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Clusters and supply chain
management: the Amish
Marketing Department, Bowling Green State University, Bowling Green, Ohio,
Larry C. Giunipero and Horace L. Melton
Department of Marketing, College of Business, Florida State University,
Tallahassee, Florida, USA
Purpose – To demonstrate the linkage between Porter’s cluster theory and supply chain
management, and provide evidence of their potential joint positive impact on competitiveness and
Design/methodology/approach – The paper examines the linkage between cluster theory and
supply chain management using data from a case study of the Amish furniture industry in Homes
County, Ohio, USA.
Findings – Using the Amish furniture industry and a representative furniture firm as examples, the
paper shows the positive impact of operating within an integrated supply chain in a geographically
Research limitations/implications – Use of a single case study approach limits the
generalizability of the findings; the paper recommends further study of linkages in other industries
Practical implications – The study suggests that firms build competitive advantage by initially
focusing primarily on local resources when selecting supply chain partners, rather than looking only
for low cost advantage through distant sourcing.
Originality/value – This paper adds to the literature on business linkages by proposing an
expanded definition of clusters as geographical concentrations of competing supply networks.
Keywords Cluster analysis, Supply chain management, Competitive advantage
Paper type Case study
Porter (1998) has proposed that today’s economic map of the world is dominated by
what he refers to as clusters: geographic concentrations of linked businesses that enjoy
unusual competitive success in their field. He suggests that the immediate business
environment outside a company plays a vital role in determining how a company
creates competitive advantage. When firms operate in one location, the repeated
interactions among them boost competition, improve productivity, innovation and
coordination, and build trust. Companies operating in a cluster can have the advantage
of scale without dealing with the inflexibilities of vertical integration or formal
Cluster theory, in effect, builds on the advantages of interfirm cooperation
propounded by supply chain theorists. Supply chain management integrates processes
International Journal of Physical
Distribution & Logistics Management
Vol. 36 No. 4, 2006
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and builds long-term relationships among firms involved in the flow of products and
services from the source through to end-users. All firms in the supply chain can benefit
through achieving lower costs, improved customer value and satisfaction, and greater
competitive advantage (Mentzer et al., 2001). When members of a supply chain all
operate in the same general geographic location, they gain the cost efficiencies of
supply chain coordination, as well as the boost in competitive drive and innovation
that comes from working together in close physical proximity.
Managers who are considering relocation of physical facilities or are exploring ways
to build competitive advantage in their firm’s present location should understand the
linkages between cluster theory and supply chain management. A firm that sources
inputs globally to get the best price may be losing out on the advantages of linking
with firms in its local area that can provide several other benefits that lower total
supply chain costs.
This paper illustrates the linkages between supply chain management and Porter’s
cluster theory by examining the successful Amish furniture industry in Holmes
County, Ohio. Given the strong cultural cohesiveness of the Amish, and their proximity
and self-dependency, the context offers a unique viewpoint from which to examine the
relative advantage of cluster theory and how this close coupling affects supply chain
Porter’s cluster framework
The globalization of economic activity is changing the nature and location of work, the
role of workers, and the prospects for economic development intowns, cities, and
provinces or states around the world (Blakely, 2001). In theory, the global marketplace,
with its efficiencies in sourcing, transportation, and communication, should have
nullified the importance of location in competition. Researchers offer that the computer
is at the forefront of this economic mobility, with workers almost anywhere able to
compete with one another through the power of the internet with computerized central
control systems (Blakely, 2001). Porter (1998) suggests that much of the conventional
wisdom about how companies and nations compete needs to be overhauled, as the ease
of which firms are able to quickly and efficiently level the playing field has made
resources, core competencies, and relationships of key importance in determining a
company’s competitive advantage. Research appears to concur with this assertion, as a
case has also been made for resource-based innovation (de Gouvea and Kassicieh,
2001). If location matters less, why then is it true that the odds of finding a superior
office furniture manufacturer in western Michigan are much higher than anywhere else
in the world? The same can be said for other industries, such as the movie industry in
Hollywood, and biotechnology and computer industries in the San Francisco Bay area.
Porter (1998, p. 78) defines a cluster as a:
. . . geographic concentration of interconnected companies and institutions in a particular
field. . . critical masses – in one place – of unusual competitive success in particular fields.
Clusters are viewed as encompassing an array of linked industries and other entities
important to competition that include, for example, suppliers of inputs such as
components, machinery, and services. Clusters also extend downstream to channels
and customers and laterally to manufacturers of complementary products, and to
companies in industries related by skills, technologies, or common inputs (Porter,
1998). Clusters can be seen as exhibiting three broad characteristics: physical
proximity, core competencies, and relationships. Enright (1999) makes a clearer
distinction in measuring the dimensions of regional clusters by suggesting the
following cluster dimensions: geographic scope, density, breadth, depth, activity base,
growth potential, competitive position, innovative capacity, industrial organization
and coordinating mechanisms. Clusters also present opportunities for an organization
to streamline and shorten its supply chain, as these sources exist in a concentrated
Clusters represent an alternative way of organizing the value chain that can be
positioned somewhere between arm’s-length markets on the one hand and
hierarchies, or vertical integration, on the other (Porter, 1998). Compared with
market transactions among dispersed and random buyers and sellers, the proximity
of firms in clusters – and the repeated exchanges between them – fosters
communication, coordination, innovation, interdependence and trust. Clusters are
seen as affecting competition in three broad ways:
(1) increasing the productivity of companies in the area;
(2) driving the direction and pace of innovation; and
(3) stimulating the formation of new businesses, which expands and strengthens
the cluster itself (Porter, 1998).
Recent research has extended Porter’s theory to the Indian software industry where
clusters are viewed as a way to maintain global competitiveness. In India, software
industry clusters provide a means for knowledge transfer, innovation, growth of new
organizations, and increased flexibility to compete against cost competitors in China,
Philippines and Malaysia (Dayasindu, 2002).
Supply chain management
While Porter’s model offers a very general macro view, the effectiveness of clusters can
be better understood by examining the practices of supply chain management. Clusters
can be thought of as geographic concentrations of competing, networked supply
chains. A single supply chain is:
. . . a set of three or more entities (organizations or individuals) directly involved in the
upstream and downstream flows of products, services, finances, and/or information from a
source to a customer (Mentzer et al., 2001, p. 4).
The supply chain may consist of a company and its immediate supplier and customer
(i.e. a direct supply chain), or may extend to all organizations upstream and
downstream from the raw material supplier to the ultimate customer (i.e. ultimate
supply chain). In addition, supply chains can intertwine with any one company being a
part of many supply chains. As an example, IBM is part of a network of supply chains,
since it is a customer in one supply chain (for server components), a supplier in another
(to CompUSA for laptops), a partner in another (with Linux for software), and a
competitor to another chain (Apple for desktop PCs). The chain or network of chains
exists whether they are actively managed or not. Supply chain management theory
suggests, though, that performance improves for individual firms and the overall
supply chain when the inter-firm processes and relationships within the chain are
actively managed (Mentzer et al., 2001).
Supply chain management is:
. . . the integration of key business processes from end-user through original suppliers, that
provides products, services, and information that add value for customers and other
stakeholders (Lambert, 2006, p. 2).
Key processes within and between firms are focused on meeting customer
requirements. Examples of important processes that are integrated in a supply
chain are customer relationship management, customer service management, demand
management, order fulfillment, manufacturing flow management, procurement, and
product development and commercialization (Mentzer et al., 2001).
Supply chain management can also be thought of as the group of activities that
bring about the coordinated flow of materials from source to end customer, and
ultimately build customer value. According to Mentzer et al. (2001), those activities are:
integrated behavior (i.e. incorporating customers and suppliers);
mutually sharing information;
mutually sharing risks;
firms having the same goal and focus on serving customers;
integration of processes; and
partners building and maintaining long-term relationships.
In order to implement the active management of a supply chain, Lambert and Cooper
(2000) suggest three steps for a firm to follow:
(1) Supply chain network structure. Identify key supply chain members with whom
to link processes.
(2) Supply chain business processes. Identify the processes that should be linked
with key chain members.
(3) Supply chain management components. Determine the level of integration and
management that should be applied for each process link (e.g. actively manage
or only monitor the link).
The consequences of integrating processes and implementing supply chain
management practices, then, are lower costs, improved customer value and
satisfaction and achievement of competitive advantage (Mentzer et al., 2001).
The literature also identifies other types of informal business linkages that improve
performance and competitiveness of participating firms. Harland et al. (2001, p. 22)
conducted research to develop a taxonomy of supply networks, which are sets of
supply chains nested within interorganizational networks and:
. . . consisting of interconnected entities whose primary purpose is the procurement, use, and
transformation of resources to provide packages of goods and services.
Based on the literature and qualitative and quantitative evidence, they build a model of
supply network types. Networks are categorized by the degree of supply network
dynamics and the degree of focal firm supply network influence. The combination of
those two dimensions yields four types of networks:
(1) dynamic/low degree of focal firm influence;
(2) dynamic/high degree of focal firm influence;
(3) routinized/low degree of focal firm influence; and
(4) routinized/high degree of focal firm influence (Table I).
The authors provide practical guidance to managers by identifying the different
patterns of networking activity critical for firms operating within each category. For
example, managers in categories 1 and 3 often have to cope with network operations
which are for the most part out of their control. This categorization clearly provides
some insight into the interaction and outcomes of firms operating in a cluster.
Another evolving model of linkage between firms is supply chain virtualization,
which according to Ho et al. (2003) consists of:
(1) formation of virtual (technology-based) trading communities;
(2) emergence of virtual knowledge communities; and
(3) relocation and integration of inter-organizational business processes from
the physical space to cyberspace.
Transformation involves building general and specialized information portals,
electronic exchanges, and integration of online business processes (e.g. online trade
documents processing and product catalogs). Virtualization changes the way business
relationships are established, provides new sources of knowledge capital for
innovation and product/process improvement, and speeds up the integration of
inter-firm business processes. Virtualization offers many of the advantages of clusters
without the requirement and benefit of physical proximity.
Finally, there is the keiretsu, the Japanese model of business linkage. Keiretsu has
been variously defined as “societies of business with interlocking ownership and close
buyer-supplier relationships” (Anchordoguy, 1990, p. 58), “clique-like patterns based
on intercorporate alliances” (Gerlach, 1992, p. 105), and “vertically integrated groups
with a dominant manufacturing firm and a network of major suppliers and
Focal firm has low degree of supply
Focal firm has high degree of supply
Source: Harland et al. (2001)
Dynamic supply network
Routinized supply network
Coping with network
Compete on product
Compete on product
Coping with network
Compete on process
Compete on process
A taxonomy of supply
subcontractors” (Presutti, 1992, p. 3). Lai (1999, p. 424) sums up with a richer, more
Internal control, cohesiveness, policy coordination and symbiotic relationships combine to
become a keiretsu linking firms into groups.
Keiretsu groups vary by status structure and degree of internal control. Horizontal
groups exercise control through overlapping ownership of firms, and vertical groups
relate to the value chain with captive suppliers (Page, 1994). Public policy limitations
(i.e. restraint of trade rules) make it difficult to consider horizontal keiretsu as a form of
business linkage transferable to American firms. But the vertical keiretsu is, in effect,
similar to the tightly integrated partnership among members of the supply chain
promoted by the supply chain literature.
Competitive benefits of clusters
Supply chain management is gaining increased acceptance as a tool used by firms to
both improve customer service and reduce total costs. Geographic distance adds to
supply chain complexity and increases logistical costs in the supply chain. An argument
can also be made for the benefits associated with the increased interdependence and
mutual commitment that accompanies a cluster and a tightly woven supply chain.
Research indicates that relational elements such as a long-term orientation enhance the
performance outcomes in buyer-seller relationships (Noordewier et al., 1990; Corsten and
Kumar, 2005). More specifically, relationships with greater total interdependence exhibit
higher trust, greater commitment, and lower conflict (Kumar et al., 1995), with
dependence and trust playing key roles in the determination of the long-term orientation
of the relationship (Ganeson, 1994; Doney and Cannon, 1997).
Thus, we propose to examine the following two research questions through a study
of the Amish furniture industry. First, while it appears that the Amish furniture
industry exhibits the key characteristics often associated with a cluster (i.e. physical
proximity, core competencies, and relations), will the competitive benefits proposed by
Porter be found in an examination of the Amish furniture cluster?
There are actual competitive benefits associated with the formation of a
The following list indicates there are many expected benefits from supply chain
(1) Increased productivity:
Improved access to employees and suppliers;
improved access to specialized information;
increased supply chain network support;
access to institutions and public goods; and
easier motivation and measurement of supply chain partners.
(2) More focused direction and faster innovation cycles:
innovation visibility through proximity;
enhanced flexibility; and
lower risk of business failures.
(3) Stimulating the formation of new businesses:
knowledge of business opportunities;
quicker identification of perceived gaps in products and services;
enhanced local market opportunities; and
shorter feedback loops.
Secondly, will the proximity, innovation and business development benefits, as well as,
core competency and relational characteristics that exist in clusters impact supply
chain management efficiencies?
Cluster characteristics will enable more efficient supply chain management
practices (Figure 1).
The cluster that provided the focal point for this study is the Amish furniture industry
of Holmes County, Ohio. The case study presents their history, economic models, and
the Amish furniture industry’s supply chain. Application of Porter’s cluster framework
to the Amish furniture industry follows, along with conclusions and managerial
In general, the case study research method has been used for exploratory research,
when no specific hypotheses are proposed, but a basic understanding is sought of
“how” and “why” a social phenomenon occurs (Yin, 1994). The method is most useful
when the object of study is a contemporary phenomena occurring in a real-life setting
over which the researcher has little control. According to Yin (1994, p. 13):
. . . the case study allows an investigation to retain the holistic and meaningful characteristics
of real-life events – such as individual life cycles, organizational and managerial processes. . .
Use of the case study method to analyze the Amish experience certainly complies with
Yin’s criteria for selecting the method.
The Amish of Holmes County, Ohio
The Amish are an outgrowth of the Anabaptist movement that occurred in sixteenth
century Europe. They were looked upon as radicals in the days of Swiss Protestant
Reformation, earning the name Anabaptists because they rejected infant baptism. The
Relationship of Cluster Characteristics to SCM Practices
Supply Chain Management Practices
Mutually sharing information
Mutually sharing risks and
Same goal and same focus on
Purchase answer to see full attachment