Abstract

We consider three manufacturing capabilities: controllability, flexibility, and integrating capability. Controllability is a firm's ability to control its process to enhance efficiency and accuracy and to better meet specifications. Flexibility is a firm's ability to cope with uncertainty and variation, both internal and external. Integrating capability is a firm's ability to integrate and coordinate diverse functions and parts of its supply chain, embodied in overall operations effectiveness and new product innovation. We put forth two hypotheses. First, there is an inherent tradeoff between controllability and flexibility. Second, a firm's integrating effort across its supply chain enables it to overcome such a tradeoff, making it possible to improve both controllability and flexibility simultaneously. Using data from 193 manufacturing companies, we test our hypotheses. It turns out that the relationship between controllability and flexibility is convex-shaped, indicating there are two distinct regions: one in which the relationship is negative and the other, positive. Further, the firms in the positive relationship region make significantly more effort to integrate, that is to say coordinate and communicate, across their supply chains, implying that as the firm strives to integrate its supply chain functions, it can mitigate the tradeoff between controllability and flexibility to a considerable extent.

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