Structural Supply Chain Complexity

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Structural supply chain complexity Structural

supply chain
index and construct validity: complexity
index
a data-driven empirical approach
Pushpesh Pant
Operations Department, IMT Hyderabad, Hyderabad, India
Received 18 January 2023
Shantanu Dutta Revised 16 June 2023
IMT Hyderabad, Hyderabad, India, and 8 September 2023
Accepted 26 September 2023
S.P. Sarmah
Department of Industrial and Systems Engineering, IIT Kharagpur,
Kharagpur, India
Abstract
Purpose – Given the lack of focus on a standardized measurement framework (e.g. benchmarking tool) to
assess and quantify complexity within the supply chain, this study has developed a unified supply chain
complexity (SCC) index and validated its utility by examining the relationship with firm performance. More
importantly, it examines the role of firm owners’ business knowledge, sales strategy and board management on
the relationship between SCC and firm performance.
Design/methodology/approach – In this study, the unit of analysis is Indian manufacturing companies
listed on the Bombay Stock Exchange (BSE). This research has merged panel data from two secondary data
sources: Bloomberg and Prowess and empirically operationalized five key SCC drivers, namely, number of
suppliers, the number of supplier countries, the number of products, the number of plants and the number of
customers. The study employs panel data regression analyses to examine the proposed conceptual model and
associated hypotheses. Moreover, the present study employs models that incorporate robust standard errors to
account for heteroscedasticity.
Findings – The results show that complexity has a negative and significant effect on firm performance.
Further, the study reveals that an owner’s business knowledge and the firm’s effective sales strategy and board
management can significantly lessen the negative effect of SCC.
Originality/value – This study develops an SCC index and validates its utility. Also, it presents a novel idea
to operationalize the measure for SCC characteristics using secondary databases like Prowess and Bloomberg.
Keywords Supply chain complexity, Index, Firm performance, Shannon’s entropy, Promoter ownership
Paper type Research paper
1. Introduction
Today’s supply chains have become increasingly complex due to a large number of interactions
and interdependencies among different supply chain elements. Wilson Perumal and Company
(2015) stated that “supply chains are growing increasingly complex, making them harder to
manage, operate, and change in response to the customer, competitive and financial shifts”. The
complexities of the supply chain are increasing due to unreliable suppliers, globalization,
sophisticated customer demand, innovation and uncertainties (Birkie and Trucco, 2020; Nilsson,
2019; Mohanty and Shankar, 2019). According to Steinhilper et al. (2012), complexity costs up to
25% of the total expenditure of manufacturing firms. Complexity is a major problem of the ever-
advancing supply chain that hampers decision-making and eventually performance outcomes
(Manuj and Sahin, 2011). High degrees of complexity in the supply chain network leads to
disruptions (Bode and Wagner, 2015) which result in increased supply chain cost (de Leeuw
International Journal of Emerging
Markets
Since submission of this article, the following author have updated their affiliation: Shantanu Dutta is at © Emerald Publishing Limited
1746-8809
the Telfer School of Management, University of Ottawa, Ottawa, Canada. DOI 10.1108/IJOEM-01-2023-0086
IJOEM et al., 2013) and unsatisfactory customer service (Manuj and Sahin, 2011). For instance, Toyota
Motor Corp. has recently issued a product recall, which is an outcome of increased supply chain
complexity (SCC), resulting in a loss of $2 billion (Bode and Wagner, 2015). Prior research has
categorized SCC based on several drivers/dimensions such as structural, behavioral,
operational, product, process and network complexities that determine a system’s degree of
complexity (Serdarasan, 2013; Choi and Krause, 2006; Rao and Young, 1994). Subsequent
studies have identified a set of SCC drivers/dimensions, such as uncertainty, technological
complexity, organizational behavior, buyer-supplier relationship, upstream complexity, internal
manufacturing complexity, downstream complexity horizontal complexity, vertical complexity,
spatial complexity, eliminative complexity and cooperative complexity (Kavilal et al., 2017; Lu
and Shang, 2017; Bode and Wagner, 2015; de Leeuw et al., 2013). While early literature offers an
understanding of SCC, scholars have found it difficult to achieve a consensus about which
drivers/dimensions best define SCC, mainly because of their different scope of studies (Lu and
Shang, 2017).
Prior studies have highlighted the need to measure SCC to manage it effectively. According to
Kavilal et al. (2017), “SCC management is a long-term decision that involves identifying,
prioritizing, measuring, analyzing, controlling/eliminating the drivers of SCC” (p.479). It is
important to note that managing complexity without compromising performance is challenging
as there exists a high level of interdependencies and interactions among SCC drivers (Kavilal et al.,
2018). The choice of whether to control or reduce a particular driver can potentially have a
favorable or unfavorable effect on another driver (Kavilal et al., 2017; Serdarasan, 2013), which
ultimately compels the organization to optimally ascertain the composition of complexity drivers
at the firm level. Furthermore, it is possible that focusing solely on individual complexity drivers
may not provide a comprehensive understanding of SCC and may result in the prioritization of
certain drivers over others, as noted by Jacobs (2013). Therefore, it is inadequate to concentrate
solely on singular factors contributing to complexity in isolation. Henceforth, it is imperative for
forthcoming studies to devise benchmarking indicators, such as an index, to facilitate reforms
pertaining to complexity. Emphasis must be placed on the potential of the complexity index to
dismantle the inflexible boundaries among the various functional departments within the supply
chain through the development of a standardized assessment platform (Kavilal et al., 2017; Budde
et al., 2015). It would also enable external stakeholders (e.g. investors, suppliers, customers), to
have an integrated view of a firm’s structural complexity to undertake transactional decisions.
Hence, it is important to adopt an “index approach” to consider various SCC dimensions
simultaneously (Kavilal et al., 2017; Serdarasan, 2013).
Despite the importance of focusing on the development of a holistic (or unified) complexity
index for effective decision-making (Kavilal et al., 2017), the supply chain and operations
management literature has so far given limited attention to an “index approach” to quantify
SCC. Only a few studies have delved into this endeavor so far. For instance, using the concept
of Shannon’s entropy, Modrak and Marton 2013 and 2014 have proposed a vertex degree
index to assess the complexity of the supply chain. ElMaraghy et al. (2014) proposed a layout
complexity assessment (LCA) index to measure the complexity of manufacturing plants at
the design stage. Jacobs (2013) introduced an index to quantify product complexity, by using
a product structure diagram (i.e. internal manufacturing complexity) of the cruise line
industry. While these studies are insightful and show the utility of an index approach in light
of the management of SCC, there are some significant limitations that we summarize
hereafter. First, the literature has not captured the multidimensionality of SCC while
constructing a unified index (Piya et al., 2020; Turner et al., 2018). Second, almost all the
studies on the complexity index are either conceptual or rely on survey/qualitative data – to
measure SCC (Lu and Shang, 2017). This restricts the replicability of such an index for any
individual firm (Fisher et al., 2019). Third, the indices are developed based on a limited set of
firms, which undermines the generability of the index (Kavilal et al., 2018). In light of these
limitations, in this study, we are motivated to develop a comprehensive SCC index Structural
systematically and further validate it by examining its relationship with firm performance. supply chain
Accordingly, this study proposes the following research question in order to validate the
development of the SSC index.
complexity
index
RQ1. How does the SSC index affect firm performance?
According to Lu and Shang (2017), managing complexity is a critical strategic decision. As a
result, we acknowledge that the impact of SCC varies across organizations and is dependent on
several firm-specific characteristics and governance structures. This study contends that
organizations with extensive business knowledge, effective sales strategy, as well as well-
managed boards, can benefit from greater SCC to raise the firm value. For example, Richter and
Chakraborty (2015) suggest that promoter ownership serves as a source of business knowledge
because promoters actively participate in various aspects of their firms, such as operations,
sales strategy and management. They have significant motivations to closely monitor SCC as
they hold substantial stakes in their companies. Building on the arguments of Fama and Jensen
(1983), a high level of promoter ownership intensifies monitoring efforts, aiming to mitigate
information asymmetry and consequently alleviate complexity within the supply chain.
Similarly, good governance practices like a high level of board independence, bring extensive
knowledge to the board room and are more likely to translate SCC to value-creating complexity
(Benjamin et al., 2020). Considering the above discussions, it can be construed that firm-specific
characteristics and governance structure (e.g. owner’s business knowledge, firm’s effective
sales strategy and board management) play a significant role in the relationship between SCC
and firm performance. Therefore, we attempt to answer the following research question.
RQ2. How do the owner’s business knowledge, firm’s effective sales strategy and board
management affect the relationship between SSC index and firm performance?
To investigate our questions, we focus on 598 Indian manufacturing firms listed on the Bombay
Stock Exchange (BSE). Our approach is inspired by Shannon’s theory of entropy which focuses
on the deviation of any attribute from its expected level. We apply this principle while
constructing our multidimensional SCC index. To that effect, we develop a unified SCC index by
combining information on five different structural attributes of complexity: number of
suppliers and number of supplier’s countries (supply base level), number of plants and number of
products (internal manufacturing level) and number of customers (customer base level) (see
detailed explanation in Section 5). We have incorporated the “research onion” framework
proposed by Saunders et al. (2009) to make a choice of research methodology (see
Supplementary File (Figure S1)). Building on our research philosophy and related
established theory on SCC as discussed above, we have used a top-down deduction
approach. In particular, we have proposed several hypotheses and related models in line with
the SCC theory. Further, to test the proposed hypotheses, we have followed the quantitative
method of data collection with the help of archival research. Furthermore, we collect panel data
on 598 Indian manufacturing firms listed on the BSE from 2010 to 2017 using secondary data
sources, namely, Prowess and Bloomberg. Subsequently, we have tested models using panel
data regression methodology and finally, the study’s insight has been drawn.
In this study, we develop a unified SCC index. Further, we empirically examine the
relationship between the SCC index and firm performance to validate the utility of our
proposed index. Consistent with the prior studies (Lu and Shang, 2017; Bode and Wagner,
2015), our results reveal that complexity has a negative and significant effect on firm financial
outcomes. We recognize that SCC may not impact all firms uniformly; the relationship with
firm performance is likely to depend on several firm-specific and governance factors. To that
effect, our results show that an owner’s business knowledge and the firm’s effective sales
strategy and board management can significantly lessen the negative effect of SCC.
IJOEM The rest of this article is organized as follows: Section 2 reviews the relevant literature.
Section 3 discusses the development of the SCC index. Section 4 explains the conceptual
framework and hypotheses to validate the proposed SCC index. Section 5 discusses the data
and methodology. Section 6 reports the results. Section 7 discusses the results, contributions,
implications and limitations. Finally, Section 8 concludes the paper.
2. Literature review
2.1 Keywords-based literature search
The primary focus of this study is to create a generalized SCC index and to understand the
relationship between SCC and firm performance. Therefore, it is important to identify and
conceptualize key complexity drivers that can capture the multi-dimensional nature of SCC –
in a way to operationalize a generalized complexity index. Accordingly, we have executed a
detailed keyword-based literature search on SCC using the Scopus database.
The Scopus database is one of the largest data sources for journal articles and conference
papers (Pant et al., 2021; Gupta et al., 2020). Scopus database captures topic areas like Decision
Sciences, Physical Sciences, Business, Management and Accounting, Social Sciences, among
others (Pant et al., 2021). Due to the multi-disciplinary nature of the SCC management, we
have reviewed the subject areas such as Business, Management and Accounting and
Decision Sciences (Gupta et al., 2020). Based on the focus of the present study, we perform a
keyword-based literature search to identify relevant studies on SCC.
The concept of complexity has sparked exploration in various academic fields (Akın Ateş
et al., 2022; Chhetri et al., 2022; Pant et al., 2021; Blecker and Kersten, 2006). It is described by
system-level attributes (Simon, 1962). According to Simon’s seminal work from 1962, a
complex system is made up of a large number of elements with a non-linear relationship
between them. As a result, past studies have focused on developing a better understanding of
SCC by examining a variety of supply chain characteristics (Chowdhury et al., 2023; Yeniaras
and Kaya, 2022). This section presents a thorough review of the SCC literature. With the help
of keywords shown in Table 1, the scholarly literature (e.g. journal articles, conference
proceedings) was searched. Scopus database was used to conduct an independent search of
SCC literature using “and” and “or” operators. Table 2 displays the syntax used in this
literature review. To see the result of this search, copy and paste it into the advanced search
option on Scopus.com. Since the Scopus database is continually updated, the articles that
appear as a result of this search will inevitably differ (Pant et al., 2021). On the 24th of May
2023, a review of the literature was undertaken on Scopus and key articles were identified as
part of this investigation. Figure 1 depicts the literature search process, which yielded 199
research papers for inclusion in the current study. In the first stage, SCC-related keywords
were searched (see Table 1). This search yielded a total of 4,641 journal papers.
We consider research articles up to 2022 in the second stage, as the year 2023 is still in
progress; this results in 4,600 articles. Compared to the conference proceedings, the majority of
scholars (excluding the computer science area) tend to publish in journals (Derntl, 2014). As a
Keyword
“supply chain”
and “complexity”
or “supply chain complexity”
Table 1. or “supply complexity”
Keywords used in or “supply chain network complexity”
this study Source(s): Author’s compilation
result, we exclude conference proceedings from the third stage of our literature search and limit Structural
it to articles, articles in the press and review papers. These research papers are limited to the supply chain
topic areas of business management and accounting as well as decision sciences. Further, the
study has taken into account papers written in the English language. There have been 1,376
complexity
research articles based on the above criteria. Finally, we only include articles that have a clear index
emphasis on SCC, resulting in 199 papers. The positive linear trend shows that the number of
papers in the area of SCC is increasing (see Supplementary File (Figure S2)).
The literature of 199 articles is categorized into five dimensions of complexity based on
their focus, namely (1) SSC (in general) (Cai et al., 2020), (2) supply base complexity (Lu and
Shang, 2017), (3) internal manufacturing complexity (Chand et al., 2018; Bozarth et al., 2009),
(4) customer base complexity (Lu and Shang, 2017; Bozarth et al., 2009) and (5) entropy-based
complexity (Modrak and Marton, 2013, 2014; Isik, 2010) (see Supplementary File (Figure S3)).
It is observed that prior studies have primarily discussed three conventional constituents of
SCC: suppliers/upstream supply chain members/supply-side factors), firm’s operations/
manufacturing units/assembly plants and customers/downstream supply chain members/
demand-side factors (Bozarth et al., 2009). A more critical view of the SCC literature has
suggested that supply chain and operations management research has largely focused on key
complexity drivers such as number of suppliers, number of supplier’s countries, unreliable
suppliers, number of products, number of plants, number of warehouses, number of
customers and customer heterogeneity under the three broad dimensions: supply base,
internal manufacturing and customer base complexity (see Figure 2) (Chand et al., 2018; Lu
and Shang, 2017). In this study, we have captured complexity at the supply base, internal
manufacturing and customer base levels by utilizing five key SCC drivers, namely, number of
suppliers, number of supplier’s countries, number of products, number of plants and number
of customers. It is important to mention that the current study has not captured information
related to buyer-supplier/buyer-customer relationships, customer heterogeneity and
warehouse as such information is not completely available on either Bloomberg or
Prowess (two major databases for Indian firms) (Lu and Shang, 2017). Further, we classify the
selected articles based on their methodological approach. It has been observed that most
articles are either conceptual or use primary/survey data to quantify the complexity of the
supply chain. Figure 3 shows the classification of articles according to the approach adopted.
Prior studies have emphasized the importance of SCC (Macchion et al., 2020) and highlight
that SCC is not homogenous (Subramanian et al., 2015). Several studies (Fernandez Campos
et al., 2019; Dittfeld et al., 2018) have identified three dimensions of SCC: supply base
complexity, internal manufacturing complexity and customer base complexity, all of which
can have a significant effect on firm performance and therefore, require differential
management consideration. To further our research, we depend on this classification of SCC.
According to a systematic literature review, supply chain research has primarily focused on
Data source Search syntax
Search syntax on scopus ( TITLE-ABS-KEY ( “supply chain” ) AND TITLE-ABS-

(search performed on 24 KEY ( complexity ) OR TITLE-ABS-KEY ( “supply chain
January 2021 on www. complexity” ) OR TITLE-ABS-KEY ( “supply complexity” ) OR TITLE-ABS-
scopus.com) KEY ( “supply chain network
complexity” ) ) AND ( EXCLUDE ( PUBYEAR , 2021 ) ) AND ( LIMIT-
TO ( DOCTYPE , “ar” ) OR LIMIT-TO ( DOCTYPE , “re” ) ) AND ( LIMIT-
TO ( SUBJAREA , “BUSI” ) OR LIMIT- Table 2.
TO ( SUBJAREA , “DECI” ) ) AND ( LIMIT-TO ( LANGUAGE , “English” ) ) Search syntax on
Source(s): Author’s compilation scopus
IJOEM
Appropriate articles with keyword: ‘‘supply
Stage 1 chain’’ and ‘‘complexity’’ or ‘‘supply chain
complexity’’ or ‘‘supply complexity’’ or ‘‘supply N = 4641
chain network complexity’’: #1
Stage 2 Exclusion of the 2023 articles: #2

N = 4600
Limit the study of the type of articles (article in

Stage 3 press, review paper and article): #3 N =2824
Stage 4 Limit the articles to business management &

N = 1409
accounting and decision sciences domain: #4
Stage 5 Limit the articles to the English language: #5 N = 1376
Stage 6 Include the articles relevant to the current study: #6 N = 199

Figure 1.
Stages of data
collection
Source(s): Author’s compilation
supply base complexity, such as the number of suppliers, the number of suppliers’ countries
and the importance of relationships, among other drivers (Bode and Wagner, 2015; Choi and
Krause, 2006). Moreover, a limited number of studies have emphasized all three critical
complexity dimensions (i.e. supply base complexity, internal manufacturing complexity and
customer base complexity) altogether. However, almost all the studies that have addressed all
three dimensions of complexity depend on survey/qualitative data to quantify SCC or are
conceptual in nature (Lu and Shang, 2017). It is also important to mention that only two
articles out of 199 articles have considered all three dimensions of complexity (i.e. supply base
complexity, internal manufacturing complexity and customer base complexity) and
Supply chain
complexity
Conventional constituents of supply chain complexity
Suppliers/upstream supply chain members/supply- Firm’s operations/manufacturing units/assembly plants Customers/downstream supply chain
side factors (Gunasekaran et al., 2015, Serdarasan, (Subramanian et al., 2015, Bozarth et al., 2009, Jacobs members/demand-side factors(Hashemi et al.,
2013, Choi and Krause, 2006) and Swink, 2011) 2013, Bozarth et al., 2009)
Key complexity drivers
Number of Number of Unreliable Buyer-supplier Number of Number of Number of Buyer-

products warehouses Number of Customer customer
suppliers supplier’s suppliers relationship plants (Roper,
(Jacobs and (Subramanian customers heterogeneity relationship
(Turner et al., Countries (Lu (Subramanian (Turner et al., 2001, Roper
et al., 2015, (Hashemi et (Hashemi et (Turner et al.,
2018, Lu and and Shang, et al., 2015, 2018, Lu and Swink, 2011, and Hewitt-
Bozarth et al., Bozarth et al., al., 2013, al., 2013, 2018, Lu and
Shang, 2017, 2017, Bode Bozarth et al., Shang, 2017, Dundas, 1998,
2009, 2009, Choi Bozarth et al., Bozarth et al., Shang, 2017,
Bode and and Wagner, 2009, Blecker Cousins et al., Bozarth et al.,
MacDuffie et and Krause, 2009) 2009) Cousins et
Wagner, 2015) 2015, Bozarth and Kersten, 2006) 2009)
et al., 2009) 2006) al., 1996) 2006) al., 2006)
Key complexity dimensions
Supply base complexity (Choi and Internal manufacturing complexity (Bozarth et Customer base complexity
Krause, 2006) al., 2009) (Bozarth et al., 2009)

Structural
complexity
index
supply chain
chain complexity
Figure 2.
Key drivers/
dimensions of supply
IJOEM 60
Number of arƟcles 50
40
30
20
10
0
Conceptual Empirical Case study Empirical QuanƟtaive Literature SimulaƟon Empirical
(survey approach (secondary Modelling review model (secondary
Figure 3. data) data) data and
Classification of the survey
articles according to
data)
the approach adopted
empirically examined the performance implications of these complexity dimensions using

secondary archival data. It emphasizes the lack of focus on multi-dimensional aspects of SCC
using secondary data.
In addition, due to high interdependencies and interactions between SCC drivers, the
decision to control or reduce one driver may have a positive or negative impact on another
(Kavilal et al., 2017). It forces the organization to optimally determine the composition of firm-
level complexity drivers. Furthermore, individual complexity drivers may not do SCC justice
and may overemphasize some drivers at the expense of others (Lin et al., 2006). Therefore,
organizations need to measure the complexity by developing a unified SCC index, as this
index would impart knowledge regarding the degree of complexity and would assist
organizations in identifying and improving the areas that may need improvement.
An index is critical to understand the performance implications of complexity because it
gives a more holistic view of organizational complexity. Our systematic literature review also
reveals that only seven articles (i.e. 3%) out of 199 identified studies on SCC have proposed
the complexity index. We have summarized some key literature on the SCC index in Table 3.
Though these studies have developed an index to measure SCC, they have three significant
limitations. First, these studies do not capture the multidimensionality of supply chain
structure while developing the complexity index. Second, they have largely utilized survey/
qualitative data to develop the index. Qualitative data may be affected by the responders’
attitudes and cognitive ability (Hammarberg et al., 2016). And third, these studies lack
replicability due to the use of survey/qualitative data as well as their inability to capture
different dimensions of complexity in the supply chain. Therefore, this paper attempts to
develop a generalized complexity index using a secondary panel dataset that would address
the above-mentioned shortcomings in the existing literature. Furthermore, our research
focuses on structural complexity drivers of the supply chain since it is explicitly measured by
buyer-supplier/buyer-customer relationships and firm-level manufacturing operations. The
interactions between firms are also reflected in these relationships (Lu and Shang, 2017). We
do notice, however, that interactions are difficult, if not impossible, to capture completely and
objectively. Accordingly, the scope of this research is restricted to the structural complexity
of a company’s supply chain, with a specific emphasis on immediate suppliers and
consumers, as well as internal manufacturing operations.
2.2 Research gaps in the literature

In light of the above-mentioned discussion, we find that SCC literature has largely ignored
four key points: (1) the multi-dimensional nature of SCC, (2) empirical proxies for SCC
Data/Model Supply chain complexity dimensions
Survey/
Proposed supply chain qualitative Secondary Supply Internal Customer Shannon’s
Author (year) complexity index data data Mathematical base manufacturing base entropy Replicability
Cheng et al. Average mutual U U No

(2014) information (Entropy-
based complexity
index)
Jacobs (2013) Complexity index U U No
ElMaraghy Layout complexity U U No
et al. (2014) index
Kavilal et al. Supply chain U U U U No
(2017) complexity index
Our Study Supply chain U U U U U Yes
complexity index
Structural
complexity
index
Summary of literature
supply chain
Table 3.
on supply chain
complexity index
IJOEM dimensions/drivers using secondary panel data, (3) generalized SCC index to capture a
holistic view of firm-level SCC and (4) emerging economy context (e.g. India). Therefore,
future research needs to focus on the multi-dimensionality of SCC while addressing
complexity issues and should try to overcome the biases or conflicting nature of individual
complexity drivers through a generalized SCC index using a secondary panel dataset.
Accordingly, using Indian manufacturing firms, the current study attempts to develop a
generalized SCC index.
2.3 Significance of Indian set-up

This study has focused on Indian manufacturing firms while developing the SCC index for
several reasons: First, A.T. Kearney and CSCMP in 2014 reported future supply chain
trends in India and predicted that the complexity of demand would increase significantly
due to the increase in customers, channels and product segmentations. The report
indicates that managing a larger product portfolio, along with customization throughout
the value chain, would play a crucial role in shaping the design of supply chains for
organizations. Given the lack of understanding of the performance implications of a larger
product portfolio and customer base, the present study is justified and important. Second,
India is currently the fifth largest economy in the world and thanks to the flourishing
Indian manufacturing sector. However, supply chain costs constitute around 13% of the
Indian GDP which is doubled in comparison to developed countries (e.g. the US and
Germany) (Mandal, 2022). Also, it has been reported by BSI and the Business Continuity
Institute in 2015 that approximately 77% of manufacturing companies have identified
increasing SCC as the most significant risk in terms of business continuity (Chand et al.,
2018). Therefore, a study on the complexity of manufacturing firms’ supply chains and
their implications would be helpful for Indian policymakers and regulatory bodies. Third,
India is on steady strides towards embracing Industry 4.0 with the support of government
initiatives such as the National Manufacturing Policy. This policy sets a target of
increasing the manufacturing sector’s GDP contribution to 25% by 2025 (IBEF, 2022). In
addition, the government introduced the PLI (Production Linked Incentive) scheme for the
manufacturing sector in 2022, intending to bolster the core manufacturing sector to meet
international standards. To complement government efforts in propelling the growth of
the manufacturing sector, it is important to understand and measure the supply chain
inefficiencies in terms of complexity. Only then firms would be able to make systematic
enhancements at a structural level to ease SCC. Finally, approximately 35% of BSE-listed
firms are family businesses (often termed as business group firms in the Indian context)
(Pant et al., 2022) which are characterized by high promoter ownership. In these firms,
ownership and management control are often concentrated among family members and
they tend to have a dedicated focus on the growth of the firm (Richter and Chakraborty,
2015). Promoters in these organizations play a crucial role in decision-making (e.g. supply
chain, finance, expansion), succession planning and protective family legacy. Moreover, in
recent times, the Securities and Exchange Board of India (SEBI) has emphasized the
appointment of independent directors on the board. They are rigid in terms of a balanced
composition of executive, non-executive and independent directors on the board to ensure
knowledge spillover, enhance transparency and protect minority shareholders’ interests
which may enable firms to deal with supply chain challenges more efficiently (Benjamin
et al., 2020). The above discussion strengthens our arguments that a deeper and holistic
understanding of complexity in supply chains and its performance implications in light of
the owner’s business knowledge, firm’s effective sales strategy and board management are
critical to have a long-term competitive advantage.
3. Creation of supply chain complexity index Structural
As discussed, the structural complexity is broadly categorized into three interrelated supply chain
dimensions: (1) supply base; (2) internal manufacturing; and (3) customer base (see Figure 2).
While supply base complexity refers to the first-tier suppliers actively managed by the focal
complexity
firm (Lu and Shang, 2017), customer base complexity originates in a manufacturing plant’s index
downstream markets. Potential drivers of customer base complexity include the number of
customers and the heterogeneity of customer needs. Internal manufacturing complexity
refers to the complexities found within the manufacturing plant. It is specifically related to
products, processes and planning and control systems (Bozarth et al., 2009). These three
dimensions are important for enabling effective complexity management. In this study, we
have identified five key structural drivers of SCC, namely, number of suppliers, number of
supplier’s countries, number of products, number of plants and number of customers (see
Figure 4) under these three dimensions. The existing complexity measures are based on
individual drivers such as number of suppliers, product variety, degree of connectivity, etc
(Wu et al., 2007). However, individual SCC drivers do not present a holistic view of
organizational complexity and may emphasize certain drivers at the expense of others
(Jacobs, 2013). Therefore, there is a need to propose a generalized SCC index using different
dimensions/drivers of SCC. The need for a composite index stems from the fact that decision-
making becomes more difficult when multiple divers/dimensions are present (Kumar and
Banerjee, 2014). Composite indexes are highly regarded for their ability to condense a large
Supply chain complexity dimensions
Supply base Internal manufacturing complexity Customer base

complexity complexity
Supply chain complexity drivers
Number of Number of Number of Number of Number of

suppliers supplier’s products plants plants
countries
Individual complexity index score
Quintile Quintile Quintile Quintile Quintile

score score score score score
Supply chain complexity index

Figure 4.
Inputs of SCC index
IJOEM amount of information into easily comprehensible formats (Singh et al., 2007). According to
Smith (2002), “composite drivers offer a rounded assessment of system performance than
piecemeal inspection of individual drivers, and that it facilitates judgment on overall system
efficiency” (p. 298). The firm-level complexity index can be used to measure a firm’s
performance in terms of value chain performance, operational and financial performance.
A composite index provides a high-level view of a firm-level complexity along key
dimensions and can be used to establish benchmarks and measure and compare the
complexity and its impact on firm performance over time (Asif and Searcy, 2014). To develop
a composite index, it is necessary to identify potential complexity drivers and criteria for
evaluating them. For example, a structural SCC index would be constructed using the number
of suppliers, the number of supplier countries, the number of products, the number of plants
and the number of customers. Figure 4 presents the inputs of the SCC index used in this study.
The index score equals the mean scores of the SCC dimensions/drivers for the manufacturing
firms in the sample. The rationale is that the higher value will lie in the upper quintile and the
lower value will lie in the lower quintile. A higher overall score on this index indicates that the
firms are involved in a higher level of SCC.
The complexity index helps the firm discover the most important complexity dimensions/
drivers, as they would have a higher score on the complexity index. In the same way, the least
important complexity dimensions/drivers would have a lower complexity index. There is
often a mismatch between the priorities expressed by different firms across the three
dimensions of SCC. It is also true that different levels of complexity imply different levels of
financial outcomes achieved by the firm (Lu and Shang, 2017). Accordingly, in this study, we
have created a unified SCC index to assist the organization in understanding the holistic
nature of firm-level complexity. Moreover, the SCC index is inspired by Shannon’s theory of
entropy which advocates accounting for deviation from an expected level for SCC drivers
(Isik, 2010). Considering a large-scale panel dataset, we have used industry-adjusted
complexity drivers, which consider the deviation of specific complexity (i.e. attribute) from
industry practice. Subsequently, this research assesses the link between the SCC index and
firm performance in light of the owner’s business knowledge and firm’s effective sales
strategy and board management – to validate the utility of proposed SCC index.
4. Validation of supply chain complexity index

We validate our proposed SCC index with the help of a conceptual model and related
hypotheses.
4.1 Conceptual model

We present a conceptual model and its related hypotheses as illustrated in Figure 5. It shows
the relationship between the SCC index and firm performance (proxied by return on assets,
return on capital employed and production efficiency) in light of the owner’s business
knowledge (proxied by promoter ownership) and firm’s effective sales strategy (proxied by
sales growth) and board management (proxied by board independence). A negative
relationship is denoted by a minus sign and m denotes the moderating effect of promoter
ownership, sales growth and board independence on the link between the SCC index and firm
performance. Next, we will discuss related hypotheses in the subsequent subsections.
4.2 Hypotheses
4.2.1 Supply chain complexity index (SCC index) and firm performance. Structural SCC index
represents the complexity level of a firm in terms of number of suppliers, number of supplier’s
countries, number of products, number of plants and number of customers. A higher SCC
Promoter ownership
Structural
Sales growth supply chain
Board independence complexity
index
m Firm performance
(proxied by return on
Supply chain asset (ROA), return on
complexity index (–)
capital employed
(ROCE), production
efficiency
Figure 5.
Conceptual model
index score indicates that the firm has a greater number of suppliers, plants, products and
customers. Past studies have highlighted that SCC hampers performance outcomes (Pant
et al., 2021; Turner et al., 2018; Lu and Shang, 2017). For instance, a larger number of suppliers
restrains the buyer’s ability to monitor supplier behaviors and maintain exchange
relationships (Pilling et al., 1994). Studies suggest that difficulty in communicating
requirements and obtaining consistent inputs arises as the number of suppliers increases.
Also, the buyer firm becomes more susceptible to uncertainties with an increase in the
number of suppliers.
The number of supplier’s countries reflects the global expansion of the supply base. Due to
dynamic factors such as cultural differences, technological differences, import/export rules
and unpredictable lead times, it is difficult for globally stretched suppliers to provide
homogeneous inputs (Cho and Kang, 2001). Furthermore, a geographically stretched supply
chain implies a longer movement of physical products, longer routes and longer and
unpredictable lead times, all of which pose potential risks (Simchi-Levi et al., 2014). Because,
longer routes imply more stoppage points and a greater reliance on vital infrastructures like
airports and ports, which can pose risks such as cargo theft, rough handling, etc.
To remain competitive in a market characterized by diverse requirements, numerous
manufacturing firms are compelled to provide a comprehensive range of products (Fixson,
2005). The proliferation of products may result in escalated production expenses due to the
diminution of scale economies (MacDuffie et al., 1996). Also, the presence of various
production processes within the manufacturing environment leads to a notable increase in
setup costs. According to the research conducted by Lee and Tang (1997), a rise in product
proliferation results in an increase in inventory, consequently leading to higher holding costs
(Alfaro and Corbett, 2003). This, in turn, adversely affects the overall performance of the firm.
It is apparent that the advancement of technology and the need for equipment also tend to
accelerate with the rise in product variations, leading to amplified capital expenditure in
manufacturing facilities and consequently, a surge in fixed expenses.
Again, a large number of plants may lead to asymmetric information between a firm’s
headquarters and plant and also between manufacturing plants which often leads to
communication and monitoring challenges (Roper, 2001). Moreover, smaller plants are
significantly less likely to be innovating than larger plants (Roper and Hewitt-Dundas, 1998).
It reports that firms whose size is split into fewer plants are significantly less innovative than
firms whose size is split into more plants. Thereby, a large number of plants could hurt firm
performance.
The magnitude of management tasks (such as demand management tasks, order
management tasks and so on) grows as the number of customers increases (Vollmann et al.,
IJOEM 2004). With a large number of consumers, there is more consumer heterogeneity and demand
uncertainty. Different types of customers are more likely to differ in terms of order qualifiers
and winners, which leaves room for conflicting manufacturing activities and, as a result,
lower levels of firm performance (Bozarth and McCreery, 2001; Bozarth and Edwards, 1997),
as well as misalignment between firm capabilities and customer needs (da Silveira, 2005).
Moreover, a manufacturer’s ability to create an effective production schedule is hampered by
high levels of demand uncertainty (Bozarth et al., 2009). Therefore, considering the above-
mentioned argument, we propose:
H1. Supply chain complexity index will have a negative effect on the firm financial
performance.
4.2.2 Moderating role of owner’s business knowledge and firm’s effective sales strategy and
board management. A high degree of complexity in the supply chain is recognized as a key
impediment to supply chain disruptions (Narasimhan and Talluri, 2009; Chopra and Sodhi,
2004; Bode and Wagner, 2015). Despite the disadvantages associated with SCC, practitioners
and scholars have argued that not all complexity is bad. They argue that there is a critical
difference between value-creating and value-destroying complexity. While value-creating
complexity provides a competitive edge with progressively sophisticated customer demand
(Bode and Wagner, 2015; KPMG, 2011) and should be controlled efficiently, value-destroying
complexity pushes the customer away and hampers the company’s reputation. Prior studies
have argued that firms with better business knowledge and effective sales strategy and
board management can take advantage of increased complexity in a way to enhance
performance outcomes (Kearney, 2007).
According to Richter and Chakraborty (2015), promoter ownership represents business
knowledge due to the active involvement of promoters in firm-level activities (e.g. operational,
strategic, management). Given the performance implications of SCC, promoters tend to have
material incentives to monitor SCC carefully as they own relatively substantial stakes in their
firms. In line with Fama and Jensen (1983), a high level of promoter ownership enhances the
intensity of monitoring in a way to reduce information asymmetry and therefore, reduces
complexity at the supply chain level.
In a competitive environment, complexity in the supply chain is inevitable as firms tend to
offer a wide variety of products in a way to capture larger customer segments and increase
sales (Eckstein et al., 2015). Such sales strategies often lead to a high level of complexity due to
an increase in the number of suppliers and production lines. However, product complexity
can be valuable in the process of business growth because it significantly increases sales and
firm value (Kekre and Srinivasan, 1990).
Good governance is of paramount importance to ensure effective decision-making at the
supply chain level (Sisco et al., 2011). According to Singh et al. (2001), the independent board
facilitates better governance through the sharing of a wide array of expertise. Moreover,
independent directors are more responsive to supply chain management practices and thus
favorably translate SCC into value-creating complexity (Benjamin et al., 2020) in a way to
improve performance outcomes.
In light of the above discussion, we argue that the owner’s business knowledge and firm’s
effective sales strategy and board management are more likely to add value through
increased SCC. In line with the above-mentioned arguments, we propose the following
hypotheses.
H2a. Owner’s business knowledge moderates the degree of the SCC index such that the
negative effects of the SCC index on firm performance diminish.
H2b. Firm’s effective sales strategy moderates the degree of the SCC index such that the
negative effects of the SCC index on firm performance diminish.
H2c. Firm’s effective board management moderates the degree of the SCC index such Structural
that the negative effects of the SCC index on firm performance diminish. supply chain
complexity
5. Data and methodology
index
5.1 Data
We test our hypotheses using secondary panel data from Indian firms. More specifically, we
concentrate on Indian manufacturing companies that are listed on the BSE. Our empirical
sample merged data from three different sources, Bloomberg SPLC, CMIE (Prowess) and
annual reports. Bloomberg is a unique source of secondary data that provides information on
both financial as well as for supply chain data. We collect information on number of suppliers,
number of supplier’s countries and number of customers for each firm. Since supply chain
information on Bloomberg is not straightforward or readily available, we collect supplier/
customer data manually for each firm over the period of 2010–2017.
The Prowess database is a highly reputed source for firm-level financial data,
manufacturing plant and product portfolio information of publicly traded Indian firms. It
is observed that Prowess has more consistent financial data for Indian firms compared to
Bloomberg. While the firm-level financial data is straightforward, we have illustrated how the
supply chain data has been gathered (see Supplementary File (Figures S4–S6)).
Next, we discuss the data collection and cleaning process (see Figure 6). We start with
5,105 companies listed under BSE identified by prowess. After restricting our sample to the
manufacturing sector, we come down to 1888 companies. As the main focus of our study is
SCC, we first try to capture supply chain information for all 1888 firms from Bloomberg. After
looking into each firm, we get a sample of 601 companies, providing coverage of 31.8%.
5.1.1 Dependent variables. Firm performance is our dependent variable. Therefore, we use
return on assets (ROA), return on capital employed (ROCE) and production efficiency (TQ) as
the measure of firm performance (Lu and Shang, 2017; Jacobs et al., 2016).
5.1.2 Independent variables. In this study, the SCC index is the main independent variable.
We have operationalized the SCC index with the help of five complexity characteristics,
namely, number of suppliers, number of supplier’s countries, number of plants, number of
products and number of customers.
Number of suppliers implies first-tier suppliers directly connected to the focal firm.
Number of supplier’s countries is described as the number of countries represented in the
supply base. Number of products is conceptualized in the literature as the number of product
groups offered by the focal firm (MacDuffie et al., 1996). Number of plants is presented by the
number of active manufacturing facilities run by the focal firm (Evans, 1987). Again, number
of customers is identified as the firm’s customers in the downstream customer base.
5.1.3 Moderating variables. We use promoter ownership, sales strategy and board
independence as moderating variables. Promoter ownership represents the owner’s business
knowledge. It is identified as a person or a group of people who have been associated with the
company since its incorporation. Since the majority of Indian companies are family-owned,
promoters play a crucial role (Kumar and Singh, 2013). The percentage of a company’s shares
held by its promoters is known as promoter ownership. Sales growth is the measure of an
effective sales strategy that identifies the current financial stability of the company
(Hendricks et al., 2009). SCC management is considered a high-level strategic decision (Lu and
Shang, 2017). Therefore, this study has used board independence as the measure of effective
board management. Board independence is defined as the percentage of independent
directors on the board.
5.1.4 Control variables. We control for firm size, debt to equity ratio, inventory efficiency,
board size and CEO duality in a way to mitigate possible “omitted variable bias” (Angrist and
IJOEM Start
Identify companies listed in BSE
Step 1 5105 firms

(–) 2935
Identify manufacturing firms in BSE Remove non-manufacturing firms
Step 2 2170 firms

(–) 227
Identify firms listed as active in BSE Remove firms listed as suspended or
inactive in BSE
Step 3 1943 firms

(–) 55 firms
Identify firms incorporated before Remove firms incorporated after 2009
2009
Step 4 1888 firms
Identify firms with information on (–) 1287 Remove firms with no information on
suppliers and customers in Bloomberg suppliers and customers
Step 5 601 firms

(–) 3 firms
Identify firms with reliable financial Remove firms with no financial
information information
598 firms
Figure 6.
Steps involved in Final sample size
constructing and
cleaning the datasets
Pischke, 2009). Firm size is calculated as the logged value of the sales. To control for the
financial standing of the firm, we include debt to equity in our multiple regression models
(Hendricks et al., 2009). We use inventory efficiency to assess the efficiency of a firm by
measuring sales to the average inventory of the firm (Modi and Mishra, 2011). Further, we
consider board size and CEO duality to control for board efficiency. Table 4 provides a
comprehensive overview of the variables used in this study.
Data collection
Structural
Variable Description approach supply chain
complexity
ROA Return on asset Straightforward
ROCE Return on capital employed Straightforward index
Production efficiency The efficiency of utilizing production resources Straightforward
Supply chain A unified index that captures the multi-variate Hand-collected
complexity index dimensions of supply chain complexity
Number of suppliers Number of 1st tier suppliers Hand-collected
Number of supplier’s Count of suppliers countries Hand-collected
countries
Number of products Number of product groups extracted from product tree Hand-collected
Number of plants Number of plats run by the buyer firm Hand-collected
Number of customers Number of 1st tier customers Hand-collected
Sales growth The percentage changes in sale between current and Straightforward
previous year
Promoter ownership % Ownership of promoter in percentage Straightforward
Independent board Percentage of independent directors in the board Hand-collected
member %
Inventory efficiency The efficiency of utilizing inventory resources Straightforward
Firm size Log of Sales Straightforward
Debt to equity Debt to equity ratio Straightforward
Inventory efficiency It is the ratio of sales to average inventory Straightforward
Board size Number of board members Hand-collected
CEO duality If the same person serves as both chairman as well as Straightforward
managing director Table 4.
Source(s): Author’s compilation Variable description
5.2 Methodology
5.2.1 Supply chain complexity index. This study has developed the SCC index by considering
key dimensions/drivers of SCC, namely, number of suppliers, number of supplier’s countries,
number of plants, number of products and number of customers (see Figure 4). We have used
the quintile approach to construct the SCC index. The quintile technique is a statistical
approach for analyzing and ranking data in the process of index development. It involves
categorizing a dataset into five equal groups called quintiles based on a certain variable or
indicator. A quintile is one of five values that divide a set of data into five equal parts, each
accounting for one-fifth (20%) of the total. For instance, if we look at the number of suppliers
for a specific company in a given year, the top 20% of those suppliers would make up the
upper quintile of the data. It implies that the firm is more complex in terms of the number of
first-tier suppliers. The bottom 20% of those suppliers will represent the lower quintile of
data, implying that the company is less complex. Between the upper and lower quintiles, there
will be three quintiles (see Supplementary File (Figure S7)). Here, we briefly present the steps
involved in the construction of the SCC index with the help of a numerical example.
5.2.1.1 Numerical example. Name of the Company: ABG Shipyard; Year of consideration:
2014; Number of suppliers 5 3; Number of supplier’s countries 5 2; Number of products 5 3;
Number of plants 5 2; Number of customers 5 4.
Now, using the quintile methodology, the quintile score of Number of suppliers 5 2; Number of
supplier’s countries 5 3; Number of products 5 1; Number of plants 5 1; Number of
customers 5 2. Therefore, the SCC index score for ABG Shipyard for the year 2014 will be 9 (i.e. SCC
index 5 9). Similarly, we have calculated the index score for each firm over the period of 2010–2017.
5.2.2 Regression models. This study has carried out several multiple regression analyses
to examine the hypotheses presented in Section 4. Specifically, we investigate (1) the effect of
IJOEM the SCC index on firm performance and (2) the moderating effect of promoter ownership, sales
growth and board independence on the relationship between the SCC index and firm
performance.
The selection between fixed effects vs random effects estimators is determined by the
standard Hausman test. Our analysis reveals that the random effect estimator is better suited for
our model, as supported by previous studies (Baltagi, 2008). All models are tested using a
random effect panel data regression approach. Additionally, all regression models incorporate
industry and year effects. Industry effect is controlled to capture systematic differences across
industries, while year effect is accounted for to address differences over the period. Furthermore,
the statistical tests incorporate robust standard errors that account for heteroscedasticity.
(a) Supply chain complexity index and firm performance (H1)
To examine the effect of the SCC index on performance, we constructed Equation 1. Table 4
provides detailed information on the variables used in the model. We use the OLS
methodology for all the regression models.
ðFirm performanceÞit ¼ β0 þ β1 3 ðSCC indexÞit þ β2 3 ðFirm sizeÞit
þ β3 3 ð Debt to equityÞit þ β4 3 ðInventory efficiencyÞit
þ β5 3 ðBoard sizeÞit þ β6 3 ðCEO dualityÞit þ Year effect
þ Industry effect þ εit (1)
where firm performance is proxied by ROA, ROCE and production efficiency

(b) Moderating effect of promoter ownership, sales growth and board independence (H2a,
H2b and H2c)
We argue that the owner’s business knowledge (proxied by promoter ownership) and firm’s
effective sales strategy (proxied by sales growth) and board management (measured by board
independence) moderate the relationship between the SCC index and firm performance. To
investigate this hypothesis, we use several regression models as presented in Equations (2)–(4).
ðFirm performanceÞit ¼ β0 þ β1 3 ðSCC indexÞit þ β2 3 ðPromoter ownershipÞit
þ β3 3 ðSCC index*Board independenceÞit þ β4 3 ðFirm sizeÞit
þ Industry effect þ εit
(2)
ðFirm performanceÞit ¼ β0 þ β1 3 ðSCC indexÞit þ β2 3 ðSales growthÞit
þ β3 3 ðSCC index*Board independenceÞit þ β4 3 ðFirm sizeÞit
(3)
ðFirm performanceÞit ¼ β0 þ β1 3 ðSCC indexÞit þ β2 3 ðBoard independenceÞit Structural
þ β3 3 ðSCC index*Board independenceÞit þ β4 3 ðFirm sizeÞit supply chain
complexity
index
(4)
Further, in the spirit of Shannon’s information entropy, we have used industry-adjusted
drivers to consider the deviation of specific complexity drivers from industry practice.
According to Isik (2010), “Shannon entropy measures the average uncertainty (in bits)
associated with the prediction of outcomes in a random experiment” (Isik, 2010). The Shannon
entropy measurements show that the occurrence of high-probability events provides less
information (uncertainty) than the occurrence of low-probability events. As a result, the
average information uncertainty of discrete random variable X associated with an “n”
outcome (x1, x2 . . ..., xn) is calculated by (Shannon, 1948):
X n
Shannon’s Entropy ¼ − pðxi Þlog 2 pðxi Þ (5)
i¼1
where.
pðxi Þ 5 probability of outcomes of a system being in state i, (i 5 1, . . ., n);
pðxi Þ ≥ 0;
Pn
pðxi Þ ¼ 1;
i¼1
log 2 ð0Þ ¼ 0
According to Pant et al. (2021), “Shannon’s information entropy is a function of probabilities
of different states and each state can have different entropy (or complexity) levels of its own”
(p. 19). This infers that each state can have its expected level of SCC. The expected level needs
to be determined w.r.t industry standard. The existence of variation between expected and
actual complexity levels shows that there is a high/low level of complexity compared to
industry standards.
6. Results
6.1 Supply chain complexity index and firm performance (H1)
We have done correlation analysis and descriptive statistics to draw preliminary inferences
(see Supplementary File (Table S1 and Table S2)). Subsequently, we examine the firm
performance (measured by ROA, ROCE and production efficiency) based on the SCC index.
Table 5 reports the results obtained from Eq. (1). Model 1 examines the effect of the SCC index
on ROA. We find that there is a negative (coefficient of 0.2233) and significant (at 1
percentile) relationship between the SCC index and ROA. Model 2 investigates the
relationship between the SCC index and ROCE. The results show that there is a negative
(coefficient of 0.3239) and significant (at 1 percentile) association between the SCC index
and ROCE. Model 3 also reveals that the SCC index has a negative (coefficient of 0.0066) and
significant (at 1 percentile) effect on production efficiency. An explanation for the negative
relationship between complexity and firm performance is that the cost of SCC accounts for up
to 25% of manufacturing firms’ total expenditure (Steinhilper et al., 2012). Overall, these
IJOEM Dependent variable: Dependent variable: Dependent variable: Production
ROA ROCE efficiency
Variables Model (1) Model (2) Model (3)
SCC index 0.2233*** 0.3239*** 0.0066***

(0.036) (0.053) (0.002)
Firm size 2.2975*** 3.3175*** 0.0122*
(0.091) (0.134) (0.006)
Debt to equity 0.0600*** 0.0824*** 0.0013*
(0.012) (0.018) (0.001)
Inventory efficiency 0.1282*** 0.1895*** 0.0156***
(0.017) (0.025) (0.001)
Board size 0.1438*** 0.1676*** 0.0015
(0.041) (0.062) (0.003)
CEO duality 0.0575 0.0783 0.0146
(0.329) (0.489) (0.022)
Constant 8.5703*** 12.5414*** 0.9979***
(0.937) (1.384) (0.077)
Industry effect Yes Yes Yes
Year effect Yes Yes Yes
Observations 3,433 3,433 3,433
Number of 536 536 536
Table 5. companynum
Effect of supply chain Adj. R-squared 0.265 0.272 0.136
complexity of firm Note(s): *p < 0.1, **p < 0.05, ***p < 0.01 (robust standard error in the parentheses)
performance Source(s): Author’s compilation
results posit that complexity in the supply chain hampers the firm’s performance outcomes
(Turner et al., 2018; Bode and Wagner, 2015) and production efficiency (Lu and Shang, 2017).
Hence we fail to reject hypothesis H1.
6.2 Moderating effect of promoter ownership, sales growth and board independence (H2a,
H2b and H2c)
Table 6 (Panel A) presents the results obtained from Eq. (2). Model 1 examines the moderating
effect of promoter ownership on the relationship between the SCC index and ROA. The results
show that the coefficient of the interaction term SCC index*promoter ownership is positive (0.0043)
and significant (at 5 percentile). Similarly, Model 2 and Model 3 investigate the moderating effect of
promoter ownership on the relationship between SCC index and ROCE and SCC index and
production efficiency respectively. Model 2 reveals that the coefficient of the interaction term SCC
index*promoter ownership is positive (0.0080) and significant (at 1 percentile). Model 3 also
indicates that the coefficient of the interaction term SCC index*promoter ownership is positive
(0.0002) and significant (at 10 percentile). These results indicate that promoter ownership mitigates
the negative impact of complexity on firm performance. This is because promoters tend to retain
an active involvement with the firm (Kumar and Singh, 2013). They occupy a regular position on
the board of directors and tend to have greater knowledge about their firm as well as business
compared to external owners (Richter and Chakraborty, 2015). Moreover, they retain decision-
making power in the key strategic decisions (e.g. supply chain, investment decisions). Therefore, it
can be construed that high promoter ownership enables better complexity management at the
supply chain level which improves firm performance.
Table 6 (Panel B) presents the results obtained from Eq. (3) that examine the moderating
effect of sales growth on the relationship between the SCC index and firm performance. Model
Dependent variable: Dependent variable: Dependent variable:
Structural
ROA ROCE production efficiency supply chain
Variables Model (1) Model (2) Model (3) complexity
(Panel A). Moderating effect of promoter ownership on the relationship between supply chain complexity and firm index
performance
SCC index 0.4630*** 0.7697*** 0.0197***
(0.112) (0.167) (0.007)
SCC index*promoter 0.0043** 0.0080*** 0.0002*
ownership (0.002) (0.003) (0.000)
Promoter ownership 0.0362 0.0690* 0.0004
(0.028) (0.041) (0.002)
Firm size 2.2902*** 3.3041*** 0.0107*
(0.091) (0.134) (0.006)
Debt to equity 0.0603*** 0.0830*** 0.0013*
(0.012) (0.018) (0.001)
(0.017) (0.025) (0.001)
Board size 0.1397*** 0.1603*** 0.0011
(0.041) (0.062) (0.003)
CEO duality 0.0279 0.0263 0.0108
(0.328) (0.488) (0.021)
Constant 6.5035*** 8.6089*** 0.9935***
(1.795) (2.660) (0.126)
Number of companynum 536 536 536
Adj. R-squared 0.271 0.281 0.154
(Panel B). Moderating effect of sales growth on the relationship between supply chain complexity and firm
performance
SCC index 0.2424*** 0.3513*** 0.0076***
(0.035) (0.052) (0.002)
SCC index*sales growth 0.2952*** 0.4218*** 0.0171***
(0.025) (0.037) (0.001)
Sales growth 0.3167*** 0.4567*** 0.0122**
(0.096) (0.143) (0.005)
Firm size 2.1898*** 3.1651*** 0.0041
(0.089) (0.132) (0.006)
Debt to equity 0.0603*** 0.0830*** 0.0013*
(0.012) (0.018) (0.001)
(0.017) (0.025) (0.001)
Board size 0.1328*** 0.1520** 0.0009
(0.040) (0.060) (0.002)
CEO duality 0.0473 0.0671 0.0119
(0.322) (0.479) (0.021) Table 6.
Constant 8.3940*** 12.2996*** 1.0232*** Moderating role of
(0.915) (1.353) (0.076) promoter ownership,
Industry effect Yes Yes Yes sales growth and board
Year effect Yes Yes Yes independence on the
Observations 3,433 3,433 3,433 relation between
Number of companynum 536 536 536 supply chain
complexity and firm
(continued ) performance
IJOEM Dependent variable: Dependent variable: Dependent variable:
ROA ROCE production efficiency
Variables Model (1) Model (2) Model (3)
Adj. R-squared 0.288 0.293 0.151

(Panel C). Moderating effect of board independence on the relationship between supply chain complexity and firm
performance
SCC index 0.3349*** 0.4795*** 0.0121***
(0.072) (0.107) (0.004)
SCC index*board 0.2240* 0.3122* 0.0110*
independence (0.124) (0.186) (0.006)
Board independence 2.8604 4.0067 0.1583*
(1.743) (2.605) (0.088)
Firm size 2.2947*** 3.3137*** 0.0186***
(0.091) (0.134) (0.006)
Debt to equity 0.0599*** 0.0822*** 0.0011*
(0.012) (0.018) (0.001)
(0.017) (0.025) (0.001)
Board size 0.1398*** 0.1618** 0.0013
(0.042) (0.063) (0.002)
CEO duality 0.0653 0.0887 0.0099
(0.329) (0.489) (0.019)
Constant 7.1720*** 10.5855*** 1.0228***
(1.247) (1.851) (0.080)
Number of companynum 536 536 536
Adj. R-squared 0.265 0.272 0.113
Note(s): *p < 0.1, **p < 0.05, ***p < 0.01 (robust standard error in the parentheses)
Table 6. Source(s): Author’s compilation
1 inquires about the moderating effect of sales growth on the relationship between the SCC
index and ROA. The results show that the coefficient of the interaction term SCC index*sales
growth is positive (0.2952) and significant (at 1 percentile). Similarly, Model 2 and Model 3
investigate the moderating effect of sales growth on the relationship between SCC index and
ROCE and SCC index and production efficiency respectively. The results of Model 2 reports
that the coefficient of the interaction term SCC index* sales growth is positive (0.4218) and
significant (at 1 percentile). Likewise, Model 3 indicates that the coefficient of the interaction
term SCC index* sales growth is positive (0.0171) and significant (at 1 percentile). These
results highlight that sales growth mitigates the negative effect of complexity on firm
performance. In line with our results, prior studies (Eckstein et al., 2015; Salvador et al., 2002)
have indicated that a high level of complexity may lead to increased sales. For instance,
product-related complexity has been linked to sales growth (Kekre and Srinivasan, 1990),
implying an increase in sales through added product complexity (e.g. more product variants
and features) (Salvador et al., 2002).
Table 6 (Panel C) presents the results obtained from Eq. (4). Model 1 examines the
moderating effect of board independence on the relationship between the SCC index and
ROA. The results show that the coefficient of the interaction term SCC index*board
independence is positive (0.2240) and significant (at 10 percentile). Similarly, Model 2 and
Model 3 investigate the moderating effect of board independence on the relationship between
the SCC index and ROCE and the SCC index and production efficiency respectively. The Structural
results reveal that the coefficient of the interaction term SCC index* board independence is supply chain
positive and significant at 1 percentile level in both Model 1 and Model 2. It shows that board
independence lessens the adverse effect of complexity because an independent board is more
complexity
likely to have effective governance through the sharing of a wider range of experiences and index
ideas (Singh et al., 2001) and to serve the different stakeholder interests (Wang and Dewhirst,
1992). Also, the presence of independent directors facilitates an effective, open and impartial
managerial insight as well as objectivity and expertise for enhanced firm value (Abdullah
et al., 2016; Mallin and Michelon, 2011). According to Benjamin et al. (2020), independent
executives proactively promote the need for effective supply chain management strategies
for addressing stakeholders’ interests and for better long-term firm performance.
Together, these results indicate that the owner’s business knowledge (proxied by
promoter ownership), firm’s effective sales strategy (proxied by sales growth) and board
management (proxied by board independence) moderate the degree of the SCC index such
that the negative effects of SCC index on firm performance (measured by ROA, ROCE and
production efficiency) diminish. Therefore, we failed to reject H2a, H2b and H2c.
7. Discussion
This research contributes to a deeper understanding of the multi-dimensional nature of
structural SCC. It has proposed five key drivers of SCC under three broad dimensions,
namely, number of suppliers and number of supplier’s countries (supply base complexity),
number of products and number of plants (internal manufacturing complexity) and number
of customers (customer base complexity). Utilizing these five key complexity drivers, this
study has operationalized a unified index, i.e. the SCC index. Further, we have validated the
utility of our proposed complexity index by investigating the link between the SCC index and
firm performance (proxied by ROA, ROCE and production efficiency) in light of the owner’s
business knowledge (proxied by promoter ownership) and firm’s sales strategy (proxied by
sales growth) and board management (proxied by board independence).
Subsequently, we propose a conceptual model and related hypotheses based on the
operations and supply chain management literature. In essence, our proposed model posits
that there is a negative direct association between the SCC index and firm performance. It
shows that SCC hurts performance outcomes as high-level complexity hampers exchange
relationships (Pilling et al., 1994), facilitates uncertainty (Lu and Shang, 2017) and leads to
asymmetric information sharing among supply chain members, i.e. lack of accurate and
timely information (Flynn et al., 2016).
According to Lu and Shang (2017), complexity management is a high-level strategic
decision. Therefore, we have recognized that the performance effect of SCC may not be
uniform across firms and likely to depend on firm-specific and governance characteristics
(Kearney, 2007). Accordingly, this study argues that organizations with better business
knowledge and effective sales strategy and board management may be able to capitalize on
increased SCC in a way to enhance firm value. Our results show that the owner’s business
knowledge and firm’s effective sales strategy and board management significantly mitigate
the negative effect of complexity. The results of our study provide strong support to our
predictions and have several important theoretical and managerial contributions.
7.1 Contributions to theory

Theoretically, this study has several important implications. First and foremost, it extends
our knowledge of the multidimensional nature of structural SCC. Second, the current research
has developed a unified index, i.e. the SCC index by integrating five key drivers of SCC,
IJOEM namely, number of suppliers and number of supplier’s countries, number of plants and
number of products and number of customers under three broad dimensions, i.e. supply base,
internal manufacturing and customer base complexity and therefore, makes a
methodological contribution to the literature. The SCC index allows the measurement of
multiple attributes of complexity and transforms results into a composite value that can be
used to compare complexity over time (Murias et al., 2008). The need for a composite index is
justified by the fact that decision-making is difficult when multiple complexity drivers are
present (Asif and Searcy, 2014). To our knowledge, this is the first study that has proposed an
index by capturing the holistic view of an organization’s structural complexity. Third, it
validates the utility of the proposed SCC index by examining the relationship between
complexity and firm performance. At the same time, this study highlights how firm-specific
and governance characteristics may influence this relationship. This shows the practicality
and usefulness of the SCC index proposed in this study. In this study, we use well-reputed
secondary data sources such as Bloomberg and Prowess – which address a recent call for the
use of archival data in supply chain management research (Fisher et al., 2019).
7.2 Contribution to practice and policy

This study also produces several implications for decision-makers. First, decision-makers
should understand the importance of SCC management as it affects firm-level performance
significantly (Turner et al., 2018). Second, managers must focus on the SCC index instead of
individual drivers of SCC as individual drivers do not present a holistic view of organizational
complexity and may emphasize certain complexity drivers at the expense of others (Jacobs,
2013). In other words, focusing on individual complexity components would not capture the
trade-offs between different components. Managers need to take a holistic view of SSC while
making decisions on various complexity components. A unified perspective on a firm’s
structural complexity is also beneficial for external stakeholders because of its ability to
organize a large amount of information into easily comprehensible formats (Singh et al., 2007).
Third, firms with better business knowledge, effective sales strategy and board management
are more capable of effectively managing SCC compared to their counterparts. Therefore,
managers should consider the promoter’s involvement, sales growth and board independence
before prioritizing SCC management practices. Such an approach can significantly reduce the
negative effect of SCC and eventually improve firm performance.
7.3 Limitations of the study and future research

Our research has a few drawbacks, each of which guides potential future researchers. First,
this study has not directly captured the behavioral complexity (e.g. buyer-supplier/buyer-
customer interaction, unreliable suppliers, customer heterogeneity, technological innovation)
as such data is not completely available on Bloomberg or other major data sources such as
Prowess. Future research should consider these supply chain characteristics to establish a
more generalized SCC index. Second, this article examines the association between the SCC
and financial performance. Nonetheless, future research has the potential to employ a
comprehensive range of performance metrics such as delivery, quality, service and so forth to
further validate the robustness of our findings. Third, future studies may investigate the
performance effect of SCC in other developing countries to validate the findings of our study.
It implies that researchers can assess the generalizability of our proposed SCC index using
comparable data from different emerging economies around the world. Fourth, the sample
used in this study may be biased, as it was reduced from 1888 firms to 598 firms due to a lack
of consistent data. This reduction in the sample size can potentially lead to sample selection
bias, as it depends on whether the selection process is related to financial performance. To
address this concern, future research could employ the Heckman selection model (Heckman,
1979) to examine the reliability of the sample. In addition, it would be beneficial to extend the Structural
study to other sectors (e.g. services, mining, banking) enabling cross-comparisons with the supply chain
current findings. Furthermore, the findings of this study indicate that R-squared values range
from 11.3% to 29.3%. This suggests that there is still a significant amount of unexplained
complexity
heterogeneity within the firm (Markarian and Parbonetti, 2007). While our study introduces a index
new approach to understanding the impact of SCC, there remain unanswered questions that
require further investigation in future research.
8. Conclusion
The supply chain is a complex system and therefore, measuring the firm-level SCC is critical
to facilitate effective and efficient SCC management practices. In this regard, identification
and understanding of the inherent complexity drivers of the supply chain are of paramount
importance. In addition, it is important to capture the multi-dimensional nature of SCC to gain
a holistic view of firm-level complexity. In this study, we have defined SCC and classified
critical drivers of complexity according to three board dimensions: supply base, internal
manufacturing and customer base complexity. For the success of a complexity management
system, organizations primarily need to focus on two major processes: (1) identification and
understanding of the drivers since these account for the undesirability observed in the supply
chain and (2) development of a benchmarking tool as a solution strategy to measure and
manage firm-level SCC. As a result, this research develops an SCC index using five critical
structural complexity drivers, namely, number of suppliers and number of supplier’s
countries, number of plants and number of products and number of customers. Further, it
validates the significance of the proposed SCC index by examining its association with firm
performance. Moreover, this study shows how the owner’s business knowledge, firm’s sales
strategy and board management play a role in determining the effect size of SCC. The
findings indicate that SCC adversely affects firm performance. On top of that, we find that a
high level of owner’s business knowledge and efficient sales strategy and board management
significantly lessen the negative effect of SCC. To conclude, building on the tenets of the
supply chain literature and relevant theories, the study develops an objective understanding
of SCC, by relying on a large panel dataset of manufacturing firms and hence contributes to
the supply chain literature.
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Corresponding author
Pushpesh Pant can be contacted at: pushpesh.pant@imthyderabad.edu.in
Supplementary file Structural
supply chain
complexity
index
Figure S1.
Research onion
framework
35
30
25
Number of articles
20
15
10
0
1995 2000 2005 2010 2015 2020 2025 Figure S2.
Year Number of journal
articles per year
IJOEM 90
80
70
NUMBER OF ARTICLES
60
50
40
30
20
10
Figure S3.
Number of articles
based on types of SCC
Structural
supply chain
complexity
index
Figure S4.
Data exposition on
prowess for product
groups
IJOEM
Figure S5.
Data exposition on
prowess for plant
locations
First-Ɵer suppliers Buyer/focal firm Customers
Daeyang electric Co Ltd

(South Korea)
Precious Shipping PCL
(India)
Starlog Enterpries Ltd

ABG Shipyard Ltd
(India)
(India)
Starlog Enterpries Ltd
(India)
Westerm India Shipyard

Ltd
(India)
Note(s): The number of suppliers implies first-tier suppliers directly connected to the focal
firm. For example, ABG Shipyard has three first-tier suppliers. The number of supplier’s
countries is described as the number of countries represented in the supply base. The three
suppliers are located across two countries South Korea and India. Therefore, the number of
Figure S6. supplier’s countries will be 2. Again, the number of customers is identified as the firm’s
Presentation of supply customers in the downstream customer base. For instance, we identify two customers of ABG
chain complexity
measures
Shipyard
Average
Lowest data values Highest data values
First Quintile Second Quintile Third Quintile Fourth Quintile Fifth Quintile
Figure S7.
Quintile
Structural
supply chain
Variable Mean Std. Dev Min Max complexity
ROA 4.722964 7.35049 35.61 22.85 index
ROCE 7.029017 10.9906 62.68 35.14
Production efficiency 1.105879 0.617823 0.00743 4.865739
SCC index 13.2485 4.769262 5 25
Firm size 8.491774 2.28962 1.587192 15.06925
Debt to equity 1.4519 6.595878 0 272.88
Inventory efficiency 8.157792 7.57807 0.078806 169.1 Table S1.
Board size 9.238357 3.217141 4 16 Summary statistics of
CEO duality 0.298366 0.457607 0 1 variables used in
Source(s): Author’s compilation the study
IJOEM
Table S2.
Correlation matrix
Variable [1] [2] [3] [4] [5] [6] [7] [8] [9]
[1] ROA 1
[2] ROCE 0.973*** 1
[3] Production efficiency 0.259*** 0.292*** 1
[4] SCC index 0.112*** 0.120*** 0.106*** 1
[5] Firm size 0.426*** 0.432*** 0.143*** 0.533*** 1
[6] Debt to equity 0.200*** 0.195*** 0.0484** 0.0567*** 0.121*** 1
[7] Inventory efficiency 0.182*** 0.191*** 0.354*** 0.0609*** 0.0147 0.0461** 1
[8] Board size 0.0520** 0.0628*** 0.0782*** 0.248*** 0.336*** 0.000475 0.0349* 1
[9] CEO duality 0.0120 0.0247 0.0544** 0.0322 0.00910 0.00553 0.0128 0.0216 1
Note(s): *p < 0.05, **p < 0.01, ***p < 0.001

Structural Supply Chain Complexity

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Structural supply chain complexity Structural

Data source Search syntax

Search syntax on scopus ( TITLE-ABS-KEY ( “supply chain” ) AND TITLE-ABS-

Stage 2 Exclusion of the 2023 articles: #2

Limit the study of the type of articles (article in

Stage 4 Limit the articles to business management &

Stage 5 Limit the articles to the English language: #5 N = 1376

Stage 6 Include the articles relevant to the current study: #6 N = 199

Conventional constituents of supply chain complexity

Key complexity drivers

Number of Number of Unreliable Buyer-supplier Number of Number of Number of Buyer-

Key complexity dimensions

Source(s): Author’s compilation

empirically examined the performance implications of these complexity dimensions using

2.2 Research gaps in the literature

Cheng et al. Average mutual U U No

2.3 Significance of Indian set-up

Supply chain complexity dimensions

Supply base Internal manufacturing complexity Customer base

Supply chain complexity drivers

Number of Number of Number of Number of Number of

Individual complexity index score

Quintile Quintile Quintile Quintile Quintile

Supply chain complexity index

4. Validation of supply chain complexity index

4.1 Conceptual model

Identify companies listed in BSE

Step 1 5105 firms

Step 2 2170 firms

Step 3 1943 firms

Step 4 1888 firms

Step 5 601 firms

where firm performance is proxied by ROA, ROCE and production efficiency

SCC index 0.2233*** 0.3239*** 0.0066***

Adj. R-squared 0.288 0.293 0.151

7.1 Contributions to theory

7.2 Contribution to practice and policy

7.3 Limitations of the study and future research

First-Ɵer suppliers Buyer/focal firm Customers

Daeyang electric Co Ltd

Starlog Enterpries Ltd

Westerm India Shipyard

Lowest data values Highest data values

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SCC index 0.2233* 0.3239* 0.0066***