Effects of geographic dispersion on intra‐firm supply chain performance

Abstract

PurposeThis article aims to quantify and analyse empirically how the geographic dispersion of a firm's supply chain impacts on intra‐firm supply chain performance.Design/methodology/approachGeneralised linear modelling is utilised to analyse a sample of 95 large manufacturing companies operating in Finland.FindingsResults indicate that the increased geographic dispersion of the upstream supply chain results in higher costs of warehousing and logistics administration. On the downstream side, inventory costs, inventory days of supply, and cash‐to‐cash cycle time tend to increase due to geographically dispersed sales network. Increased geographic dispersion in the upstream and downstream supply chain results in the decline of perfect orders, and increases order fulfilment cycle time. However, the increased dispersion of the production network reduces order fulfilment cycle time. The results also indicate that the larger the firm, the better it can alleviate the negative implications of dispersion on perfect order fulfilment. Make‐to‐stock companies suffer less from the supply chain dispersion related delays in comparison to companies that utilise more pull‐type production and inventory strategies.Research limitations/implicationsResearch limitations include the cross‐sectional nature of the data, the concentrated geographic origin of the respondents, and the small sample size.Originality/valueBuilding on the multidisciplinary body of prior literature on geographic dispersion, the research provides quantified insights into the general principles of international supply chain design in the presence of a performance related trade‐off between the dispersion and centralisation of operations across the tiers of the supply chain. Contributions are made to the discussions on supply chain complexity, international sales portfolio diversification and international purchasing.