j o u r n a l o f t r a f fi c a n d t r a n s p o r t a t i o n e n g i n e e r i n g ( e n g l i s h e d i t i o n ) 2 0 1 9 ; 6 ( 5 ) : 5 1 4 e5 2 5

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Original Research Paper

Central applications of Tesfay coordination in

transportation supply chain: Case of airline industry

Yohannes Yebabe Tesfay a,b,*

a
CREE, Durham, NC 27702, USA
b
Hitachi Powdered Metals (USA) Inc., Greensburg, IN 47240, USA

highlights

This article designed to test three hypotheses of modern supply chain management (SCM) challenges using various quantitative
models.

The fit of RAR-SUR model predicts that Bullwhip exists due lack of proper intra- and inter-organizational coordination of each business
collaborates in the supply chain.

The outcome of the causality analysis implied drawbacks of transaction cost analysis (TCA).

As the result, the author invented a Tesfay coordination to fill the drawbacks of TCA.

Finally, the author showed how to formulate productive strategic alliances in the airline industry using Tesfay coordination.

article info abstract

Article history: This paper is extensions of the Tesfay (2014) paper on the Bullwhip effects and Tesfay
Received 17 July 2017 (2015) paper on the foundations of the Bullwhip effect and its implications on the theory of
Received in revised form organizational coordination. The major outcome of the Tesfay (2014) paper suggests that
19 October 2017 one way or another Bullwhip effect attacks all the business collaborates in supply chain.
Accepted 20 October 2017 The major outcome of the Tesfay (2015) paper suggests that the solutions from the
Available online 7 February 2019 transaction cost economics are still insufficient to produce the most efficient organiza-
tional coordination. This paper extends stochastic analysis by applying various panel data
Keywords: regression models and structural equations of seemingly unrelated regression (SUR)
Airline industry models on the experimental data from Beer game. Recursive autoregressive-SUR model
Bullwhip effect estimation result confirmed that the Bullwhip effects can be cause by both intra-organi-
Stochastic model zational coordination and inter-organizational coordination of the business collaborates of
Tesfay coordination supply chain. In order to control the effect of intra-organizational coordination on the
Bullwhip effects, the author outline a new coordination type known as the hyper-hybrid
coordination. As a final point, the author has shown important applications of the hyper-
hybrid coordination in the airline industry.
© 2019 Periodical Offices of Chang'an University. Publishing services by Elsevier B.V. on
behalf of Owner. This is an open access article under the CC BY-NC-ND license (http://
creativecommons.org/licenses/by-nc-nd/4.0/).

* Tel.: +1 919 400 2669, +1 812 663 5058x581, +1 812 663 1581; fax: +1 812 663 8118.
E-mail addresses: YTesfay@hitachi-pm.us, yohannesyebabe@gmail.com.
Peer review under responsibility of Periodical Offices of Chang'an University.
https://doi.org/10.1016/j.jtte.2017.10.003
2095-7564/© 2019 Periodical Offices of Chang'an University. Publishing services by Elsevier B.V. on behalf of Owner. This is an open
access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525
1. Introduction
Contemplate multiple business collaborate companies oper-
ating as a serial chain for a product development for specific
end customer (Christopher, 1998). Many scholars suggested
that the product development and the end customer
satisfaction optimized if the multiple companies managed
as a single chain. This leads scholars to introduce supply
chain management (SCM) in the late 1980's (Tesfay, 2014).
The SCM designed to fill the gaps of business performance
after considering two core ideas. (1) Practically, a product that
delivers an end customer characterizes the aggregate work of
manifold organizations, which bring up as supply chain. (2)
Notwithstanding supply chains have be real, most organiza-
tions have only paid attention to their intra-organizational
coordination (David, 2010; Tesfay, 2015a, b).
SCM is vigorous systematic operational and strategic
administration of supply chain activities to take full advan-
tage of end customer and realize a maintainable economical
and modest advantage. SCM is a complicated function of
several business factors, which the supply chain accom-
plishments involve in each stage of product development,
entire logistic operations, and information systems (Bhote,
1987; Burt et al., 2003; Dess et al., 2005; Ganeshan and Harri-
son, 1995; Larson and Halldarsson, 2002).
SCM scholars remark that one of the characteristics of
effective and efficient supply chain is the degree of organiza-
tional harmonization of the companies in the chain and its
competence according to pattern of end customer (David,
2010). However, real business operation, the pattern of the
end customer is dynamic and random due voluminous
convincing factors. This can make randomness of the
customer pattern is fundamental challenge of modern SCM
(Boonitt and Pongpanarat, 2011; Tesfay, 2014).
Referring DuPont analysis, SCM strategy design to
concurrently decreasing both inventory and operating cost.
Correspondingly, the formulation and structure of SCM
methods integrates production, inventory, location, trans-
portation and information about the random pattern of end
customer. Subsequently, SCM comprehends challenging and
deep exploration of the chain under circumstances of uncer-
tainty (Chopra and Meindl, 2001; Tesfay, 2015a, b).
2. Proposition
The theory of SCM predicts effective and efficient material low
can instantaneously to reduce inventory and accessibility of
the product or service to end customer. Scholars of SCM
suggest that applicable information flow through the supply
chain achieved via establishing suitable inter-organizational
coordination. However, the degree of demand fluctuation
challenges productivity of the entire supply chain (Ellram,
1990; Kopczak and Johnson, 2003; Tesfay, 2015a, b).
DuPont analysis predicts, optimization of inventory has
two benefits to improve company's return on investment
(ROI), reducing (1) the overall cost and (2) the working capital
(Groppelli and Ehsan, 2000). Giving tribute to the position of
reducing the inventory of business partners across the
515
supply chain, we give emphasis about factors that root the
Bullwhip effects, which take along superfluous
accumulation of inventory.
According to Bhattacharya and Bandyopadhyay (2011), Cro-
son and Donohue (2006), Lee et al. (2000), Lee et al. (1997),
foundations of the Bullwhip effects are the lacks of inter-orga-
nizational coordination of the supply chain business partners.
In SCM literature, we found that organizational coordina-
tion divided into two major groups, intra-organizational
(Mintzberg, 1990) and inter-organizational (Jain et al., 2006)
coordination. This paper is extensions of the Tesfay (2014,
2015a, 2015b) papers on Bullwhip effects, and the deep
analysis on the sixth hypothesis of the Tesfay (2015a, b)
paper. In detail, we try to give the clarifications of the
following hypothesis.
Hypothesis 1. Many scholars of SCM suggested that the pri-
mary cause of the Bullwhip is the deficiency of inter-organi-
zational coordination of the business partners in the chain.
Nevertheless, suppose let us assume an ideal supply chain
that all the business partners in the chain have proper inter-
organizational coordination. Thus, this hypothesis is con-
cerned with about the prospective bases of the Bullwhip ef-
fects. Here our central interrogation is about “do having
proper inter-organizational coordination imply all the busi-
ness partners in the supply chain control the Bullwhip ef-
fects?”. In this honour, we propose to analyse whether the
Bullwhip effects is caused through the intra-organizational
coordination at least one of the business collaborates in the
supply chain or not (Hypothesis 1 leads us a new way of
understanding the challenges of modern supply chain
analysis).
Hypothesis 1 echoes the role of Mintzberg (1990)
classification and practises of apposite intra-organizational
coordination of the business partners on the productivity of
the supply chain.
Hypothesis 2. If Hypothesis 1 rejected, i.e., if the Bullwhip
effect is able to cause via the intra-organizational coordina-
tion at least one of the business collaborates in the chain, then
what is its implications on the prevailing theory of the
transaction cost analysis (TCA). That is our cross-examination
will endure to give resolution about “the organizational co-
ordination types market (rule of demand-supply theory is the
best means coordination), hybrid (coordination over and done
with relational contract) and hierarchy (vertical integration or
merger) an adequate amount of more productive coordina-
tion?” (Williamson, 1981). If not! “how to make a diagnosis on
the TCA by bring together a new organizational coordination
(since working from 1981, Williamson works with TCA and
won Nobel Prize in Economics in 2009).
Hypothesis 2 leads us to search and innovative method/s to
solve complex challenges in the formation of effective and
efficient supply chain.
Hypothesis 3. If we set up additional organizational coordi-
nation, which able diagnose the TCA, does the Kraljic (1983)
portfolio model is effective and efficient organizational
516 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525

coordination? If not! “how the existing Kraljic (1983) portfolio The oversimplifications of the test results of Hypothesis 1
model is going to be adapted to make more effective and to hypothesis 5 indorse that the way of inventory and
efficient coordination? stakeout cost or another way of attacking competitive
advantage of the Bullwhip effects can attack all the business
Hypothesis 3 is concerned analysing the sufficiency of in the chain. The paper endorses that firm has to
Kraljic portfolio model in modern organizational acknowledge the damaging impact of the Bullwhip effects
coordination. and enhance for them to formulate dynamic, flexible and
The paper evaluates the potential causes the Bullwhip ef- responsive organizational coordination to make a successful
fects using various panel data regression models and struc- business. Besides, the paper calls for different professionals
tural equations of seemingly unrelated regression (SUR) to conduct research and provide helpful theories of
models on the experimentally simulated data from Beer dis- coordination in SCM. Consequently, this paper design at
tribution game. giving much prominence on the six hypotheses of the
Tesfay (2014) paper and tries to show its applications in the
airline industry.

3. Literature review
4. Design of dataset and methodology
In 1961, Forrester had introduced mathematical differential
equations to analyse the relationships supply chain overall
4.1. Design of dataset
inventory and customer order. The analysis precisely solved
the fundamental discrepancy delay equations enlightening an
In this analysis, we use of experimental data of Tesfay (2014),
inventory responding to a flow in consumer order. Forrester
which consider supply chain factory, distributor, wholesaler
set up the simulation method and accredited the significance
and retailer (Boute et al., 2007; Simchi-Levi et al., 2000;
of coordinating information and material flow (Forrester,
Tesfay, 2014). The game has the following important
1961).
characteristics: (1) business transaction triggered from the
The Bullwhip effect is a propensity to larger variance than
end-customer; (2) demand information is anonymous to
the consumer actual demand that triggered the order. Thus,
business partners of the upstream supply chain; (3) players
the Bullwhip effects lead larger superfluous inventory to the
(business partners) have no aforementioned knowledge
upstream when compare the downstream supply chain. Such
about SCM; and (4) objective of the games to reduce the
amplifications of inventory in the upstream supply chain via
overall costs of supply chain (Senge, 1990). See the dataset
communicating orders from the downstream supply chain is
presented in Appendix.
due several business operations of moving product to the end
The lacks of aforementioned knowledge of SCM of the
user (Lee et al., 1997).
players (business partners) generate observations come out
Lee et al. (2000) examined the Bullwhip effects typically
from non-appearance of inter-organizational coordination.
based on the norm of profit maximization via inventory cost
The random transactions of the game generate the observa-
minimization. These include stable inventory insufficiencies
tions that come from non-appearance of intra-organizational
and inventory extremes. The article suggested that in the
coordination.
Bullwhip effects can cover 13%e25% of operating costs.
List of exogenous variables are indicial inventory (X), order
Recent papers predicted that controlling the Bullwhip effect
delivered (X1), and incoming order (X2). Endogenous variable
could improve the product profitability by 10%e30%.
of this analysis is end inventory (Y).
Croson and Donohue (2006) analyse the behavioural
perspective of the Bullwhip effects by applying various
statistical models. The analysis is conducted two different 4.2. Methodology
experiments on two groups of participants. The significant
result from the experimentation to the SCM theory is that 4.2.1. Panel data regression models
“modifications in inventory management strategies should Panel data (also called longitudinal data) is a data that
recognize unpredictability of demand side of the supply observed across different cross-sectional (spatial) units over
chain to slowdown the Bullwhip effects” (Dejonckheere repeated time intervals. Therefore, such data contains infor-
et al., 2003). mation of both spatial effects and time effects of the response
Warburton (2004) conducted analysis by defining variable (Davidson and MacKinnon, 1993; Davies and Lahiri,
appropriate differential equations of downstream supply 1995; Granger, 1991; Pearl, 2000; Zellner and Ando, 2010).
chain and solving these equations to quantify their Panel data regression model which contains two eroge-
contributions on amplifications of inventory in the upstream nous variables (X1 and X2 ) and endogenous variable (Y) are
supply chain. The outcome of this study revealed sharing given as follow (Baltagi, 2008; Barreto and Howland, 2005;
customer demand information to the suppliers has a crucial Greene, 2012; Tesfay, 2016a, b).
role to reduce the impact of Bullwhip effects on the entire
Yit ¼ bi þ b1 X1it þ b2 X2it þ eit (1)
supply chain.
Tesfay (2014) employed stochastic analysis to examine six- where i ¼ 1,2,/, n, t ¼ 1,2,/, T, bi is the ith spatial effects, b1
hypotheses on the Bullwhip effects. The first five hypothesis and b2 are the common coefficients of X1 and X2 , respectively,
and their test results summarized as follows. and eit  iidN (0, s2 ) are random error terms.
 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525 517

The structural stability break is statistical test to become

aware of the advantage of spatial effects panel data regression yit ¼ bi0 þ bi1 xi1t þ bi2 xi2t þ eit (6)
model over the pooled panel data regression model. The test
statistic of the Chow test (F) expressed as follow (Dougherty, ri yit1 ¼ ri bi0 þ ri bi1 xi1t1 þ ri bi2 xi2t1 þ ri eit1 (7)
2007).
Subtract Eq. (7) from (6), we have

.
R2fem  R2pooled ða  1Þ
F¼
. (2) yit  ri yit1 ¼ ðbi0  ri bi0 Þ þ ðbi1 xi1t  ri bi1 xi1t1 Þþ
(8)
1  R2fem ðaT  a  pÞ ðbi2 xi2t  ri bi2 xi2t1 Þ þ ðeit  ri eit1 Þ

where a is the number of cross-sections, T is total number of y*it ¼ b*i0 þ bi1 x*i1t þ bi2 x*i2t þ vit (9)
time observations, p is number of regressors in the model, R2fem
is the square of the coefficient of determination of the fit of where y*it ¼ yit  ri yit1 , b*i0 ¼ bi0  ri bi0 , x*i1t ¼ xi1t  ri xi1t1 , and
spatial effects panel data regression model, R2pooled is the x*i2t ¼ xi2t  ri xi2t1 .
square of the coefficient of determination of the fit of pooled Since vit  iidN ð0; s2iv Þ regression Eq. (9) has removed the
panel data regression model (Dougherty, 2007). autocorrelation of the series. Thus, we apply the OLS
recursively on regression Eq. (9).
4.2.2. Structural equations of seemingly unrelated regression
model (2) Adjusting cross-sectional variability: Bartlett's test of
Structural equations of seemingly unrelated regression heteroscedasticity
endogenous vector of ðy1t ; y2t ; y3t ; /; ynt Þ and the exogenous/
independent vectors of ðx11t ; x21t ; x31t ; /; xn1t Þ and ðx12t ; x22t ; x32t ; In order to take the best fit of data from panel data
/; xn2t Þ are given as follow (Davidson and MacKinnon, 1993; regression model and structural equations of seemingly un-
Tesfay and Solibakke, 2015, 2016). related regression (SUR) model, we apply Bartlett's test of
heteroscedasticity (Cochran and Cox, 1992). Here, the null
8
>
> y1t ¼ b10 þ b11 x11t þ b12 x12t þ e1t states that all the endogenous variables have equal variance.
<
y2t ¼ b20 þ b21 x21t þ b22 x22t þ e2t The test statistic (c2cal ) is given as follow.
(3)
>
> «
:
 P
ynt ¼ bn0 þ bn1 xn1t þ bn2 xn2t þ ent k  
ðN  kÞln S2p  ðni  1Þln S2i
where i ¼ 1; 2; /; n; t ¼ 1; 2; /; T; bi0 is the constant of the ith c2cal ¼ i¼1
 k
  (10)
P 1  1 
regression model, bi1 and bi2 are the common coefficients of Xi1 1 þ 3ðk1Þ
1
 Nk
n 1 i
and Xi2, eit  iidN ð0; s2i Þ are random error terms. i¼1
Pk Pk
With the above specification, we can simply express the where N ¼ i¼1 ni , S2p ¼ Nk 2 2
i¼1 ðni  1ÞSi , Si for i ¼ 1; 2; /; a, is
1

structural equations of seemingly unrelated regression (SUR) sample variance.

models in Eq. (4). According to Snedecor and Cochran (1989), the null
hypothesis rejected if c2cal > c2a1;a .
yit ¼ bi0 þ bi21 xi1t þ bi2 xi2t þ eit (4)

5. Results and discussions

(1) RAR-SUR model
Classical estimation in the presence of autocorrelation
leads to the inefficient parameter estimate. Thus, in order to
control autocorrelation, we can apply the recursive Cochrane-
Orcutt autoregression estimation on each components of the
SUR model equations as follows (Ayele et al., 2017; Cochrane
and Orcutt, 1949; Tesfay, 2015a, b).
First, we specify the model as
yit ¼ bi0 þ b11 xi1t þ bi2 xi2t þ eit
where eit ¼ ri eit1 þ vit ; jri j < 1, r is the measure of autocorrela-
tion and vit  iidN ð0; s2iv Þ.
Cochrane-Orcutt autoregression procedure is given as
5.1. Examination of Hypothesis 1: causes of the
Bullwhip effects
In order to test Hypothesis 1, we have to fit the pooled panel
data regression model, spatial effects panel data regression
model and the SUR model. The fit of the pooled panel data
regression model, spatial effects panel data regression
model and the SUR model are given in Tables 1e6.
From Table 1, we see that the F-cal (p-value ¼ 0) prevailing
(5)
the pooled regression model is adequate. However, the pooled
regression model controls only 20 percent of the variation of
the ending inventory of the whole supply chain. The model
predicts that both the order delivered and incoming order of

Table 1 e Model adequacy statistic of pooled panel data regression model.

SS Df MS F-cal p-value R R square Adjusted R square Std. error
Regression 1373.83 2 686.92 17.30 0.0000 0.45 0.20 0.18 6.30
Residual 5560.33 140 39.72
518 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525
Table 2 e Parameter estimating of pooled panel data regression model.
Parameter
Regression coefficient Order delivered
Incoming order
Constant
Note: *Significant at 5% level of significance.
the supply chain cause unnecessary end inventory. However,
the constant of the model is insignificant (Table 2).
From Table 3, we see that the F-cal (p-value ¼ 0) prevailing
the spatial effects panel data regression model is adequate.
However, the spatial effects panel data regression model
controls about 30.00 percent of the variation of the ending
inventory of the whole supply chain. In Table 4, the model
predicts that both the order delivered and incoming order of
the supply chain cause unnecessary end inventory.
However, all the spatial effects of the constant of the model
are insignificant.
The Chow test prevails F-cal of 6.702 (p-value < 0.00036).
This suggests that at the 5% level of significance the spatial
effects panel data regression model has more predictive
power than the pooled panel data regression model for the
causality of the ending inventory of the actors of the supply
chain.
From Table 5 we see that at 5% level of significance the F-
cal prevails that of the SUR model is adequate. The SUR
model controllers 25.7 percent, 21.5 percent, 36.5 percent
and 23.9 percent of the variations of the ending inventory of
the factory, distributor, wholesaler and retailer, respectively.
The fit of the fit of the SUR model suggest that the causes of
the ending inventory for the different actors are different.
The Bartlett's test of heteroscedasticity prevails that a Chi-
square value is 626.32 (p-value ¼ 0). This suggests that at the
5% level of significance, the variance of the ending inventory
of each business partner of the supply chain is statistically
different. This endorses fitting of the spatial effects panel data
regression model hide some important variations of the
business partners of the supply chain. Therefore, we will
interpret the structural equations of SUR model for the cau-
sality of the ending inventory of the business partners of the
supply chain.
From Table 6, we see that the constant of distributor and
retailer are found statistically significant. This demonstrates
the intra-organizational coordination of these business
partners is found inappropriate to respond customer
demand. This is one of the primary foundations to the peak
unnecessary-accumulation inventory of the distributor
(upstream supply chain) and also leads to stock out case at
the retailer (downstream supply chain). The predictor
variable order delivered significantly disturbs the inventory
of all the upstream supply chain (i.e., distributor, wholesaler
and retailer). This shows the inter-coordination of all the
Table 3 e Model adequacy statistic of spatial effects panel data regression model.
SS Df MS F-cal
Regression 2090.57 6 348.40 9.79
Residual 4875.77 137 35.60
Estimate Std. error t-cal p-value
0.64 0.14 4.52 0.0000*
0.43 0.11 3.96 0.0000*
14.49 12.63 1.15 0.2530
business partners of the supply chain is found
inappropriately to respond customer demand.
When we make a sweeping statement, we found that the
results of the causality analysis about the Bullwhip effects
exists though lacking of the intra-organizational and inter-
organizational coordination of the business partners in supply
chain.
5.2. Examination of Hypothesis 2: implications of the
causality analysis on transaction cost analysis (TCA)
The finding of this analysis confirmed that intra-organization
coordination of the business partner of the supply chain is one
of the potential foundations of the Bullwhip effects. The result
shows that coordinating with business partners having poor
intra-organizational coordination can maximize overall cost
and/or cause potential business risk than coordinating with
business partners having. This has several implications on the
drawbacks of the existing theories of organizational
coordination.
One of the most influential theories of coordination is
Williamson (1981) transaction cost analysis (TCA). The TCA
hypothesis tried to give the solution for making efficient
coordinating of firms among market (rule of demand-supply
theory is the best means coordination), hybrid (coordination
through relational contract) and hierarchy (vertical
integration). The TCA used a certain dimension to analyse
about making efficient coordination. These dimensions are
uncertainty, asset specificity, and transaction frequency. For
example, the solution from the TCA suggests that as
uncertainty, asset specificity and transaction frequency
increase the making vertical integration (hierarchy) more
efficient than hybrid governance (Tesfay, 2015a, b).
5.2.1. Potential critics towards transaction cost analysis
(TCA)
The TCA assumed that transactors (firms) are “bounded
rationally” and “opportunistic”. These two behavioural as-
sumptions are a tool to develop the TCA. However, the TCA
ignores the dynamic aspect of these two behavioural factors.
Transactors may be opportunist or bounded rationally. How-
ever, there is another factor that directly interacting with
these two important factors that is “experience”. Experience is
a dynamic factor and can make firms to increase or decrease
their opportunistic or rational bounded behaviour according
p-value R R square Adjusted R square Std. error
0.0000 0.548 0.30 0.26 5.97
 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525 519

Table 4 e Parameter estimating of spatial effects panel data regression model.

Parameter Estimate Std. error t-cal p-value
Regression coefficient Order delivered 0.61 0.13 4.5 0.000*
Incoming order 0.45 0.10 4.33 0.000*
Spatial effects Factory 3.30 19.89 0.17 0.869
Distributor 12.33 19.67 0.63 0.532
Wholesaler 3.13 19.70 0.10 0.874
Retailer 26.41 19.91 1.33 0.187

Note: *Significant at 5% level of significance.

to their benefit from their previous organizational coordina- The coordination type's hybrid and hierarchy may not be
tion (Tesfay, 2015a, b). the efficient means of inter-organizational coordination.
The impact of experience with the firm's opportunism and Examples 1. Suppose that let us consider an ideal hybrid co-
bounded rationally behaviour is analysed as follows. The ordination that controls all the aspects of TCA, i.e., uncertainty,
simplest form of the dynamic aspect of the opportunism and asset specificity, and transaction frequency. A given opportunist
bounded rationally behaviour in the inter-organizational co- and rational bounded behaviour firms assume that they made
ordination is represented by the following formula. efficient coordination; hence their coordination controlled all
the dimensions of the TCA. Now let's ask ourselves that our
X
t1
ðValue  Creationk Þ0ðOPt ; BRt Þ0 question is that “do such type of coordination is the most effi-
k cient coordination for the transactors?”. The TCA argues that
ðInter-organizational coordinationt Þ0ðValue  Creationt Þ such coordination is the most efficient coordination for the
transactors. However, the analysis the Bullwhip effects (see the
where OPt and BRt are the degree of opportunism and bounded
result of Hypothesis 1) prevail that even under the fulfilment of
rationally behaviour of the firm at a time to perform intra-
the dimensions of the TCA the most efficient coordination is not
organizational coordination, respectively, t2ð1; 2; 3; /Þ is the
achievable. Hence, if at least one of the transactors has bad
index that representing the time of the business interaction
intra-organizational coordination then all the transactors will
event, and the previous business interaction periods.
become cost inefficient due to the Bullwhip effects.
From the formula, we can observe that a given firm has its
Example 2. Suppose by considering the dimensions of un-
own degree of opportunism (OPt) and bounded rationally (BRt)
certainty, asset specificity, and transaction frequency, etc.,
behaviour. The firm used the previous benefit
Pt1 the hierarchy is solution from TCA for a particular organiza-
k ðValue  Creationk Þ from the previous knowledge of
tional coordination problem. However, there are well-known
practising intra-organizational coordination as set informa-
evidences and reasons that hierarchy may not be realized.
tion to make a new intra-organizational coordination. Then
Therefore, this leads to the firms to coordinate in relational
finally, the firm will evaluate the benefit ðValue  Creationt Þ of
contract (hybrid governance). However, we have identified
the new intra-organizational coordination.
that coordinating with firms with poor intra-organizational
Let us consider the following case to illustrate how “expe-
coordination will cause ineffective and inefficient supply
rience” is affecting organizational coordination firms, which
chain. Therefore, another important type of organizational
may not realize coordinating with another firm having bad
coordination, which was not discuss by the TCA, should be
intra-organizational coordination in a single transaction.
define to synthesize more effective and efficient supply chain.
They may realize that through time (experience). In this
aspect, firms prefer to coordinate with another firm having
5.2.2. The new discovered organizational coordination:
good intra-organizational coordination. Otherwise, if there is
Tesfay (hyper-hybrid) coordination
supplier risk, firms attack their own opportunistic behaviour
The causality analysis of the Bullwhip effects leads us to
and they recognize the benefits of their business partner have
introduce a new type of organizational coordination known as
positive impact to make efficient coordination and they
the hyper-hybrid (Tesfay coordination) governance. This
become willing to assist their business partner to modify its
governance has the following four characteristics. (1) It is
intra-organizational coordination.
relational contract. (2) It recognizes the benefit of one firm in

Table 5 e Model adequacy statistic of structural equations of seemingly unrelated regression model.
SS Df MS F-cal p-value R R square Adjusted R square Std. error
Factory Regression 810.96 2 405.500 5.55 0.01 0.507 0.257 0.187 8.567
Residual 2348.50 32 73.390
Distributor Regression 430.62 2 215.300 4.25 0.02
Residual 1568.30 31 50.590 0.464 0.215 0.140 7.113
Wholesaler Regression 247.75 2 123.900 9.00 0.00
Residual 431.69 31 13.930 0.604 0.365 0.303 3.732
Retailer Regression 21.16 2 10.580 4.87 0.01
Residual 67.33 31 2.172 0.489 0.239 0.165 1.474
520 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525

Table 6 e Parameter estimating of structural equations of seemingly unrelated regression model.

Parameter Unstandardized Standardized t-cal p-value
coefficient coefficient (beta)
Beta Std. error
Factory Incoming order 0.901 0.230 0.47 3.02 0.005*
Order delivered 0.284 0.230 0.20 1.26 0.216
Constant 19.160 28.410 0.67 0.505
Distributor Incoming order 0.430 0.240 0.28 1.79 0.084
Order delivered 0.590 0.250 0.38 2.40 0.023*
Constant 40.980 14.440 2.84 0.008*
Wholesaler Incoming order 0.060 0.370 0.03 0.18 0.862
Order delivered 0.550 0.132 0.60 4.148 0.000*
Constant 15.990 19.822 0.81 0.426
Retailer Incoming order 0.100 0.286 0.05 0.34 0.736
Order delivered 0.500 0.161 0.49 3.12 0.004*
Constant 17.160 3.233 5.31 0.000*

Note: *Significant at 5% level of significance.

the supply chain will benefit all the business partners in the on the existing model, we have the following four methodol-
supply chain. Coordinating with firms having good intra- ogy classifications (Tesfay, 2015a, b).
organizational coordination is preferable than coordinating
with firms having poor intra-organizational coordination. (3)
In buyer-supplier relationship it is good when supplier risk is
high. (4) The governance extends to recommend, consult, and
help firms to establish appropriate means of intra-organiza-
tional coordination (Tesfay, 2015a, b).

5.3. Implications of examination of Hypothesis 3: the

Kraljic-Tesfay portfolio matrix

Kraljic (1983) purchasing portfolio model is the prevailing

solution for firms to form productive coordination with their
business partners. The portfolio model encompasses all the
advantages of the transaction cost economics, resource
dependence theory, pricing theory of markets and relational
contract theory. The two important dimensions of the
Kraljic (1983) purchasing portfolio model are the purchasing
impact on the firm's profitability and the supplier risk.
However, the Kraljic portfolio model was incomplete in
addressing coordination inefficiency and ineffectiveness due
to the intra-organizational coordination of the supplier.
Therefore, in order to make productive coordination by
considering the intra-organizational coordination of the
supplier and using the hyper-hybrid governance we will
modify the existing Kraljic purchasing portfolio model.
Intra-organizational coordination can be analysed by
many dimensions. However, in this portfolio modelling we
categorized the intra-organizational coordination of the sup-
plier into two dimensions, the good intra-organizational co-
ordination and bad intra-organizational coordination. The
modified model of the Kraljic portfolio matrix by inclusion of
two classes of intra-organizational coordination is given in
Fig. 1 (Tesfay, 2015a, b).

5.3.1. Best coordination with supplier having good intra-

organizational coordination
If all the suppliers have good intra-organizational coordina- Fig. 1 e Kraljic-Tesfay portfolio matrix. (a) Good intra-
tion, the existing Kraljic portfolio model is still the best way of organizational coordination. (b) Bad intra-organizational
making effective and efficient coordination. Therefore, based coordination.
 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525
(1) Routine product. These purchasing techniques are
suitable when neither the supplier risk nor profitability
to the company's bottom line is high. In this method, the
company suspicions about reducing the logistical cost
and establish a sourcing through the supplier are found
the most suitable strategy.
(2) Leverage product. These purchasing techniques are
suitable when there is no supplier risk, nevertheless
profitability to the company's bottom line is high. In this
method, making competitive bidding of among sup-
pliers is the most apposite strategy.
(3) Bottleneck Product. These purchasing techniques are
suitable when supplier risk is high and profitability to
the company's bottom line is low. In this method,
establishing partnership with the supplier is the most
apposite strategy.
(4) Strategic Product. These purchasing techniques are
suitable when both supplier risk and profitability to the
company's bottom line are high. In this method, estab-
lishing partnership with the supplier is the most appo-
site strategy.
5.3.2. Best coordination with supplier having bad intra-
organizational coordination
If some (or all) the suppliers have bad intra-organizational
coordination the existing Kraljic portfolio model is no more
the guideline to make effective and efficient coordination.
Therefore, we modify the existing Kraljic portfolio by model as
follows (Tesfay, 2015a, b).
(1) Bottleneck product. These purchasing techniques are
appropriate when the profitability to the company's
bottom line is low and supplier risk is absent, however
there is heterogeneity of the intra-organizational coor-
dination of the supplier. In this aspect, in order to make
effective and efficient coordination the buyer has to set
criteria about intra-organizational coordination for the
suppliers. This criterion causes to maximize supplier
risk. Therefore, the products categorized as “routine
product” in the Kraljic portfolio model transformed into
“bottleneck products”. Consequently, establishing
partnership with the supplier is the most suitable
strategy.
(2) Strategic product. These purchasing techniques are
appropriate when the profitability to the company's
bottom line is high and supplier risk is absent, however
there is heterogeneity of the intra-organizational coor-
dination of the supplier. In this aspect, in order to make
effective and efficient coordination the buyer has to set
criteria of about intra-organization coordination of the
suppliers. This criterion causes to maximize supplier
risk. Therefore, the products categorized as “leverage
product” in the Kraljic portfolio model transformed into
“strategic product”. Consequently, establishing part-
nership with the supplier is the most appropriate
strategy.
(3) Hyper-bottleneck product. These purchasing tech-
niques are appropriate when supplier risk is high and
profitability to the company's bottom line is low.
521
Furthermore, the intra-organizational coordination of
the suppliers is bad. To differentiate this product type
from the Kraljic portfolio model, bottleneck product has
been given a new name as “hyper-bottleneck product”.
In this aspect, only establishing partnership with the
supplier is not most productive way of coordination.
This coordination is more efficient and effective if the
intra-organizational coordination of the supplier
modified through the assistance of the business part-
ners. Therefore, this coordination is more than a part-
nership, hence the business partners are needed to
support each other to adjust their inter-organizational
coordination for their mutual benefit.
(4) Hyper-strategic product. These purchasing techniques
are appropriate when supplier risk is high and profit-
ability to the company's bottom line is high. Further-
more, the intra-organizational coordination of the
suppliers is bad. To differentiate this product type from
the Kraljic portfolio model, strategic product has been
given a new name as “hyper-strategic product”. In this
aspect, only establishing partnership with the supplier
is not the most productive way of coordination. This
coordination is more efficient and effective if the intra-
organizational coordination of the supplier modified
through the assistance of the business partners.
Therefore, this coordination is more than a partnership,
hence the business partners are needed to support each
other to adjust their inter-organizational coordination
for their mutual benefit.
5.4. Applications of Tesfay coordination in the airline
industry
The airline industry is responsible for a transportation service
of passenger and cargo, which operate every country in the
world. The industry has played essential roles in the estab-
lishment of today's global economy (Belobaba et al., 2009). The
airline industry is regarded as complex and dynamic industry.
The airline industry characterized by a capital-intensive,
labour-intensive, and high cost industry. Furthermore,
competition (price-war) is a typical feature of the airline
industry. Therefore, it is evident that the airline industry is
marginally profitable (Borenstein, 1992; Chua et al., 2005;
Doganis, 2010).
The major revenue of the airline industry comes from the
transportation of passengers, and the minor revenue comes
from the transportation of cargo and the postal services.
Recently, the expansion of information technology had given
power to the customer so that price-war among the airlines
makes the industry into less profitable. Therefore, instead of
competition (like the price-war) the airlines acknowledge that
coordination and collaboration will support their profitability.
Due to this, many aviation associations and strategic airline
alliances (like Star Alliance, Sky Team, and Oneworld) estab-
lished to maximize the profit of the airlines (Babikian et al.,
2002; Belobaba et al., 2009; Fedorco and Hospodka, 2013;
Keynes, 2009).
Several other scholars described the deep characteristics of
the airline industry. Cu and Li (2017) tried to measure airline
dynamic efficiency by applying “dynamic epsilon-based
522 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525
measure (DEBM) model”. The paper showed efficiency change
in the industry is highly associated with factors of financial
crisis. Thus, the paper confirmed that the airline industry is
sensitive to financial sectors.
The finding of the Tesfay (hyper-hybrid) coordination helps
the airlines to make a successful coordination. First, the
finding informs airlines to acknowledge that coordinating
(even collaboration) with the airline that characterized by
poor intra-organization coordination costs the other airlines
having good intra-organization coordination. Therefore, air-
lines should give much emphasis with the intra-organization
coordination or their collaborative airlines before agreeing.
Second, if the intra-organization coordination, collaborative
airline is poor, and coordination with that airline is important
(for example to operate in wider geographical regions, ca-
pacity limitation, etc.), then the airlines having good intra-
organization coordination should share their best practises
and modify the intra-organization coordination of the poorly
performing collaborative airline.
In general, the following are the contributions of the hyper-
hybrid coordination in the airline industry. (1) It avoids risky
price-war competition and leads beneficiary competition
among airlines. (2) It helps to easily identify mitigate business
risk and control financial flow. (3) It helps operational cost
reduction and easily maximize yield. (4) It helps to share
business information for air transport supply chain. (5) It
maximizes capacity (ASK) by improving operational distance.
(6) It maximizes operational network. (7) It helps appropriate
dissemination of technological changes among airlines. (8) It
helps the airlines to align operational capacity decision on the
demand of passengers and cargo. (9) By avoiding unnecessary
competition among airlines, it helps to generate feasible cost
engineering tool for the airline operation system.
6. Conclusions and recommendation
6.1. Conclusions
This article proposes to test three hypotheses of modern SCM
challenges. The first hypothesis premeditated to ascertain
possible potential variables/factors, which cause the Bullwhip
effects. To test this hypothesis, we fitted the pooled panel data
regression model, spatial effects panel data regression model
and structural equations seemingly unrelated regression
(SUR) model on experimentally generated data from the Beer
distribution game. The fit of all the proposed models suggests
that inter-organizational coordination is found the major
cause of Bullwhip effects. This result proved the hypothesises
of Bhattacharya and Bandyopadhyay (2011), Dejonckheere
et al. (2003), Lee et al. (2000), Lee et al. (1997) and Forrester
(1961).
More rigorously, to select the best fitted model of the causal
analysis of Bullwhip effects, we applied several tests of
structural changes and heteroscedasticity. The overall test
result suggests that the fit of structural equations of SUR
model is the best to analyse the causes of Bullwhip effects.
The fit of the SUR model predicts that Bullwhip effect happen
for the reason of the lack of proper intra- and inter-
organizational coordination of each business collaborates in
the supply chain (Tesfay, 2015a, b).
The outcome of the causality analysis on Bullwhip effects
using the SUR model will have several implications on the
existing theory of organizational coordination. Accordingly,
we have set second hypothesis to analyse drawbacks of
transaction cost analysis (TCA). The TCA presents how firms
make productive organizational coordination. The model an-
ticipates that business transistors are “bounded rationally”
and “opportunistic”. On the other hand, the TCA pays no
attention to the dynamic characteristic of these two behav-
ioural factors. Transactors may be opportunist or bounded
rationally, conversely, there is additional factor that directly
interact with these two important factors, i.e., “experience”.
Experience is dynamic and vigorous factor, which could make
firms to modify (increase/decrease) their opportunistic or
rational bounded behaviour. Such behavioural dynamics
occur due to the fact that firms learn about their benefit (value
creation) from their previous organizational coordination.
Through “experience”, firms prefer to coordinate with firms
having good intra-organizational coordination. Otherwise, for
example, if there is supplier risk, firms attacking their own
opportunistic behaviour and they distinguishing the re-
munerations of their business partner have positive influence
to make efficient coordination and they could develop keen to
assist their business partner to transform its intra-organiza-
tional coordination. In this case, another type of coordination,
the Tesfay coordination can make more productive coordi-
nation by making proper inter-organizational and then
extended to modify the intra-organizational coordination of
the business partners in the chain.
Once we have shown the wickedness of the TCA and
introduced the hyper-hybrid organizational governance, we
inspired to modify the Kraljic (1983) purchasing portfolio
model in our third hypothesis. The Kraljic purchasing
portfolio model encompasses all the pluses of the TCA,
resource dependence theory, pricing theory of markets, and
relational contract theory. The two important dimensions of
the model are profitability and supplier risk. Nevertheless, in
the buyer-supplier relationship the Kraljic matrix was
incomplete in addressing coordination inefficiency and
ineffectiveness due to the intra-organizational coordination
of the supplier. Therefore, in order to make an efficient and
effective buyer-supplier relationship by considering the
intra-organizational coordination of the supplier and using
the hyper-hybrid governance, we have modified the existing
Kraljic purchasing portfolio model by the Kraljic-Tesfay
purchasing portfolio model.
6.2. Recommendations
The finding of this analysis confirmed that intra-organization
coordination of the business partner in the chain is one of
potential foundations of Bullwhip effects. This result showed
that making coordination with business partners having poor
intra-organizational coordination can cost the other firms
having good intra-organizational coordination. Therefore,
firms have to use the intra-organizational coordination as
inter-organizational coordination criteria with their business
partners.
 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525 523

Innovation of Tesfay coordination will be a huge potential
of the airline cost engineering analysis, network optimization
process, improving capacity efficiency, operational decision,
technology flow and new product development process. So,
the Tesfay coordination will be revolutionary methodology for
the airline supply chain management and engineering
researchers.
The Tesfay coordination can play a number of roles to
reduce superfluous competition and develop better opera-
tional performance in the airline industry. In the buyer-sup-
plier relationship, if the supplier risk is higher and the intra-
organizational coordination of the supplier is poor, the po-
tential solution that makes the coordination to become more
efficient and effective is the hyper-hybrid governance. The
practise of the hyper-hybrid governance can improve the
supply chain of many agricultural products (from the devel-
oping world to the developed world). Such governance has an
important role in attacking the factors that resist the flow of
goods in global supply chain. Furthermore, the practise of the
hyper-hybrid governance encourages nations to collaborate
and formation of regional trade agreements.
The model fit of structural equations of the SUR model was
selected as the best model to analyse the Bullwhip effects. As
we have seen in the model fit, the coefficient of determination
of the regression models is still low, which implies there are
several variables/factors that omitted to explain the vari-
ability of our endogenous variable. Thus, the outcome of this
analysis encourages professionals to work on theories coor-
dination in modern challenges of SCM.
Conflict of interest
The author does not have any conflict of interest with other
entities or researchers.
Appendix. Experimental data from the beer
distribution game.

Week Observation
Factory Distributor Wholesaler Retailer
X X1 X2 Y X X1 X2 Y X X1 X2 Y X X1 X2 Y
1 20 4 4 20 20 4 4 20 20 4 4 20 20 4 4 20
2 20 4 4 20 20 4 8 24 20 4 4 20 20 8 4 16
3 20 5 4 19 24 4 4 24 20 6 4 18 16 9 4 11
4 19 8 4 15 24 9 4 19 18 4 4 18 11 8 4 7
5 15 10 4 9 19 12 5 12 18 6 4 16 7 8 6 5
6 9 8 5 6 12 17 4 1 16 4 12 24 5 8 4 1
7 6 6 8 8 1 8 10 1 24 4 9 29 1 8 6 1
8 8 20 4 8 1 8 8 1 29 8 17 38 1 7 4 4
9 8 18 8 18 1 1 6 6 38 10 8 36 4 8 4 8
10 18 18 10 26 6 1 20 25 36 10 8 34 8 8 8 8
11 26 15 16 25 25 2 18 41 34 8 1 27 8 8 10 6
12 25 5 20 10 41 1 18 58 27 8 1 20 6 8 10 4
13 10 2 21 9 58 2 15 71 20 8 2 14 4 8 8 4
14 9 7 7 9 71 4 5 72 14 4 1 11 4 8 8 4
15 9 7 30 32 72 9 2 65 11 7 2 6 4 9 8 5
16 32 0 25 57 65 9 7 63 6 6 4 4 5 8 4 9
17 57 0 8 65 63 14 7 56 4 4 9 9 9 8 4 13
18 65 0 10 75 56 13 0 43 9 8 9 10 13 7 6 14
19 75 1 1 75 43 2 0 41 10 8 14 16 14 8 4 18
20 75 3 1 73 41 3 0 38 16 8 13 21 18 8 8 18
21 73 10 0 63 38 8 7 37 21 8 2 15 18 7 8 17
22 63 8 0 55 37 3 3 37 15 8 3 10 17 8 8 17
23 55 7 0 48 37 1 10 46 10 10 8 8 17 8 8 17
24 48 10 0 38 46 12 8 42 8 8 3 3 17 8 8 17
25 37 15 0 22 42 1 7 48 3 8 1 4 17 9 10 16
26 23 20 10 13 48 12 10 46 4 9 12 1 16 8 8 16
27 13 5 0 8 46 10 15 51 1 8 7 2 16 8 8 16
28 8 5 0 3 51 11 20 60 2 8 12 2 16 8 9 15
29 5 0 0 5 60 10 5 55 2 8 10 4 15 9 8 16
30 5 0 10 15 55 8 5 52 4 9 11 6 16 8 8 16
31 15 2 4 17 52 1 0 51 6 10 10 6 16 8 8 16
32 17 0 2 19 51 2 0 49 6 10 1 3 16 7 9 14
33 19 7 0 12 49 4 2 47 3 8 8 3 14 8 10 12
34 12 0 0 12 47 6 0 41 3 8 9 2 12 8 10 10
35 12 1 0 11 41 12 1 30 2 6 4 4 10 8 8 10
36 11 0 0 11 30 3 0 27 4 8 6 6 10 7 8 9

Source: Tesfay (2014).

524 J. Traffic Transp. Eng. (Engl. Ed.) 2019; 6 (5): 514e525

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