The Hierarchy-Niche Model for Supply Networks

Contemporary products are usually designed and produced in large inter-firm supply networks rather than by single firms. However, our understanding of such networks is still limited due to the lack of network-wide empirical data as well as the complexity and nonlinearity of supply networks. Herein, we introduce a network formation model to extend and generalize the prior empirical studies that have revealed variable hierarchy topologies and firm-level transaction specificities across the supply networks for automobiles and electronics. We call it the “hierarchy-niche model.” With tuning the parameters for transaction specificity and transaction breadth, the model can generate a wide spectrum of stochastic networks that comply with the production hierarchy to varied degrees. Our simulation analyses show that the model-generated stochastic networks capture hierarchical and cyclic topologies of real-world automobile and electronics supply networks. The model, which relates firm-level transaction patterns to network-wide emergent topologies, can be further utilized to inform and guide firms’ transaction strategies concerning the overall supply network. © 2018 Production and Operations Management Society