Three is a crowd? On the benefits of involving contract manufacturers in collaborative planning for Three-Echelon Supply Networks

In today’s network economy, multi-echelon supply networks have become the dominant life form. The question of how to coordinate goods flows in such multi-echelon settings has become paramount. This study investigates the effectiveness of collaboration and information sharing in a three-echelon supply network, whereas academic research so far has focused on collaboration in two-echelon supply chains. The starting point for this study is a published and prize-winning real-world case of collaborative planning (CP) in the high-clockspeed industry of electronics. In particular, this research zooms in on the role played by the middle echelon, that of the contract manufacturers (CM), whose strategic interests typically are less aligned with the OEM than those of the key component suppliers. A system dynamics simulation model is developed and calibrated from this three-echelon supply network setting. Simulation analysis suggests that, when the CM is actively engaged in the joint CP process, the benefits are higher for all three echelons involved. On the other hand, if the CM does not collaborate, then collaboration between the two other echelons still yields significant benefits for all supply network members. In short, in goods flow information sharing in three-echelon supply network settings, “three is not a crowd”, but “two is company”.