Exploring supplier–supplier innovations within the Toyota supply network: A supply network perspective

• Date: 01 October 2020
• DOI: http://doi.org/10.1002/joom.1124
• Published date: 01 October 2020
• Author: Antony Potter,Miriam Wilhelm

RESEARCH ARTICLE

Exploring supplier–supplier innovations within the Toyota

supply network: A supply network perspective

Antony Potter

1

| Miriam Wilhelm

2

1

Management Science, Alliance

Manchester Business School, University of

Manchester, Manchester, UK

2

Faculty of Economics and Business,

University of Groningen, Groningen, The

Netherlands

Correspondence

Antony Potter, Management Science,

Alliance Manchester Business School,

University of Manchester, Room 3.102,

Booth Street West, Manchester, UK, M15

6PB.

Email: antony.potter@manchester.ac.uk

Handling Editor: Subodha Kumar,

Sriram Narayanan, Fabrizio Salvador

Abstract

This article investigates the development of supplier–supplier innovations

that occur when two firms that are part of the same supply network

co-patent a new product. This study unravels how the structure of the

supply network influences each firm's ability to form supplier–supplier

innovations with other network members. Specifically, we investigate how

supplier degree centrality influences the generation of supplier–supplier innova-

tions, and the extent to which this relationship is moderated by the structural

embeddedness of firms in the supply network. Using data from the Toyota supply

network, the results reveal that a firm's ability to co-develop supplier–supplier

innovations with other network members dependsonitsnumberoftiesandtheir

directionwithinthesupplynetwork.Although betweenness centrality has no sig-

nificant moderating effect, closeness centrality, and embeddedness in small world

clusters negatively moderate the relationship between supplier degree centrality

and supplier–supplier innovations. Additionally, the number of manufacturing

plants a firm operates in Japan strengthens the positive effect supplier degree cen-

trality has on the development of supplier–supplier innovations.

KEYWORDS

betweenness centrality, closeness centrality, degree centrality, small world clusters, supplier–

supplier innovation, Toyota Motor Corporation

1|INTRODUCTION

As internally generated innovations are not sufficient to

compete in dynamic markets, firms are seeking new ways

to leverage their supply networks to co-develop innova-

tions (Gao, Xie, & Zhou, 2015; Hong & Hartley, 2011;

Narasimhan & Narayanan, 2013). The integration of sup-

pliers and customers into internal product development

efforts is well documented (Clark & Fujimoto, 1991; Law-

son, Krause, & Potter, 2015; Rost, 2011; Zhou, Zhang,

Sheng, Xie, & Bao, 2014), and researchers also have begun

to unravel how the structural characteristics of supply net-

works can influence the generation of innovations

(Narasimhan & Narayanan, 2013). The majority of studies

in this field have focused on the relationship between sup-

plier degree centrality and the number of innovations cre-

ated by firms (Chae, Yan, & Yang, 2020; Gao et al., 2015;

Narasimhan & Narayanan, 2013). Yet another route also is

pertinent, and arises when firms in the same supply net-

work co-develop supplier–supplier innovations, an effort

that may particularly depend on a firm's embeddedness in

the supply network (Hong & Hartley, 2011; Kamath &

Received: 16 October 2020 Revised: 5 September 2020 Accepted: 10 September 2020

DOI: 10.1002/joom.1124

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided

the original work is properly cited.

© 2020 The Authors. Journal of Operations Management published by Wiley Periodicals LLC. on behalf of the Association for Supply Chain Management, Inc.

J Oper Manag. 2020;66:797–819. wileyonlinelibrary.com/journal/joom 797

Liker, 1994; Kim, 2014). With this study, we therefore seek

to contribute to extant literature on supply network-

enabled innovation by asking how the structural character-

istics of a supply network influence the development of

supplier–supplier innovations.

Research using social network theory suggests that

the network ties between firms within a supply network

can play an important role during the innovation process

(Bellamy, Ghosh, & Hora, 2014; Gao et al., 2015; Schil-

ling & Phelps, 2007). These network ties can be defined

as the ties that connect a firm to its upstream suppliers

and downstream customers within a supply network

(Kim, Choi, Yan, & Dooley, 2011). Anecdotal evidence

shows that network ties can lead to the diffusion of valu-

able knowledge and operational practices (Choi, Wu,

Ellram, & Koka, 2002; Dyer & Nobeoka, 2000;

Wilhelm, 2011) and thus to enhanced product develop-

ment performance (Hong & Hartley, 2011; Kamath &

Liker, 1994). In particular, supplier degree centrality,

which measures the number of network ties a firm has

with other suppliers and customers in the supply net-

work, is often associated with a greater degree of innova-

tion by firms (Bellamy et al., 2014; Gao et al., 2015).

Building upon this literature we anticipate that supplier

degree centrality has a positive effect on the co-

development of supplier–supplier innovations within a

supply network setting.

Furthermore, previous studies of supply network-

enabled innovations also indicate that the structural

embeddedness of firms within a supply network can influ-

ence the way they develop new products (Kim, 2014;

Narasimhan & Narayanan, 2013). In particular, researchers

often measure the structural position of firms in a supply

network according to their betweenness centrality

(Carnovale & Yeniyurt, 2015; Kim et al., 2011), closeness

centrality (Borgatti & Li, 2009; Carnovale, Yeniyurt, &

Rogers, 2017), and their embeddedness in small world clus-

ters (Kito, Brintup, New, & Tsochas, 2014; Sharma, Kumar,

Yan, Borah, & Adhikary, 2019). Expanding this research,

we propose that the relationship between supplier degree

centrality and the formation of supplier–supplier innova-

tions can be influenced by the structural position of firms

within the supply network.

Within this article, we explore these relationships

using data from firms within Toyota's supply network

related to their supplier–supplier innovations over a 4-

year period from 2015 to 2018. We offer further empirical

evidence for the important contribution supplier degree

centrality makes to the co-development of supplier–

supplier innovations. More specifically, we show that the

number and direction of ties can have differential effects

on the occurrence of supplier–supplier innovations

between firms across the supply network. Firms that

manage a large portfolio of upstream ties with suppliers

tend to be more capable at generating supplier–supplier

innovations, but in contrast, firms with fewer down-

stream ties to key customers seem to enjoy more success

in co-developing supplier–supplier innovations in a col-

laborative manner.

Moreover, we unravel how the structural position of

firms within the supply network, in terms of their

betweenness centrality, closeness centrality, and

embeddedness in a small world cluster, influences the

relationship between supplier degree centrality and the

co-development of supplier–supplier innovations. We

investigate whether betweenness centrality strengthens

the positive effect of supplier degree centrality on sup-

plier–supplier innovations due to the unique influence of

network brokers that have a large degree of power and

control within a supply network. Even if firms in broker

positions (i.e., with a high betweenness centrality) have

an important role in managing the flow of materials

across supply networks, we do not find evidence that they

enjoy any advantages in terms of using their network ties

to generate supplier–supplier innovations. While we

expected that firms with high closeness centrality can use

their network ties to rapidly absorb the latest knowledge,

our results show that the positive relationship between

supplier degree centrality and supplier–supplier innova-

tions is stronger among firms in more remote positions,

on the periphery of the supply network (i.e., with a low

closeness centrality).

In line with our expectations, we find that small

world clusters weaken, rather than strengthen, the rela-

tionship between supplier degree centrality and supplier–

supplier innovations. This is because firms embedded in

small world clusters can foster supplier–supplier innova-

tions with fewer network ties, but firms outside of these

clusters need a larger number of network ties to absorb

new knowledge and co-develop innovations within sup-

pliers. Finally, we unravel the geographical complexity of

the supply network by studying how the location of firms'

manufacturing plants influences these relationships.

Thus, we go beyond traditional supply network analysis

by adding a geographical dimension that captures the

number of manufacturing plants each firm operates

within Japan. In our study setting, the number of

manufacturing plants a firm operates in Japan helps to

strengthen the effect supplier degree centrality has on

supplier–supplier innovations.

With this evidence, our study contributes to research

into supply network-enabled innovation in three main

ways. First, we build on research by Bellamy et al. (2014)

and Gao et al. (2015) that has explored the relationship

between supplier degree centrality and firm-level innova-

tions, to determine how supplier degree centrality might

affect the co-development of supplier–supplier innova-

tions. The findings reveal that upstream ties and

798 POTTER AND WILHELM