Decision Support Systems 114 (2018) 37–48

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Decision Support Systems

journal homepage: www.elsevier.com/locate/dss

A data-analytics approach to identifying hidden critical suppliers in supply T

networks: Development of nexus supplier index
⁎
Benjamin B.M. Shaoa, Zhan (Michael) Shia, , Thomas Y. Choia, Sangho Chaeb
a
W. P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA
b
Tilburg School of Economics and Management, Tilburg University, 5000, LE, Tilburg, the Netherlands

A R T I C LE I N FO A B S T R A C T

Keywords: Recent events involving supplier-caused business disruptions bring to the forefront the issue of managing hidden
Nexus supplier index yet critical suppliers that may exist deep in the supply network. While managing prominent strategic suppliers in
Data analytics the top tier is well understood, we have only just begun to recognize a different type of critical suppliers called
Hidden suppliers nexus suppliers. Nexus suppliers are critical because of their structural positions in the supply network. They can
Centrality measures
be several tiers removed in the extended supply network and hence may not have direct contact with, and not be
Social network analysis
Data envelopment analysis
visible to, the focal buying firm. In this study, we explore the identification and categorization of nexus suppliers.
Based on the theory of nexus supplier and data envelopment analysis (DEA), we propose a data-analytics ap-
proach to compute what we call Nexus Supplier Index (NSI). It is a measure that combines various network
centrality measures to capture and reflect different aspects of a supplier's structural importance. The contribu-
tion of our study is to take the concept of nexus suppliers that exists only in theory to practice and demonstrate
how to look for nexus suppliers in the real world. To achieve this aim, we develop a mathematical model for NSI,
compile a large data set using Bloomberg Terminal, and engage in computations to identify and categorize nexus
suppliers. The target company is Honda, and we review the results with the top supply management team at
Honda of America. Implications for practice and future research are discussed.

1. Introduction
Recent events that involved supplier-caused business disruptions
bring to the forefront the issue of managing critical suppliers that are
embedded deep in the supply network. When an explosion occurred at a
plant of Evonik Industries, a little-known raw materials supplier, it
brought the global automotive supply chain to a halt [14]. While the
theory and practice of managing prominent strategic suppliers are well
understood [46,50,65], managers and researchers have only just begun
to recognize the potential criticality of these less-known suppliers. Yan
et al. [71] propose the theory of nexus suppliers to emphasize the im-
portance of such hidden critical suppliers, where nexus supplier is de-
fined as “any supplier in a multi-tiered supply network that potentially
exerts a profound impact on a buyer's performance due to its network
position.”
Traditional strategic suppliers refer to the suppliers in a firm's
supply base whose actions and outcomes have significant and direct
impact on the focal firm's risk management [51]. A strategic supplier
provides the focal firm with essential input materials and critical pro-
ducts or technologies [13,67]. In this regard, strategic suppliers tend to
be top-tier suppliers with high impact on the buying firm's profitability,
and the performance of the focal firm depends largely on these sup-
pliers' capabilities and resources. As a result, the focal firm aims to
cultivate a collaborative partnership with strategic suppliers [10,18].
By contrast, a nexus supplier refers to a supplier that is critical to the
focal firm's operations because of its structural position in the firm's
supply network, such as how its business relationships are linked with
other firms in the focal firm's extended supply network. Recent theo-
retical studies such as Ang et al. [1] have shown the topology of top-tier
supply relationships can significantly influence the performance and
strategy of downstream buying firms. A nexus supplier may be several
tiers removed in the supply network, and hence may not be im-
mediately visible to the focal buying firm [71]. Incidents such as the
explosion at Evonik Industries reflect the importance of understanding
how a supplier's structural embeddedness in the extended supply net-
work (i.e., the extent to which a supplier's criticality depends on the
position and structure of its supply network) may influence the per-
formance of downstream firms (i.e. General Motors, Ford, etc.). This
need for understanding prompts firms to find the nexus suppliers that
could potentially affect its performance. Companies with a better

⁎
Corresponding author.
E-mail address: ZMShi@asu.edu (Z.M. Shi).

https://doi.org/10.1016/j.dss.2018.08.008
Received 3 April 2018; Received in revised form 15 July 2018; Accepted 17 August 2018
Available online 18 August 2018
0167-9236/ © 2018 Elsevier B.V. All rights reserved.
B.B.M. Shao et al.
understanding of suppliers' network positions are likely to outperform
those that do not consider them [22].
Presently, the concept of nexus supplier exists only in theory. Yet to
be answered is the question of how to identify them in practice. Only
then can a buying firm proactively manage its nexus suppliers to mi-
tigate the associated risks (e.g., materials flow disruption) or take ad-
vantage of potential market benefits (e.g., innovation opportunities).
The difficulty of identifying nexus suppliers is further compounded by
the fact that many buying firms do not have a global view of their
extended supply networks and thus they do not know a priori which
suppliers can be the candidates for nexus suppliers. For example,
Toyota did not know, let alone manage, much of its lower-tier supply
chain until the 2011 Tohoku earthquake disrupted its suppliers' sup-
pliers [1]. In response, we map out a multi-tier supply network based on
the data collected from Bloomberg Terminal and develop a data-ana-
lytics framework to capture a supplier's network structural importance
for identifying nexus suppliers [74].
We propose a mathematical model called Nexus Supplier Index
(NSI). Our NSI model is based on data envelopment analysis (DEA) and
incorporates various network centrality measures (i.e., degree, be-
tweenness, eigenvector, and closeness), each of which reflects a certain
aspect of a supplier's importance in the focal buying firm's supply net-
work. NSI provides a single unified metric that combines multiple
centrality measures to evaluate a supplier's potential for being a nexus
supplier. We take this position because no single centrality measure is
comprehensive enough to reflect the overall criticality of a supplier.
The proposed NSI is designed to reflect the overall structural im-
portance of a supplier and help a buying firm make informed decisions
by qualifying certain suppliers as nexus suppliers for better risk as-
sessment, evaluation, and portfolio development of suppliers.
To apply and evaluate the proposed NSI model, we empirically
examine a real-world supply network that is constructed for Honda
Motor Company. Going beyond top-tier suppliers, we identify lower-tier
suppliers for Honda beyond its supply base to the fourth-tier to map out
a supply network. We develop a data-analytics system to facilitate the
tasks of data storage, visualization, and NSI computation. Using the
system, we compute the NSI scores for all the suppliers in Honda's
supply network to identify the nexus supplier candidates and then ca-
tegorize them into specific types. Through this empirical instantiation,
we demonstrate the feasibility of putting the nexus supplier concept
into action by leveraging data-analytics methods and exploiting a large
volume of business relationship data. We present and discuss the results
with the top supply management team at Honda of America for result
validation.
2. Literature review
2.1. Rating of strategic suppliers
Strategic suppliers [30,36] and strategic alliances [58] have been
explored by researchers in operations management and strategic man-
agement. Strategic suppliers offer essential products, capabilities and
technologies [6,32,59,60] while strategic alliances are formed to pro-
mote interfirm communication and cultural fit ([4,15,28,42,69,73].
Systematic approaches have been proposed to evaluate the perfor-
mance of these strategic suppliers. Liu and Hai [54] present a voting
analytic hierarchy process (VAHP) method for ranking and selecting
suppliers. They extend Yahya and Kingsman's [70] analytic hierarchy
process (AHP) method for rating suppliers by integrating DEA and
managers' supplier evaluations based on multiple criteria. Mafakheri
et al. [56] also apply AHP to propose a multiple-criteria dynamic pro-
gramming (MCDP) method for supplier evaluation and order allocation.
Considering production capacity interdependence among suppliers, Li
et al. [53] develop analytical models to optimize buying firms' sourcing
and pricing decisions when there are multiple suppliers with different
wholesale prices and reliability levels. Hu and Kostamis [43] and Yim
38
Decision Support Systems 114 (2018) 37–48
[72] also examine the buying firm's multiple-sourcing strategies to
propose an analytical model that optimizes order quantities for multiple
suppliers.
While these studies provide practical and systematic approaches to
rating suppliers, their focus is on internal capabilities of top-tier sup-
pliers and ranking these top-tier suppliers. In the cases of further up-
stream suppliers (i.e. tiers 2 and 3 suppliers), often their internal cap-
abilities are unknown to the buying firm, making it difficult to apply the
above approaches. For instance, how could a final assembler who is at
the downstream end of the supply network begin to consider the po-
tential impact of these unknown suppliers on its performance? To
evaluate the unknown suppliers beyond top-tier, we have chosen to
take a network perspective to understand structural characteristics of
the firms in supply networks.
2.2. A network perspective
Recently, researchers have moved beyond two-tier supply chains
[40] to evaluate a supplier's importance by considering its position in
the larger supply network context [3,5,7,11,20,48,61]. At the core of
the argument is a firm's structural relationship with other firms in the
supply network and its impact on performance. While a supplier's in-
ternal capabilities, its competitiveness, and direct ties with other firms
are crucial factors to consider [31,38,41,52], salient network attributes
such as centrality, network density, repeated ties, and common ties also
need to be taken into account when evaluating suppliers [39].
Emphasizing the concept of structural embeddedness, Choi and Kim
[22] suggest buying firms consider network structural characteristics
when evaluating suppliers. Structural embeddedness of a supplier refers
to the extent to which a supplier's criticality depends on the position
and structure of its supply network. They argue that suppliers' perfor-
mance is influenced by other companies in the supply networks, so
suppliers' structural embeddedness can be as important as their internal
capabilities. Borgatti and Li [13] call for more development of network
perspectives and point out how social network concepts such as ego-
network structure, structural holes, node centrality, network cohesion,
and structural equivalence can potentially be applied to supply chain
management. Kim et al. [48] apply the key metrics of social network
analysis to supply network constructs. They illuminate the importance
of understanding individual supply network members in terms of
structural position in the network and suggest buying firms consider the
potential roles of suppliers based on their network centrality measures
such as degree, closeness, betweenness and eigenvector.
Degree centrality in the social graph is defined as the number of
links that a node has [35]. In the supply network context, degree cen-
trality reflects a firm's influence over its supply chain partners [13].
Closeness centrality describes the extent to which a node is geodesically
close to all the other nodes in the social network [57], and it indicates
reliable access to information from the supply network [48]. A node
with high betweenness centrality plays the role of intermediary in the
social network [35], and can facilitate or control the flows of materials
and information in supply networks [48]. Finally, eigenvector cen-
trality is a measure of the network status in which a node has many
links with other central nodes [12]. A supplier with high eigenvector
centrality provides indirect linkages to critical players in supply net-
works [71]. Recent studies by Bellamy et al. [9] and Dong et al. [29]
apply some of these centrality measures to study their association with
the focal firm's performance. However, a systematic approach to in-
tegrate different network centrality measures to evaluate direct and
indirect suppliers is yet to be developed.
2.3. Nexus suppliers and data analytics
Reflecting the structural perspective of supply network research,
Yan et al. [71] conceptualize critical suppliers based on their positions
in the supply networks. The nexus suppliers can potentially exert
B.B.M. Shao et al.
influence on a buying firm's performance because they take central
positions in the buying firm's supply network and can take up a gate-
keeping position for materials flow, cost, quality management, and
information access. Nexus suppliers can be categorized into three types:
operational, monopolistic and informational nexus suppliers [71]. Each
type plays a different role with varying degree of criticality, inter-
dependence, and asymmetry, all of which carry different managerial
implications for the focal buying firm. An operational nexus supplier has
a large number of ties; it organizes and incorporates parts from multiple
suppliers for the focal buying company. A monopolistic nexus supplier
exists in the extended industrial network and has a greater chance of
sitting on the shortest paths between pairs of other nodes; it would thus
likely affect supply continuity and assurance. Finally, an informational
nexus supplier is connected to a highly diverse group of firms in the
supply network; it may serve as the source of early market information
or technological innovations for the focal firm. Because of their dif-
ferent nature, each type of nexus suppliers is expected to exert different
influence on the buying firm's performance. While Yan et al. [71] in-
troduce the concept of nexus supplier, their study is largely theoretical.
We are in need of a model that can empirically evaluate and identify
nexus suppliers.
Researchers have recently begun to apply data analytics to opera-
tions management issues, such as inventory management, quality
management, process design, pricing, and new product development
[64]. Ferreira et al. [34] apply data analytics to develop demand
forecasting and price optimization models. Basole et al. [8] demon-
strate data-driven approach to visualize innovation-focused supply
networks. Huang and Van Mieghem [45] propose a framework to
convert clickstream data from non-transactional websites into advance
demand information that can be used for inventory management. The
framework complements traditional approaches of inventory manage-
ment by analyzing the webpage clicking behavior of customers as an
additional variable for demand forecasting. Abrahams et al. [2] present
a text analytic framework for discovering product defects. Chan et al.
[16] introduce a mixed-method approach for utilizing social media data
in new product development projects.
Our goal then is to adopt a data analytics approach to assess the
criticality of nexus suppliers through a composite of several centrality
measures to arrive at index scores, which we call nexus supplier index
(NSI). In the following sections, we first propose the NSI framework and
then demonstrate its feasibility by examining the real-world supply
network of the automaker Honda. Our intent is to help supply managers
interpret the results of our data analysis, consider limitations in the
model and data currently available, and generate insights that can help
manage nexus suppliers.
3. Nexus supplier index (NSI)
We develop a mathematical model composed of well-defined net-
work constructs to compute the Nexus Supplier Index (NSI). The pur-
pose of NSI is to provide a single unified metric that combines multiple
centrality measures (e.g., degree, betweenness, eigenvector, etc.) to
evaluate the overall criticality of suppliers in the focal firm's supply
network, as no single centrality measure is comprehensive enough to
capture the aggregate importance of a supplier. While it is possible to
apply each centrality measure separately to the task at hand, such an
approach would be ad hoc and time consuming. In addition, the in-
terpretation of those results would be convoluted by the peculiar
properties associated with each measure. Our approach, instead, is to
develop a composite NSI measure that reflects the overall importance of
a supplier to help the focal firm make an informed decision on whether
a supplier in its supply network could be qualified as a nexus supplier.
Our NSI framework is built based on data envelopment analysis
(DEA). Originally intended to construct a production frontier, DEA is a
non-parametric, linear programming method for calculating efficiency.
DEA has since been used for developing other advanced performance
39
Decision Support Systems 114 (2018) 37–48
metrics, such as Malmquist index that compares production output
across different economies, industries and firms [24,33]. Further, DEA
has then been extended to resource-allocation rules [49], quality
management [19], multi-criteria ranking [37] and strategic sourcing
decisions [66].
DEA has been used as a benchmarking tool to generate a score that
indicates the relative distance of an entity to the best practices so as to
measure its overall performance compared with its peers [26]. More
importantly and related to our study, such overall performance mea-
sured by DEA is manifested in the form of a composite measure that
aggregates individual indicators [26]. Following the same logic, we
employ DEA as the method for developing our NSI score by aggregating
individual centrality measures to identify nexus suppliers in a supply
network.
Our DEA-based model for computing the nexus supplier index (NSI)
of supplier node p in a supply network is formulated as follows:
αDp + βBp + γVp
Maximize NSIp =
σFp (1)
αDi + βBi + γVi
subject to ≤ 1 (i = 1,…, N )
σFi (2)
α, β, γ , σ ≥ 0 (3)
where D is degree centrality, B is betweenness centrality, V is eigen-
vector centrality, and F is distance farness measure. The definitions of
these centrality measures are given in the network analysis literature
(e.g., [68]): Dp =
∑ Xpj
where Xpj = 1 if there is a link between node p
(N − 1)
2 ∑ d (i, p)
and node j, or 0 otherwise; Bp = where d(i, p) is the number of
d (d − 1)
paths node p is on, and d is the number of geodesics connecting p;
V = δ(I-ωR)RT where δ is the scaling vector for score normalization, I is
the identity matrix, ω reflects the extent one weighs the centrality of
other nodes p is tied to, R is the adjacency matrix, and T is the a matrix
2 ∑ d (i, p)
of 1's; and F = is the reciprocal of closeness. Note α, β, γ, and σ
N (N − 1)
in Eq. (1) are weights to be decided for degree, betweenness, eigen-
vector, and farness, respectively. In essence, they are decision variables
and the only restriction is their positivity of Constraint (3). In our NSI
context, these weights provide information on how a supplier firm's
structural embeddedness can be changed to make it more critical (e.g.,
through the focal firm's direct sourcing from a lower-tier supplier).
We choose these centrality measures because they capture different
aspects of node importance at the node level (degree), neighborhood
level (eigenvector), and network level (betweenness and farness).
Degree refers to the number of links a node has. A node with more links
and higher degree is deemed more important. However, relying on
degree alone can be misleading as it is a local measure, where one
simply counts the links attached to a specific node. Eigenvector measures
the prestige of a node based on the importance of the other nodes it is
connected to. Nodes that are connected to other important nodes should
have higher prestige and influence. Betweenness is measured based on
the entire network under consideration. It counts the number of
shortest paths a certain node resides on between any other two nodes,
and is developed based on the idea that a node lying on the shortest
paths controls communication flows. A node with high degree, be-
tweenness and eigenvector is thus considered more critical, so these
centrality measures ought to be maximized and hence placed in the
numerator of Eq. (1).
We also have distance farness in the denominator of Eq. (1), which
measures the average distance of a node to every other node and can be
viewed the reciprocal of the closeness centrality. A node is considered
less important if it is relatively farther from all other nodes. The smaller
the value of farness a node has, the more important it is deemed to be.
The goal is to minimize the distance farness measure, placing it in the
denominator of Eq. (1). Constraint (2) ensures the NSI score for supplier
node p be < 1, where a higher NSI score indicates greater importance of
a supplier node and hence its higher propensity to be a nexus supplier.
B.B.M. Shao et al.
Our NSI model thus includes the four essential centrality measures most
frequently used in social network analysis [47] and combines them into
one composite index that reflects the various aspects of node im-
portance (i.e., supplier criticality). In theory, NSI reflects a supplier's
structural embeddedness in a supplier network using an integrative and
comprehensive approach that considers four essential dimensions of
node criticality.
Huang et al. [44] identify the node role in a network using multiple
indicators. Similarly, we use multiple centrality measures to evaluate
the importance of a supplier node and indicate its criticality in a supply
network. However, instead of using normalized simple averages of the
multiple indicators (i.e., α = β = γ = σ = 1) as in Huang et al. [44], we
find appropriate weights α, β, γ and σ for their respective centrality
measures to derive the NSI score. In doing so, we address the open
problem of automatic optimization of weights previous researchers
have put forth [44]. As noted by Sherman and Zhu [63], DEA gives each
unit the benefit by making itself look as good as possible when com-
pared with other units through its own weight selection. Our DEA-based
NSI approach differs from a simple ratio measure by treating weights as
independent variables that are objectively decided when optimizing the
NSI score. This weight solution represents a departure from previous
studies, which either use normalized weights to assume equal im-
portance of the components or ask the decision maker to assign sub-
jective weights to reflect the perceived importance of each component.
One potential problem with the model (1)–(3) is that it has an in-
finite number of solutions: if (α*, β*, γ* and σ*) is a solution, then (cα*,
cβ*, cγ* and cσ*) is another solution for any constant c. To address this
problem, the constraint σFp = 1 can be added. Moreover, the Eqs.
(1)–(3) assumes constant returns to scale (CRS) [17]. Thus, to allow for
the more flexible case of variable returns to scale (VRS) [75], we in-
corporate a scale factor μ [25,63]. Thus, our complete NSI model is as
follows:
Maximize NSIp = αDp + βBp + γVp + μ
subject to αDi + βBi + γVi − σFi + μ ≤ 0 (i = 1,…, N )
σFp = 1
α, β, γ , σ ≥ 0
μ unrestricted
Using the duality in linear programming, we derive an equivalent
envelopment form of the primal model (4)–(8) that involves fewer
constraints and hence is preferred [25]:
Minimize θp − ε (sF− + sD+ + sB+ + sV+)
N
subject to∑ λi Fi + sF− = θp Fp
i=1
N 4.1. Data: Honda motor company's supply network
∑ λi Di − sD+ = Dp
i=1
N been featured extensively in a stream of studies (e.g., [21,23,48]) that
∑ λi Bi − sB+ = Bp
i=1
Table 1
Characteristics of the three types of nexus suppliers.
Source: Adapted from Yan et al. [71].
Operational nexus supplier
Structural characteristics High degree, betweenness and eigenvector
centrality
Criticality Significant impacts on the operational
performance of the end product
Decision Support Systems 114 (2018) 37–48
N
∑ λi Vi − sV+ = Vp
i=1 (13)
λi ≥ 0 (i = 1,…, N ) (14)
N
∑ λi = 1
i=1 (15)
sF−, sD+, sB+, sV+ ≥0 (16)
In the model (9)–(16), θp is the NSI score to be optimized. Parameter
ε represents an infinitely small number that has no impact on the op-
timal NSI score θp; sF− represents the slack for the farness measure; and
sD+, sB+, and sV+ indicate the slack for degree, betweenness, and ei-
genvector centrality measures, respectively. Our NSI model consists of
the following notable characteristics. First, it provides a comprehensive
way to evaluate the criticality of a supplier node in the focal firm's
supply network and hence its likelihood of being a nexus supplier.
Second, through the aggregate NSI score that combines degree, be-
tweenness, eigenvector, and distance farness measures, our objective
function incorporates the practical meanings of each measure and re-
flects them in the functional form (i.e., by maximizing degree, be-
tweenness, and eigenvector, while minimizing distance farness). Third,
the NSI model produces a score θp between 0 and 1, a range that is
similar to a ratio measure, and the NSI score follows our intuitive un-
derstanding of how NSI scores should behave: a greater score would
mean higher criticality, and numerically it would stay between 0 and 1.
In sum, our DEA-based NSI model represents a composite measure of
supplier node importance that allows managers to better assess each
supplier's criticality against other nodes in the supplier network [26].
Once a supplier is found to possess a high NSI score, it becomes a
candidate for nexus supplier. We can then examine its individual cen-
trality measures to determine its type as operational, monopolistic,
(4) and/or informational [71]. We carry out this task by using the cate-
gorization model depicted in Table 1 to help associate a nexus supplier
(5)
with its type. This categorization scheme serves as a useful mechanism
(6) for classifying the nexus suppliers identified by the NSI model (9)–(16).
We consider degree, betweenness, eigenvector, and diversity measures,
(7) as specified in Table 1. Of particular interest is the concept of diversity,
as it captures a supplier's exposure to varied ideas and propensity of
(8) being an informational nexus supplier. Diversity is measured by
counting the number of unique industries a node's suppliers belong to,
and it reflects the extent to which a supplier is connected to a range of
different organizations across different industries. A supplier with high
diversity can be critical, as it is exposed to heterogeneous experiences
(9) and contextually varied information about market opportunities and
technology innovations [55].
(10) 4. Data and analytics system
(11)
We use Honda's supply network primarily because the company has
we have chosen to build on. In general, industry analysts consider
(12) Honda's supply chain management in high regard, which increases the
Monopolistic nexus supplier Informational nexus supplier
High betweenness centrality High diversity
Significant impacts on supply continuity due to Sources of early market and technological
low substitutability information
40
B.B.M. Shao et al. Decision Support Systems 114 (2018) 37–48

practical value of this study's outcome. Their supply chain would also
tend to be relatively stable, and that helps justify taking a cross-sec-
tional view of its supply network based on publicly-available data.
Mapping out the multi-tier supply network for a global industrial
company is a challenging task. The main difficulty has been the lack of
a reliable and comprehensive dataset that covers the flow of sales from
suppliers to customers. In practice, such information is revealed in
many different sources yet each source tends to be incomplete. For
example, in the United States, public firms disclose their customer in-
formation in the filings to the Securities and Exchange Commission
(SEC), but the disclosure is mandatory only if 10% or more of their
revenue is derived from sales to a particular customer (a public firm can
also voluntarily report other customers to which the sales are below the
10% threshold if the firm determines that such disclosure is in its own
best interest). In addition to public filings, supplier-customer informa-
tion is also scattered in other sources such as earnings call transcripts,
industry reports, press releases, firm websites, etc.
Only recently have financial data vendors started to collect supplier-
customer-relationship data systematically from these different places
and integrate them into a coherent database. For this research, we
utilize the Bloomberg Supply Chain (SPLC) database, which is available
on Bloomberg Terminal. Bloomberg SPLC keeps track of about 28,000
companies worldwide. For each of these companies, the database pro-
vides a list of suppliers based on the flow of sales information it has
aggregated from a variety of sources. Though there is no guarantee that
these supplier lists are exhaustive, to the best of our knowledge, SPLC is
comparatively comprehensive in the coverage. The resolution of SPLC
data is at the company level, so the plant-level or component-level
supplier data is unavailable. Also, SPLC provides only cross-sectional,
not longitudinal, data on firms' suppliers.
We compile Honda's supply network data one link at a time from the
SPLC database and our data collection strategy reflects the multi-tier
nature of the supply network. Fig. 1 helps illustrate the data collection
process. With Honda as the focal buying firm (heavy solid oval in
Fig. 1), we first collect all the companies listed in SPLC that have a
direct sales flow to Honda and we call these companies Honda's top-tier
suppliers (illustrated as lighter ovals in Fig. 1 with arrows representing
the direction of sales). We then iterate through the top-tier suppliers:
For each of them (e.g., Bridgestone Corp), we treat it as the focal
company and collect all of its top-tier suppliers that are not currently in
our dataset. These newly added companies are each two tiers removed
from Honda and we thus label them tier 2 suppliers of Honda (dashed
ovals in Fig. 1). Note that a top-tier supplier of Honda can have a direct
sales flow to another top-tier supplier of Honda, as Bridgestone does in
Fig. 1. In this case, we use the length of the shortest path to Honda for
tier labeling. Then, we repeat this iterative process further upstream. By
the end of the data collection period, we have gathered all the supplier
information for companies in the top, second, and third tiers of Honda's
Table 2
Breakdown of companies by country.
Rank Country/region # of Companies
1 U.S. 1595
2 Japan 1226
3 South Korea 876
4 China 822
5 Taiwan 603
6 India 269
7 United Kingdom 259
8 France 190
9 Germany 142
10 Australia 128
supply network; we collect data to the fourth-tier companies but not
their suppliers. It should be noted that Bloomberg does not allow
downloading the SPLC data in bulk nor does it provide an interface for
retrieving the data programmatically. Therefore, we used a research
assistant to manually collect the data and save it in plain text format.
The data collection process took 15 weeks and over 300 person-hours.
Up to tier 4, the final data set includes the network consisting of
10,833 companies and 47,183 supplier-customer relationships (these
supplier-customer relationships represent uni-directional relationships
rather than bi-directional, so if firm A supplies to firm B and firm B also
supplies to firm A, then they are represented as two distinct relation-
ships in our statistics). Of the 10,832 companies excluding Honda, 245
are Honda's top-tier suppliers, 1643 are tier 2 suppliers, 4605 are tier 3
suppliers, and 4339 are tier 4 suppliers. SPLC also provides information
about the country of a company's headquarters and the industry sector
it belongs to using the Global Industry Classification Standard (GICS)
(see https://www.msci.com/gics). The collected supply network spans
83 countries and 66 industry sectors. Tables 2 and 3 list the top 10
countries and top 10 GICS industries represented in the dataset. Not
surprisingly, the suppliers in the United States, Honda's home country
of Japan, and East Asian countries are ranked high in the country list. In
the industry list, the electronic components and semiconductor sectors
are ranked high. This finding is consistent with the observed industry
trend of “drive-by-wire” where many of the mechanical auto parts are
being replaced with high-tech components.
As for the number of top-tier suppliers each company in the network
has (the number of companies from which there is a direct sales flow),
the number ranges from 0 to 433 and is highly skewed to the right. We
further calculate the mean number of top-tier suppliers for companies
in each tier (away from Honda) and the result shows the mean number
displays a decreasing pattern, from 19 for top-tier, to 13 for tier 2, and
to 5 for tier 3. It suggests that as we move from the center of the Honda
supply network to its peripheral, the number of suppliers per company
decreases on average. This result is consistent with our intuition that
companies further upstream in a supply chain in general have fewer
suppliers.

Table 3
Breakdown of companies by GICS.
Rank GICS Code Industry # of Companies

1 452,030 Electronic equipment & components 678

2 453,010 Semiconductors & semiconductor 513
equipment
3 201,060 Machinery 473
4 151,010 Chemicals 437
5 451,030 Software 411
6 151,040 Metals & mining 344
7 251,010 Auto components 338
8 451,020 IT services 314
9 201,040 Electrical equipment 277
10 452,010 Communications equipment 241
Fig. 1. Data collection procedure.

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B.B.M. Shao et al. Decision Support Systems 114 (2018) 37–48

Fig. 2. Architecture of data-analytics system.

4.2. Data-analytics system: Storage, visualization, and computation of

network data

To facilitate the analysis of Honda data and to potentially generalize

to other supply chain datasets, we build an integrated data-analytics
system. It assists in streamlining the tasks of supply network data sto-
rage, visualization, and NSI computation. Utilizing the raw data ex-
ported from sources such as Bloomberg SPLC, the system comprises
three main components (solid boxes) and three ancillary modules (da-
shed boxes), as shown in Fig. 2.
The first ancillary module, implemented in scripting language, pre-
processes the raw data by transforming it to a format that can be loaded
into the storage component of our system. We manage the collected
supply network data in a dedicated graph database, which is an
emerging data storage technology (see https://en.wikipedia.org/wiki/
Graph_database and http://neo4j.org). Unlike traditional database
which represents data in tabular format, a graph database represents
data as nodes, edges, and properties. Graph database is easily scalable
and has demonstrated advantages in the analytics of big, networked
data. Using a graph to represent the supply network is natural, as
companies, their characteristics, supply relationships, and details of the
supply relationships can be represented as nodes, nodes' properties,
directed edges between nodes, and edges' properties, respectively. More
importantly, using the graph database technology renders graph-like
analytical queries much more efficient. It would take a significantly less Fig. 3. Honda's local supply network (partially shown).
amount of time to find out, for instance, who are the tier 3 suppliers to a
particular company, or what is the shortest path between any two
companies in the supply network. suppliers in the second and third tiers of Honda's supply network. We
The supply network database then feeds the data to two components skip the top-tier suppliers because they are all known to Honda and our
in the system that handle the analytics workflow. The first is a user focus is on identifying unknown but critical suppliers. We do not
interface for visualizing and navigating the supply network. Taking the compute NSI scores for the fourth-tier suppliers because we lack data on
Honda dataset, for example, once it is loaded into the graph database, those in tier 5. In Fig. 4, we plot the distribution of NSI scores. We
we can visualize the whole supply network. Using the interface, re- observe a bell-shaped curve with a thin long right tail. The suppliers
searchers can also execute queries or interactively zoom into a parti- located at this tail are those identified to be of great importance and,
cular local segment of the supply network. Fig. 3 is such an example hence, candidates for nexus suppliers. The inflection point on the right
where the focal buying firm Honda and 25 randomly selected top-tier side of the curve occurring pretty close to the long tail is encouraging
suppliers are visualized. The second component that handles the ana- from the management perspective because that means we have only a
lytics is a computing engine implemented in statistical programming handful of potential nexus suppliers to consider.
language R. The component takes supply network data as input, cal- In Table 4, we list the top 50 suppliers, ranked in the descending
culates various network centralities measures, and carries out the op- order of NSI scores. We find major multinational companies in the list,
timization algorithm as specified in the model to compute NSI scores. such as Siemens, SAP, Hewlett-Packard, and General Electric, across
Lastly, based on the scores, it generates a list of candidates for re- diverse industry sectors such as electronics, chemicals, and software
searchers and managers to conduct further analysis. development. We observe an overwhelming majority from the second
tier, suggesting a systematic difference between the scores of the tiers 2
and 3 suppliers. Hence, we investigate the respective distributions of
5. Results and evaluation NSI scores in the second and third tiers. In Fig. 5, the solid and dotted
distributions correspond to the second and third tiers, respectively. We
5.1. Analysis results find the distribution for the second tier is shifted toward the right,
suggesting the tier 2 suppliers on average have a higher NSI score than
Using the data-analytics system, we compute NSI scores for all the tier 3 suppliers. The shape of the two curves appears similar, which

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B.B.M. Shao et al. Decision Support Systems 114 (2018) 37–48

Fig. 4. Distribution of NSI Scores in the 2nd and 3rd Tiers of Honda Supply Network.

suggests lack of underlying systematic bias. In Tables 5 and 6, we list
the top 50 suppliers by NSI score from the second and third tiers.
We classify the top 50 nexus supplier candidates in the second tier
(Table 5) and those in the third tier (Table 6) into three groups: op-
erational, monopolistic, and informational nexus suppliers, according
to their characteristics in network structure. We apply the following
decision criteria per Table 1:
• A supplier is an operational nexus supplier if its degree, betweenness,
and eigenvector centrality values are all in the top 20 percentile
among the top 50 nexus suppliers in its own tier. They are expected
to have significant influence on the operational performance of
Honda's end products.
• A supplier is a monopolistic nexus supplier if its betweenness cen-
trality value is in the top 10 percentile among the top 50 nexus
suppliers in its tier. They are expected to have significant impacts on
Honda's supply continuity.
• A supplier is an informational nexus supplier if the number of unique
industries its suppliers encompass is in the top 10 percentile among
the top 50 nexus suppliers in its own tier. Due to their diverse ties in
the extended supply network, these nexus suppliers are expected to
be Honda's important sources of early market and technological
information.
In choosing the cutoff percentage points (i.e., 20% for operational
nexus supplier, 10% for monopolistic nexus supplier, and 10% for in-
formational nexus supplier), our goal is to identify the top 5 companies
from the 50 nexus suppliers for each category. Supply chain managers
should choose the cutoff points based on their specific business re-
quirement and constraints. Applying our cutoff points to the data, we
identify the operational, monopolistic, and informational nexus sup-
pliers in the second and third tiers of the Honda supply network, as
shown in Tables 7, 8, and 9, respectively. We observe there is a sig-
nificant overlap between top operational, monopolistic, and informa-
tional nexus suppliers. In Tier 2, Siemens, Hewlett-Packard, General
Electric, and Samsung are among the top 5 in all three lists, and in Tier

Table 4
Top 50 suppliers ranked by NSI score in the 2nd and 3rd tiers of Honda supply network.
Rank Name Tier NSI Rank Name Tier NSI

1 Siemens AG 2 1.0000 26 Amazon.com Inc 3 0.8998

2 SAP SE 2 0.9711 27 Silicon Laboratories Inc 2 0.8977
3 Hewlett-Packard Co 2 0.9701 28 Texas Instruments Inc 2 0.8976
4 General Electric Co 2 0.9657 29 Bayerische Motoren Werke AG 3 0.8969
5 Samsung Electronics Co Ltd 2 0.9598 30 Dow Chemical Co/The 2 0.8955
6 Microsoft Corp 2 0.9327 31 ON Semiconductor Corp 2 0.8954
7 LG Electronics Inc 2 0.9319 32 BT Group PLC 2 0.8953
8 Apple Inc 3 0.9267 33 Daimler AG 2 0.8946
9 Ford Motor Co 2 0.9263 34 Ingram Micro Inc 2 0.8938
10 General Motors Co 2 0.9229 35 Cisco Systems Inc 2 0.8934
11 Intel Corp 2 0.9209 36 Nissan Motor Co Ltd 2 0.8922
12 Toyota Motor Corp 2 0.9199 37 Telefonaktiebolaget LM Ericsson 2 0.8915
13 Accenture PLC 2 0.9168 38 Airbus Group NV 3 0.8910
14 Akzo Nobel NV 2 0.9135 39 Caterpillar Inc 2 0.8908
15 Sony Corp 3 0.9132 40 Arrow Electronics Inc 2 0.8907
16 Flextronics International Ltd 2 0.9132 41 Avago Technologies Ltd 2 0.8903
17 Infineon Technologies AG 2 0.9130 42 Vodafone Group PLC 2 0.8902
18 Zebra Technologies Corp 2 0.9119 43 Atmel Corp 2 0.8901
19 Volkswagen AG 2 0.9119 44 Open Text Corp 2 0.8899
20 Fujitsu Ltd 2 0.9111 45 Adobe Systems Inc 2 0.8894
21 VeriSign Inc 2 0.9100 46 Avnet Inc 2 0.8856
22 ANSYS Inc 2 0.9097 47 Boeing Co/The 3 0.8844
23 ABB Ltd 2 0.9052 48 Polycom Inc 2 0.8840
24 Linde AG 2 0.9012 49 Fiat Chrysler Automobiles NV 3 0.8824
25 Honeywell International Inc 2 0.9002 50 Danaher Corp 2 0.8820

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B.B.M. Shao et al. Decision Support Systems 114 (2018) 37–48

Fig. 5. Distribution of NSI scores by tier in Honda supply network.

Table 5 supply chain managers recognized that the data analytics approach
Top 50 suppliers ranked by NSI score in the 2nd tier of Honda supply network. underlying this study of nexus supplier index provides a novel per-
Rank Name NSI Rank Name NSI spective and could be complementary to the current practice of stra-
tegic supplier management which is largely material-flow based and
1 Siemens AG 1.0000 26 Dow Chemical Co/The 0.8955 risk oriented. Through carefully examining our results (e.g., Tables
2 SAP SE 0.9711 27 ON Semiconductor Corp 0.8954
4–9), Honda managers found that the proposed NSI analytical frame-
3 Hewlett-Packard Co 0.9701 28 BT Group PLC 0.8953
4 General Electric Co 0.9657 29 Daimler AG 0.8946
work could contribute to the practice in a number of ways. The lists of
5 Samsung 0.9598 30 Ingram Micro Inc 0.8938 nexus supplier candidates based on NSI scores could help managers to
Electronics Co Ltd look for key companies that they were not aware of (i.e., identifying
6 Microsoft Corp 0.9327 31 Cisco Systems Inc 0.8934 blind spots in their supply networks). For instance, there were suppliers
7 LG Electronics Inc 0.9319 32 Nissan Motor Co Ltd 0.8922
in the lists we compiled whose names they had not heard before, and
8 Ford Motor Co 0.9263 33 Telefonaktiebolaget 0.8915
Ericsson seeing them on the list would motivate the Honda managers to begin
9 General Motors Co 0.9229 34 Caterpillar Inc 0.8908 getting better acquainted with these suppliers.
10 Intel Corp 0.9209 35 Arrow Electronics Inc 0.8907 Further, while Honda managers anticipated Siemens and SAP would
11 Toyota Motor Corp 0.9199 36 Avago Technologies Ltd 0.8903
come out on top in Table 4, new observation was made that Honda and
12 Accenture PLC 0.9168 37 Vodafone Group PLC 0.8902
13 Akzo Nobel NV 0.9135 38 Atmel Corp 0.8901
VW are connected in the tier 2 level (see Table 5). Given that VW was
14 Flextronics 0.9132 39 Open Text Corp 0.8899 currently experiencing difficulties and might reduce its production,
International Ltd Honda could look at which of the Honda's top-tier suppliers might end
15 Infineon 0.9130 40 Adobe Systems Inc 0.8894 up suffering and take proactive measures to mitigate any potential
Technologies AG
negative impact. Other novel findings include that Apple is the most
16 Zebra Technologies 0.9119 41 Avnet Inc 0.8856
Corp important tier 3 supplier to Honda (see Table 6). This was a surprise to
17 Volkswagen AG 0.9119 42 Polycom Inc 0.8840 Honda managers. It is possible that the suppliers in the second tier may
18 Fujitsu Ltd 0.9111 43 Danaher Corp 0.8820 be buying a lot of hardware products from Apple and that is how Apple
19 VeriSign Inc 0.9100 44 WPP PLC 0.8816 appears as the most significant nexus supplier at the third tier. How-
20 ANSYS Inc 0.9097 45 MicroStrategy Inc 0.8800
21 ABB Ltd 0.9052 46 salesforce.com inc 0.8791
ever, Apple also sells software and it is possible software produced by
22 Linde AG 0.9012 47 Teradata Corp 0.8758 Apple may end up in a component that goes into a Honda product. In a
23 Honeywell 0.9002 48 Rio Tinto PLC 0.8753 sense, our results offer what to look for and where to start looking.
International Inc For the suppliers not well-known to Honda, managers expressed
24 Silicon Laboratories 0.8977 49 Smiths Group PLC 0.8752
that they could start with a small contract to begin the process of dis-
Inc
25 Texas Instruments 0.8976 50 Renault SA 0.8751 covery and relationship building. Honda can also introduce them to its
Inc other supplier companies. For instance, if the NSI list identifies a tier 3
supplier Honda is interested in working with more closely, Honda could
introduce this company to other top tier and tier 2 suppliers for po-
3, Amazon and Koninklijke Philips appear in all three lists. We stress tential business relationships. These new findings make it possible for
that since our data is on the business relationships between companies, Honda to determine which suppliers and/or their extended business
the index captures the criticality of companies in the network of busi- relationships to monitor more closely when making policy or invest-
ness relationships, so it does not necessarily reflect their importance in ment decisions. These lists could offer the first cut at which supplier
terms of material flow. companies to consider.

5.2. Evaluation and validation: visit to Honda 6. Discussion and implications

One member of our research team met with the supply chain Our study attempts to identify critical suppliers that may be em-
managers of Honda North America to discuss the results. The Honda bedded deep in a supply chain. A focal buying firm such as Honda may

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B.B.M. Shao et al. Decision Support Systems 114 (2018) 37–48

Table 6
Top 50 suppliers ranked by NSI score in the 3rd tier of Honda supply network.
Rank Name NSI Rank Name NSI

1 Apple Inc 0.9267 26 Procter & Gamble Co/The 0.8445

2 Sony Corp 0.9132 27 Rolls-Royce Holdings PLC 0.8423
3 Amazon.com Inc 0.8998 28 China Mobile Ltd 0.8383
4 Bayerische Motoren Werke AG 0.8969 29 RadioShack Corp 0.8379
5 Airbus Group NV 0.8910 30 Asustek Computer Inc 0.8371
6 Boeing Co/The 0.8844 31 Delta Electronics Inc 0.8364
7 Fiat Chrysler Automobiles NV 0.8824 32 Byd Co Ltd 0.8358
8 Royal Dutch Shell PLC 0.8790 33 China Unicom Hong Kong Ltd 0.8352
9 Hyundai Motor Co 0.8765 34 Huawei Technologies Co Ltd 0.8337
10 Verizon Communications Inc 0.8756 35 Areva SA 0.8331
11 Lockheed Martin Corp 0.8749 36 Safran SA 0.8315
12 Koninklijke Philips NV 0.8738 37 Koninklijke KPN NV 0.8284
13 Nestle SA 0.8658 38 Deutsche Post AG 0.8272
14 Unilever NV 0.8643 39 General Dynamics Corp 0.8266
15 Peugeot SA 0.8605 40 China Telecom Corp Ltd 0.8264
16 Telefonica SA 0.8559 41 Walgreens Boots Alliance Inc 0.8260
17 Bombardier Inc 0.8555 42 Petroleo Brasileiro SA 0.8247
18 Exxon Mobil Corp 0.8552 43 Robert Bosch GmbH 0.8240
19 Deutsche Lufthansa AG 0.8531 44 Staples Inc 0.8236
20 HTC Corp 0.8527 45 International Paper Co 0.8234
21 AT&T Inc 0.8481 46 Hyundai Heavy Industries Co 0.8229
22 Northrop Grumman Corp 0.8471 47 Textron Inc 0.8217
23 Berkshire Hathaway Inc 0.8464 48 Redington India Ltd 0.8209
24 Mitsubishi Motors Corp 0.8464 49 WPG Holdings Ltd 0.8205
25 Kia Motors Corp 0.8460 50 Sprint Corp 0.8193

Table 7 Table 9
Operational suppliers. Informational suppliers.
Company Degree Betweenness Eigenvector NSI Company Industries NSI

Tier 2 Tier 2
Siemens AG 0.0479 0.0594 0.0991 1.0000 General Electric Co 41 0.9657
SAP SE 0.0281 0.0246 0.1067 0.9711 Siemens AG 38 1.0000
Hewlett-Packard Co 0.0514 0.0414 0.1652 0.9701 Hewlett-Packard Co 36 0.9701
General Electric Co 0.0503 0.0568 0.1025 0.9657 Telefonaktiebolaget LM Ericsson 32 0.8915
Samsung Electronics Co 0.0407 0.0414 0.1362 0.9598 Samsung Electronics Co Ltd 29 0.9598
Volkswagen AG 29 0.9119
Tier 3
Dow Chemical Co/The 29 0.8955
Apple Inc 0.0327 0.0274 0.1015 0.9267
Tier 3
Sony Corp 0.0272 0.0131 0.1064 0.9132
Unilever NV 45 0.8643
Amazon.com Inc 0.0253 0.0178 0.0855 0.8998
Nestle SA 43 0.8658
Boeing Co/The 0.0269 0.0126 0.0619 0.8844
Koninklijke Philips NV 40 0.8738
Koninklijke Philips NV 0.0281 0.0169 0.0652 0.8738
Amazon.com Inc 36 0.8998
Walgreens Boots Alliance Inc 33 0.8260

Table 8
Monopolistic suppliers. way of computing the NSI and show how to use the results from the
focal buying firm's perspective.
To manage a multi-tier supply chain, one needs to engage in the
Company Betweenness NSI mapping of the supply network (e.g., [21,61]). This mapping can be
Tier 2 difficult and time-consuming. Often, plant-level supply networks are
Siemens AG 0.0594 1.0000 constructed through the use of bill of materials (BOM) (they identify all
General Electric Co 0.0568 0.9657 suppliers attached to each part and then start building the network one
LG Electronics Inc 0.0505 0.9319 tier at a time). A Japanese semiconductor company mapped their
Hewlett-Packard Co 0.0414 0.9701
supply networks after the 2011 tsunami and the complete mapping of
Samsung Electronics Co 0.0414 0.9598
their supply networks took one year and involved > 100 people. A
Tier 3
pharmaceutical company also revealed to us that when it mapped the
Apple Inc 0.0274 0.9267
Nestle SA 0.0246 0.8658 supply network for one of its drug products, they had to devote 400 to
Unilever NV 0.0229 0.8643 500 people and a total of 18 months. Thus, in comparison, even with its
Amazon.com Inc 0.0178 0.8998 granularity shortcomings (i.e. the data exist at the company level), the
Koninklijke Philips NV 0.0169 0.8738 use of Bloomberg Terminal data still represents a viable approach to
developing the NSI.
According to a Honda top executive, “If we can glean one or two or
not be aware of these hidden yet critical suppliers called nexus sup-
10 key hints on the list, these might be suppliers we need to dig into
pliers. We have taken a step toward looking beyond a buying firm's
more, partner with, mitigate risk with; there is huge value to that.” NSI
typical supply chain management space. Since it is impossible to ac-
provides a company like Honda with insights into which suppliers to
tively manage all suppliers in the supply network, we posit that these
partner with. It can help the company look beyond the top-tier level and
nexus suppliers offer a good starting point. To that end, we articulate a
outside its normal supply chain scope. It can also help the company

45
B.B.M. Shao et al.
look at its supply chain differently, not just to manage risks such as
natural disasters but also to identify certain suppliers as “nuggets” to
facilitate closer partnerships and seek more information sharing.
NSI identifies a new kind of critical suppliers, different from stra-
tegic suppliers that a buying company is used to working with Yan et al.
[71]. While a strategic supplier is critical due to its internal attributes, a
nexus supplier is critical because of its ties with other suppliers in the
supply network. Typically, the focal buying firm and its strategic sup-
pliers have high co-dependence and often undertake costly integration
projects [62]. In contrast, the focal firm and its nexus suppliers are not
necessarily connected with each other. Instead of direct connections,
they are likely connected over multiple links in an indirect way [71].
Nexus suppliers may not possess superior capabilities and resources that
can have immediate impact on the buying firm. The benefits of
managing nexus suppliers consist in the portfolio of ties within the
broader supply network. To that end, the focal firm should examine the
network positions and embeddedness of its suppliers and evaluate their
overall criticality from a network perspective [22]. In essence, the
buying firm should try to identify nexus suppliers through the complex
interrelations (i.e., links) with its other suppliers in the extended supply
network.
Due to the time and resource constraints, many buying firms focus
on their top-tier, strategic suppliers. This is understandable, but giving
exclusive attention to top-tier suppliers can increase susceptibility to
risk. Suppliers further upstream in the supply chain can cause un-
expected disruptions to a firm's operations. In this light, it is crucial for
the focal firm to identify its nexus suppliers and seek ways to manage
them proactively. These suppliers may have a profound impact on its
performance, depending on how they are embedded in the supply
network and how an unforeseen risk event takes place. The influence of
a nexus supplier on the focal firm can lag in time, depending again on
how many tiers they are removed from the buying firm. Still, the impact
of nexus suppliers can be real and significant, especially in the areas of
materials flow, emerging ideas, and market information.
6.1. Research implications
Implications can be drawn from our data analytics approach for
academic research that also uses network data. First, our study show-
cases the feasibility of identifying potentially important nodes in a
network by integrating various centrality measures. Instead of using
each measure individually, our DEA-based model combines them into
one aggregate measure that reflects the overall criticality of a certain
node in the network. Researchers in other disciplines like computer
science and psychology can adopt the same approach for developing
their own methodologies if a similar need arises from a specific context
(e.g., relationship cultivations in social media).
Second, the aggregate measure makes it possible to highlight a node
of significance through data visualization and facilitate the drill down
capability in data analytics. That is, data scientists can use a number
like NSI score to visually rank order the nodes or display them in dif-
ferent sizes and colors to help users focus on most important areas. It is
also noted that our DEA-based model takes into account the node im-
portance at multiple levels—at the node level (degree), neighborhood
level (eigenvector), and network level (betweenness and farness)
[57,68]. Therefore, compared with the individual approaches that rely
on a particular centrality measure, our NSI approach is theoretically
more comprehensive.
Finally, by letting the data speak for itself, our DEA-based model
suggests an objective approach to deciding the weights when com-
bining individual measures for the optimization of NSI scores. Our
approach avoids the equal and subjective weighting schemes commonly
used in existing studies (e.g., [44]). In other words, our DEA-based
model does not assume equal importance for the centrality measures
involved; neither does it assign subjective weights based on the user's
perception about their importance. Instead, our model treats weights as
46
Decision Support Systems 114 (2018) 37–48
decision variables and objectively decides their values in optimizing
NSI scores. In the future, researchers in this genre of studies should look
for alternate ways of weighting approaches beyond what we have done
here.
6.2. Practical implications
Several practical implications can also be drawn from our findings.
First, part of the importance of NSI derives from nexus suppliers' po-
tential to provide strategic information and help enhance the perfor-
mance of operations at the buying firm. This potential can be only
realized if the buying firm would recognize and monitor its nexus
suppliers to leverage such potentials. Second, nexus suppliers differ
from strategic suppliers in the way they are embedded in the extended
supply network [71]. It is noted that nexus suppliers may not ne-
cessarily have superior internal capabilities in terms of operational
capability, technological leadership, or strategic cultural congruence
with the buying company. As such, the focal firm may easily overlook
these critical yet hidden suppliers. Third, the extended supply network
is the context through which one identifies nexus suppliers. Managers
need to consider a supplier's relationships not only within the buying
firm's supply base but also with firms outside the base in other related
industries.
Our NSI study provides guidelines for supply managers to better
understand the concept of nexus suppliers and identify and categorize
them into the respective types. As the potential risks incurred by failure
of nexus suppliers rise, firms are in need to learn more about nexus
suppliers but they have difficulty identifying these critical suppliers. A
better understanding of nexus suppliers should help supply managers
take a multi-tier network view to look beyond strategic suppliers in the
immediate range of its supply network [27,71]. In a changing business
environment, many innovative ideas will come from non-traditional
suppliers of parts and components or from start-up enterprises in
emerging markets. These suppliers can more appropriately be qualified
as nexus suppliers but less likely as strategic suppliers.
NSI can also help firms manage supply risks. For instance, the
buying firm could develop a supplier development program, which
would require the commitment of significant financial, capital, and
personnel resources. It is critical for the buying firm to select the right
portfolio of suppliers to be included in the program. However, selecting
the right suppliers is not straightforward, as it requires the assessment
of a supplier's true value, determined not only by its internal qualities
but also by its network positions. Analysis of the extended supplier
network through our NSI model can help in this regard. A supplier can
also benefit from a better understanding of how its position in the
broader inter-organizational networks may affect its value to other
customers and stakeholders. It can proactively cultivate the relation-
ships with other firms in its extended supply network, and by doing so,
it can gain competitive advantage. For example, once a supplier learns
that a particular customer is seeking ideas for product innovation, it can
diversify its inter-organizational links to help capture early market
signals and share relevant information with that customer. By the same
token, upon recognizing its potential value as a nexus supplier to its
customers, a supplier can approach them directly as a more attractive
candidate for supplier development or investment and seek to develop
mutually beneficial long-term relationships.
6.3. Limitations
Like any research, our study has limitations. First, we recognize the
exploratory nature of our NSI study. The DEA model will need to be
further refined as we continue to gather more insights on nexus sup-
pliers. The data-analytics framework is general and the best analytic
components can be adapted and adopted on a case-by-case basis. When
applying our framework to a different company or dataset, non-DEA
approaches (e.g., AHP, MCDP, etc.) can be considered to implement the
B.B.M. Shao et al.
NSI. Future studies can investigate the advantages and disadvantages of
different approaches. Second, the issue of how a nexus supplier may
impact the performance of the focal company needs to be further in-
vestigated. Our NSI study takes the first step toward a model by which
nexus suppliers can be identified and categorized into different types.
However, the specific patterns through which the impact on the focal
firm's performance manifests itself still need to be empirically in-
vestigated. Third, while the Bloomberg SPLC data provides an extensive
coverage of business relationships among firms, its lack of data re-
solution (e.g., lack of plant- or product-level information, lack of tem-
poral information, etc.) has limited our empirical analysis and inter-
pretation. As another avenue for future research, additional data
sources, contexts, and firms (e.g., firms in the service industry) can be
sought to further validate and improve the NSI model and the data
analytics approach to assess if they can be generalized to other settings.
Finally, the focus of our paper is on the identification of nexus sup-
pliers, but each type of nexus suppliers may exhibit different network
behaviors and hence have different impacts on the performance of the
focal buying firm. Future research can look into such performance
impacts in terms of operations, continuity and technological innova-
tions of the focal buying firm based on the types of nexus suppliers.
7. Conclusion
In this study, we propose Nexus Supplier Index (NSI), a data-ana-
lytics framework for identifying and classifying nexus suppliers. We
assess the method's effectiveness through an empirical application to
the real-world supply network of Honda. The novelty and potential of
our findings are positively evaluated by Honda managers. To streamline
the analytics workflow for NSI, we also build an integrated information
system to handle the tasks of data storage, management, navigation,
and analytics. Through this research, we put the theory of nexus sup-
pliers into action and demonstrate the value of data analytics in pro-
viding supply managers with a better understanding of nexus suppliers
both as a management tool and as a practical procedure that can help
them manage the risks and harness market opportunities. Our research
takes the first step toward the practical use of the nexus supplier con-
cept by identifying and categorizing nexus suppliers with publicly
available data (e.g., Bloomberg SPLC). Many firms have difficulty
identifying nexus suppliers, let alone knowing how to develop effective
strategies for managing relationships with them. Our research provides
supply managers with insights into this critical issue and assists them in
developing a roadmap to manage nexus supplier relationships.
Using data analytics, we offer a roadmap for the focal buying firm to
identify and categorize nexus suppliers. We discuss practical implica-
tions and lessons learned from the findings of our study. This research
provides supply managers with insights into the presence of nexus
suppliers and assists them in developing potential strategies to better
manage this new type of critical suppliers whose importance is
grounded in their network structural positions in the supply networks.
Acknowledgments
The authors thank the anonymous reviewers and the editor-in-chief
for their constructive comments and insightful suggestions. The authors
thank CAPS Research for funding this study. Any errors that remain are
the sole responsibility of the authors.
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Benjamin B.M. Shao is an associate professor of information systems and the co-director
of the Digital Society Initiative in the W. P. Carey School of Business at Arizona State
University. His research interests include IT impacts, business analytics, IT supply chain
interface, and healthcare IT.
Zhan (Michael) Shi is an assistant professor of information systems at W.P. Carey School
of Business, Arizona State University. He uses economic models and machine learning
methods to study digital product markets, social and organization networks, and en-
trepreneurship in the tech industry.
Thomas Y. Choi is Harold E. Fearon Chair of Purchasing Management at W. P. Carey
School of Business, Arizona State University. He has been studying the upstream side of
supply chains, where a buying company interfaces with many suppliers organized in
various forms of networks.
Sangho Chae is an assistant professor of supply chain management in Tilburg School of
Economics and Management at Tilburg University. His research interests include supply
network structure, multi-tier supply chain management, and behavioral aspects of supply
chain decision-making.