As a firm specializes in its core competence, it depends more on its suppliers to respond to customer requests in an increasingly turbulent environment. Flexibility within the firm and its supply chain is recognized as a strategic choice that enables the firm to sustain competitive advantages and achieve superior performance. Building on the literature related to resource based theory, relational view theory, and power theory, four main factors are identified as important to achieving flexibility across the supply chain: (1) manufacturing firm's resources, (2) suppliers' dedicated resources, (3) suppliers' flexibility, and (4) manufacturing firm's power with respect to suppliers.
Although a firm's flexibility is a core interest in manufacturing strategy literature, little research has been conducted in examining the influence of a firm's internal resources on flexibility. This research contributes to the knowledge base of both the academician and the practitioner in adopting a resource-based focus and empirically testing the relationship between a manufacturing firm's resources and a manufacturing firm's flexibility. Despite the wide recognition of a firm's dependence on suppliers in a supply chain, the influence of suppliers' capabilities on a manufacturing firm's capabilities is rarely discussed. This research hypothesizes that both suppliers' dedicated resources and suppliers' flexibility will affect a manufacturing firm's flexibility and that suppliers' flexibility will affect a manufacturing firm's competitive advantages. Moreover, this research tests the influence of a manufacturing firm's power with respect to suppliers on the flexibility of those suppliers and on the resources dedicated by those suppliers. In addition to the proposed relationships mentioned above, this research contributes to the knowledge base by developing measurements for the five major constructs: (1) manufacturing firm's resources, (2) suppliers' dedicated resources, (3) manufacturing firm's power with respect to suppliers, (4) manufacturing firm's flexibility, and (5) suppliers' flexibility.
The instrument was developed from items identified through an extensive literature review. The instrument was revised using pre-test, structured interviews, and Q-sort methodologies. Based on 201 responses from a large-scale survey of senior managers in manufacturing companies, the proposed model was examined using Structural Equation Modeling (SEM). The empirical results identified factors that affect a firm's flexibility, its competitive advantages and confirmed the following relationships: a manufacturing firm's flexibility is a critical link in achieving its competitive advantages; a manufacturing firm's resources in terms of technology, human capital and company climate, and suppliers' flexibility are critical to obtain a firm's superior flexibility; a manufacturing firm's power and suppliers' dedicated resources are also important and indirectly influence a firm's flexibility.