International Journal of Physical Distribution & Logistics Management
Clusters and supply chain management: the Amish experience Tom DeWitt Larry C. Giunipero Horace L. Melton

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To cite this document: Tom DeWitt Larry C. Giunipero Horace L. Melton, (2006),"Clusters and supply chain management: the Amish experience", International Journal of Physical Distribution & Logistics Management, Vol. 36 Iss 4 pp. 289 - 308 Permanent link to this document: http://dx.doi.org/10.1108/09600030610672055
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Clusters and supply chain management: the Amish experience
Tom DeWitt
Marketing Department, Bowling Green State University, Bowling Green, Ohio, USA, and

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Larry C. Giunipero and Horace L. Melton
Department of Marketing, College of Business, Florida State University, Tallahassee, Florida, USA
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Abstract
Purpose – To demonstrate the linkage between Porter’s cluster theory and supply chain management, and provide evidence of their potential joint positive impact on competitiveness and firm performance. Design/methodology/approach – The paper examines the linkage between cluster theory and supply chain management using data from a case study of the Amish furniture industry in Homes County, Ohio, USA. Findings – Using the Amish furniture industry and a representative furniture firm as examples, the paper shows the positive impact of operating within an integrated supply chain in a geographically concentrated cluster. Research limitations/implications – Use of a single case study approach limits the generalizability of the findings; the paper recommends further study of linkages in other industries and locations. Practical implications – The study suggests that firms build competitive advantage by initially focusing primarily on local resources when selecting supply chain partners, rather than looking only for low cost advantage through distant sourcing. Originality/value – This paper adds to the literature on business linkages by proposing an expanded definition of clusters as geographical concentrations of competing supply networks. Keywords Cluster analysis, Supply chain management, Competitive advantage Paper type Case study

Introduction Porter (1998) has proposed that today’s economic map of the world is dominated by what he refers to as clusters: geographic concentrations of linked businesses that enjoy unusual competitive success in their field. He suggests that the immediate business environment outside a company plays a vital role in determining how a company creates competitive advantage. When firms operate in one location, the repeated interactions among them boost competition, improve productivity, innovation and coordination, and build trust. Companies operating in a cluster can have the advantage of scale without dealing with the inflexibilities of vertical integration or formal linkages. Cluster theory, in effect, builds on the advantages of interfirm cooperation propounded by supply chain theorists. Supply chain management integrates processes

International Journal of Physical Distribution & Logistics Management Vol. 36 No. 4, 2006 pp. 289-308 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030610672055

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and builds long-term relationships among firms involved in the flow of products and services from the source through to end-users. All firms in the supply chain can benefit through achieving lower costs, improved customer value and satisfaction, and greater competitive advantage (Mentzer et al., 2001). When members of a supply chain all operate in the same general geographic location, they gain the cost efficiencies of supply chain coordination, as well as the boost in competitive drive and innovation that comes from working together in close physical proximity. Managers who are considering relocation of physical facilities or are exploring ways to build competitive advantage in their firm’s present location should understand the linkages between cluster theory and supply chain management. A firm that sources inputs globally to get the best price may be losing out on the advantages of linking with firms in its local area that can provide several other benefits that lower total supply chain costs. This paper illustrates the linkages between supply chain management and Porter’s cluster theory by examining the successful Amish furniture industry in Holmes County, Ohio. Given the strong cultural cohesiveness of the Amish, and their proximity and self-dependency, the context offers a unique viewpoint from which to examine the relative advantage of cluster theory and how this close coupling affects supply chain management practices. Literature review Porter’s cluster framework The globalization of economic activity is changing the nature and location of work, the role of workers, and the prospects for economic development intowns, cities, and provinces or states around the world (Blakely, 2001). In theory, the global marketplace, with its efficiencies in sourcing, transportation, and communication, should have nullified the importance of location in competition. Researchers offer that the computer is at the forefront of this economic mobility, with workers almost anywhere able to compete with one another through the power of the internet with computerized central control systems (Blakely, 2001). Porter (1998) suggests that much of the conventional wisdom about how companies and nations compete needs to be overhauled, as the ease of which firms are able to quickly and efficiently level the playing field has made resources, core competencies, and relationships of key importance in determining a company’s competitive advantage. Research appears to concur with this assertion, as a case has also been made for resource-based innovation (de Gouvea and Kassicieh, 2001). If location matters less, why then is it true that the odds of finding a superior office furniture manufacturer in western Michigan are much higher than anywhere else in the world? The same can be said for other industries, such as the movie industry in Hollywood, and biotechnology and computer industries in the San Francisco Bay area. Porter (1998, p. 78) defines a cluster as a:
. . . geographic concentration of interconnected companies and institutions in a particular field. . . critical masses – in one place – of unusual competitive success in particular fields.

Clusters are viewed as encompassing an array of linked industries and other entities important to competition that include, for example, suppliers of inputs such as components, machinery, and services. Clusters also extend downstream to channels and customers and laterally to manufacturers of complementary products, and to

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companies in industries related by skills, technologies, or common inputs (Porter, 1998). Clusters can be seen as exhibiting three broad characteristics: physical proximity, core competencies, and relationships. Enright (1999) makes a clearer distinction in measuring the dimensions of regional clusters by suggesting the following cluster dimensions: geographic scope, density, breadth, depth, activity base, growth potential, competitive position, innovative capacity, industrial organization and coordinating mechanisms. Clusters also present opportunities for an organization to streamline and shorten its supply chain, as these sources exist in a concentrated area. Clusters represent an alternative way of organizing the value chain that can be positioned somewhere between arm’s-length markets on the one hand and hierarchies, or vertical integration, on the other (Porter, 1998). Compared with market transactions among dispersed and random buyers and sellers, the proximity of firms in clusters – and the repeated exchanges between them – fosters communication, coordination, innovation, interdependence and trust. Clusters are seen as affecting competition in three broad ways: (1) increasing the productivity of companies in the area; (2) driving the direction and pace of innovation; and (3) stimulating the formation of new businesses, which expands and strengthens the cluster itself (Porter, 1998). Recent research has extended Porter’s theory to the Indian software industry where clusters are viewed as a way to maintain global competitiveness. In India, software industry clusters provide a means for knowledge transfer, innovation, growth of new organizations, and increased flexibility to compete against cost competitors in China, Philippines and Malaysia (Dayasindu, 2002). Supply chain management While Porter’s model offers a very general macro view, the effectiveness of clusters can be better understood by examining the practices of supply chain management. Clusters can be thought of as geographic concentrations of competing, networked supply chains. A single supply chain is:
. . . a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer (Mentzer et al., 2001, p. 4).

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The supply chain may consist of a company and its immediate supplier and customer (i.e. a direct supply chain), or may extend to all organizations upstream and downstream from the raw material supplier to the ultimate customer (i.e. ultimate supply chain). In addition, supply chains can intertwine with any one company being a part of many supply chains. As an example, IBM is part of a network of supply chains, since it is a customer in one supply chain (for server components), a supplier in another (to CompUSA for laptops), a partner in another (with Linux for software), and a competitor to another chain (Apple for desktop PCs). The chain or network of chains exists whether they are actively managed or not. Supply chain management theory suggests, though, that performance improves for individual firms and the overall

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supply chain when the inter-firm processes and relationships within the chain are actively managed (Mentzer et al., 2001). Supply chain management is:
. . . the integration of key business processes from end-user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders (Lambert, 2006, p. 2).

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Key processes within and between firms are focused on meeting customer requirements. Examples of important processes that are integrated in a supply chain are customer relationship management, customer service management, demand management, order fulfillment, manufacturing flow management, procurement, and product development and commercialization (Mentzer et al., 2001). Supply chain management can also be thought of as the group of activities that bring about the coordinated flow of materials from source to end customer, and ultimately build customer value. According to Mentzer et al. (2001), those activities are: . integrated behavior (i.e. incorporating customers and suppliers); . mutually sharing information; . mutually sharing risks; . cooperation; . firms having the same goal and focus on serving customers; . integration of processes; and . partners building and maintaining long-term relationships. In order to implement the active management of a supply chain, Lambert and Cooper (2000) suggest three steps for a firm to follow: (1) Supply chain network structure. Identify key supply chain members with whom to link processes. (2) Supply chain business processes. Identify the processes that should be linked with key chain members. (3) Supply chain management components. Determine the level of integration and management that should be applied for each process link (e.g. actively manage or only monitor the link). The consequences of integrating processes and implementing supply chain management practices, then, are lower costs, improved customer value and satisfaction and achievement of competitive advantage (Mentzer et al., 2001). Network linkages The literature also identifies other types of informal business linkages that improve performance and competitiveness of participating firms. Harland et al. (2001, p. 22) conducted research to develop a taxonomy of supply networks, which are sets of supply chains nested within interorganizational networks and:
. . . consisting of interconnected entities whose primary purpose is the procurement, use, and transformation of resources to provide packages of goods and services.

Based on the literature and qualitative and quantitative evidence, they build a model of supply network types. Networks are categorized by the degree of supply network dynamics and the degree of focal firm supply network influence. The combination of those two dimensions yields four types of networks: (1) dynamic/low degree of focal firm influence; (2) dynamic/high degree of focal firm influence; (3) routinized/low degree of focal firm influence; and (4) routinized/high degree of focal firm influence (Table I). The authors provide practical guidance to managers by identifying the different patterns of networking activity critical for firms operating within each category. For example, managers in categories 1 and 3 often have to cope with network operations which are for the most part out of their control. This categorization clearly provides some insight into the interaction and outcomes of firms operating in a cluster. Another evolving model of linkage between firms is supply chain virtualization, which according to Ho et al. (2003) consists of: (1) formation of virtual (technology-based) trading communities; (2) emergence of virtual knowledge communities; and (3) relocation and integration of inter-organizational business processes from the physical space to cyberspace. Transformation involves building general and specialized information portals, electronic exchanges, and integration of online business processes (e.g. online trade documents processing and product catalogs). Virtualization changes the way business relationships are established, provides new sources of knowledge capital for innovation and product/process improvement, and speeds up the integration of inter-firm business processes. Virtualization offers many of the advantages of clusters without the requirement and benefit of physical proximity. Finally, there is the keiretsu, the Japanese model of business linkage. Keiretsu has been variously defined as “societies of business with interlocking ownership and close buyer-supplier relationships” (Anchordoguy, 1990, p. 58), “clique-like patterns based on intercorporate alliances” (Gerlach, 1992, p. 105), and “vertically integrated groups with a dominant manufacturing firm and a network of major suppliers and

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Dynamic supply network Focal firm has low degree of supply network influence Focal firm has high degree of supply network influence Category 1 Coping with network Compete on product innovation Category 2 Managing network Compete on product innovation

Routinized supply network Category 3 Coping with network Compete on process innovation Category 4 Managing network Compete on process innovation

Source: Harland et al. (2001)

Table I. A taxonomy of supply networks

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subcontractors” (Presutti, 1992, p. 3). Lai (1999, p. 424) sums up with a richer, more comprehensive definition:
Internal control, cohesiveness, policy coordination and symbiotic relationships combine to become a keiretsu linking firms into groups.

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Keiretsu groups vary by status structure and degree of internal control. Horizontal groups exercise control through overlapping ownership of firms, and vertical groups relate to the value chain with captive suppliers (Page, 1994). Public policy limitations (i.e. restraint of trade rules) make it difficult to consider horizontal keiretsu as a form of business linkage transferable to American firms. But the vertical keiretsu is, in effect, similar to the tightly integrated partnership among members of the supply chain promoted by the supply chain literature. Competitive benefits of clusters Supply chain management is gaining increased acceptance as a tool used by firms to both improve customer service and reduce total costs. Geographic distance adds to supply chain complexity and increases logistical costs in the supply chain. An argument can also be made for the benefits associated with the increased interdependence and mutual commitment that accompanies a cluster and a tightly woven supply chain. Research indicates that relational elements such as a long-term orientation enhance the performance outcomes in buyer-seller relationships (Noordewier et al., 1990; Corsten and Kumar, 2005). More specifically, relationships with greater total interdependence exhibit higher trust, greater commitment, and lower conflict (Kumar et al., 1995), with dependence and trust playing key roles in the determination of the long-term orientation of the relationship (Ganeson, 1994; Doney and Cannon, 1997). Thus, we propose to examine the following two research questions through a study of the Amish furniture industry. First, while it appears that the Amish furniture industry exhibits the key characteristics often associated with a cluster (i.e. physical proximity, core competencies, and relations), will the competitive benefits proposed by Porter be found in an examination of the Amish furniture cluster? P1. There are actual competitive benefits associated with the formation of a cluster.

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The following list indicates there are many expected benefits from supply chain proximity: (1) Increased productivity: . Improved access to employees and suppliers; . improved access to specialized information; . increased supply chain network support; . access to institutions and public goods; and . easier motivation and measurement of supply chain partners. (2) More focused direction and faster innovation cycles: . innovation visibility through proximity; . enhanced flexibility; and . lower risk of business failures.

(3) Stimulating the formation of new businesses: . knowledge of business opportunities; . quicker identification of perceived gaps in products and services; . enhanced local market opportunities; and . shorter feedback loops. Secondly, will the proximity, innovation and business development benefits, as well as, core competency and relational characteristics that exist in clusters impact supply chain management efficiencies? P2. Cluster characteristics will enable more efficient supply chain management practices (Figure 1).

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The cluster that provided the focal point for this study is the Amish furniture industry of Holmes County, Ohio. The case study presents their history, economic models, and the Amish furniture industry’s supply chain. Application of Porter’s cluster framework to the Amish furniture industry follows, along with conclusions and managerial implications. In general, the case study research method has been used for exploratory research, when no specific hypotheses are proposed, but a basic understanding is sought of “how” and “why” a social phenomenon occurs (Yin, 1994). The method is most useful when the object of study is a contemporary phenomena occurring in a real-life setting over which the researcher has little control. According to Yin (1994, p. 13):
. . . the case study allows an investigation to retain the holistic and meaningful characteristics of real-life events – such as individual life cycles, organizational and managerial processes. . .

Use of the case study method to analyze the Amish experience certainly complies with Yin’s criteria for selecting the method. Case study The Amish of Holmes County, Ohio The Amish are an outgrowth of the Anabaptist movement that occurred in sixteenth century Europe. They were looked upon as radicals in the days of Swiss Protestant Reformation, earning the name Anabaptists because they rejected infant baptism. The
Relationship of Cluster Characteristics to SCM Practices Cluster Characteristics Physical proximity Core competencies Relationships Supply Chain Management Practices Integrated behavior Mutually sharing information Mutually sharing risks and rewards Cooperation Same goal and same focus on serving customers Integration of processes Partnering to build and maintain long-term relationships

Figure 1. Relationship of cluster characteristics to SCM practices

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name “Amish” was derived from the surname of Jacob Amman, a bishop who believed some Anabaptists were becoming too worldly and were not strictly following the principles of excommunication and shunning that were part of the Anabaptist movement. He and his followers split from the rest of the Anabaptist movement in 1525. Approximately two centuries later, between 50 and 100 Amish families made their way to America, with the first Amish settling in Berks and Lancaster counties of Pennsylvania (Kreps et al., 1997). The Old Order Amish first settled in Holmes County, Ohio at the beginning of the nineteenth century, and in the years since their numbers have grown rapidly. Now, they virtually fill Holmes County and extend across its boundaries into neighboring counties. Lying approximately 60 miles South of Cleveland, this area of Ohio represents the world’s largest Amish settlement, with as many as 35,000 Amish people located in a relatively small area (Friesen and Friesen, 1996). Not unlike the Puritans and Pilgrims before them, the Amish migrated to America in search of religious freedom. But unlike other religious denominations, the Amish have retained the ways of their ancestors. During the past century, the history of the Amish has been one of keeping many aspects of the non-Amish, or “English” world at arms length as the US underwent mass urbanization and technological developments. Their unwritten set of rules, the Ordnung, governs the use of machinery, styles of clothing and other facets of everyday life. The ownership and use of electricity, television, telephones, cars, tractors and other technologies that the “English” take for granted, have been carefully debated and considered by the Amish in terms of their impact on Amish faith and values. Technology is seen as breaking down the family unit and the community as a whole. While they do not view technology as being bad in and of itself, they choose not to use much of it because of its effects on family, faith, and community (Friesen and Friesen, 1996). The family plays an integral role in the Amish way of life. Children work with their parents from a young age, participating actively in family owned businesses, while also attending one-room parochial schools until the age of 14. Elderly Amish people live with the family, usually in a house connected to the main house (Kreps et al., 1997). Amish economic life For most people, the words farming and Amish are closely associated. Farming has been the primary means for the Amish to make a living and is still preferred by most. But since the 1960s the number of Amish who farm has not kept up with the growth of the Amish population. This decline has been most notable in the largest Amish settlements, such as the Holmes County and vicinity settlement area in Ohio. A review of a 2005 directory listing the membership and occupation of Amish families found that approximately 33 percent of males farmed for a living. Meanwhile, the number of men working in non-farm jobs has grown from about 300 in 1965 to over 5,000 in 2005 (Wengerd, 2005). The number of Amish who work in non-farm operations increases each year, with about 100 new businesses started each year by the Amish in Holmes county and vicinity. The Amish provide a wide range of services through their non-farm businesses (Kreps et al., 1997). There are four types of Amish enterprises: small cottage industry (e.g. bakeries, cabinet shops, watch and clock repair, engine repair shops, and furniture making), manufacturing operations, mobile work crews, and local tourist related businesses.

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Enterprises in the small cottage industry are based at the residence, but are usually housed in a separate building dedicated to the operation of the business employing five or fewer family members. Secondly, manufacturing operations are owned and operated by Amish, and include farm equipment manufacturing, pallet shops, sawmills, buggy making, and furniture-making factories that have 25 or more employees, many of whom are not family members. Thirdly, mobile work crews, including industrial, commercial, and residential housing construction, perform carpentry and other trades for people both within and outside the Amish community. Fourthly, local tourist related businesses such as restaurants and hotels employ primarily single, Amish females. Despite the diversity of Amish businesses, they do share a common theme. The Amish enterprises involve more hand labor than a non-Amish business of the same type, and rely greatly on relationships within the community and the support of the entire family in order to ensure their success. In addition, a sense of orderliness, attention to detail, and personal pride finds its way into every facet of the business. The Amish furniture industry The Amish are noted for their fine quality wood craftsmanship. In addition to the larger Amish furniture factories in the Holmes County area, many small Amish wood shops can be found along its back roads. They specialize in everything from tables, cabinets, chairs and rockers to toys. With over 241 licensed retail manufacturers in Holmes County alone, the furniture industry has made a substantial impact on the local economy, generating an estimated $75-95 million annually[1]. An estimated 60 percent of furniture and woodcrafts manufactured in the area are shipped by local Amish and non-Amish brokers to retailers out of state, with the remainder making its way into the storefronts of local retailers. About 20 percent of the Holmes and Wayne County Amish workforce is employed in primary and secondary wood working occupations (Lowery and Noble, 2000). There are currently 15 Amish furniture/cabinetry businesses listed on the community’s promotional web site (www.visitamishcountry.com). Amish furniture supply chain The Amish supply chain is characterized by long-term relationships with a high degree of mutual commitment. The Amish command of the furniture manufacturing industry begins with the selection and harvesting of the timber and extends to the distribution of furniture to local and non-local retailers (Figure 2). Upstream – lumber suppliers. Wood mills are typically 2-3 man operations, with each man possessing specialized skills: locating lumber, operating the sawmill, and general management. Buyers go to nearby states and select, grade, cut, and arrange timber shipments. Generally, the Amish are not allowed to drive automobiles themselves; they typically purchase a truck and hire a non-Amish driver to accompany them on their timber buying trips. Once the timber reaches the sawmill it is trimmed, cut to size, air-dried, and cured for several months. After the lumber has been cured, it can enter one of three distribution channels: finishing mills, large furniture manufacturer, or glue-up fabricator. Finishing mills provide the vast majority of finished lumber to smaller factories and small cottage manufacturers. Larger furniture factories frequently choose to purchase lumber directly from the woodmill as they often have the equipment to prepare the lumber for manufacture. The

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Figure 2. The Amish furniture cluster
THE AMISH FURNITURE CLUSTER
Local Amish Community Tourism Cluster Furniture Factories
Motels/Bed and Breakfasts Restaurants

Amish Supply Chain

Timber Harvesting

Woodmill (Rough Cut)

Finishing Mill (Cut and Plane Wood) Small Cottage Industries Local Furniture Retailers

Glue Ups

Component Manufacturer

Finishers Local Transporter Warehouse Consolidator Non-Local Furniture Retailer*

Non-Amish Hardware Supplier*

* Represent supply chain linkages outside of the Amish community

rough-hewn timber undergoes a finishing process, then specialty equipment is used to hide the joints before components are glued, screwed into place and clamped. The furniture then undergoes final sanding in line with its preparation for staining and finishing, which is typically done in-house in larger factories. While creating greater efficiencies, the integration of production processes within larger furniture factories requires high labor and capital content. Outsourcing operations. Many small cottage and component manufacturers outsource to glue-up manufacturers who pre-fabricate furniture components to a semi-completed state. For example, a kitchen furniture manufacturer may provide a glue-up firm with specifications for a chair back. The glue-up firm then glues, clamps, and cures the wood to meet the manufacturer’s specifications, leaving the furniture manufacturer to trim, assemble and finish the chair components. This process allows manufacturers to shorten production times, minimize waste, and reduce labor requirements. It also reduces market entry costs for small cottage manufacturers, as the manufacturing process is often simplified to product assembly and finishing. This translates into greater flexibility for small cottage manufacturers as labor requirements are low and minimal capital investment is necessary. While large furniture manufacturers often operate their own furniture staining and finishing facility, small cottage industry furniture manufacturers rely primarily on outside firms to stain and finish their furniture. Particular care must be taken when coordinating sets of furniture, such as desks and chairs, to ensure that the same stain and finish are applied to each piece. This process is further complicated when sourcing chairs from other suppliers in order to complete a set, which is often the case. Transportation linkages. The apparently seamless integration of each step of the manufacturing process is facilitated by local transportation companies that ferry products from supplier to supplier and eventually to local retailers. Very informal in scope, each transportation company typically consists of two men and a truck which, in addition to shuttling components and furniture between manufacturers, deliver finished furniture to local retailers and freight packers, and hold furniture in warehouses while awaiting shipment to non-local customers, whose furniture is sourced through several local brokers. While the majority of furniture is shipped out of state, approximately 40 percent makes its way into the storefronts of local furniture retailers in order to meet the demand of the area’s tourism trade. In recognizing the attention to detail and pride that is invested into each handicraft produced by the Amish, many tourists visit the area with the sole purpose of purchasing hand-sewn quilts, jams and jellies, and furniture. The economic impact of tourism on the Holmes County area cannot be overstated, as over four million tourists flock to the area each year, patronizing its restaurants, bed and breakfast operations, and inns and retail outlets, which form the area’s tourism cluster. Porter’s cluster framework and the Amish furniture industry Holmes County and vicinity boast at least two clusters relevant to the examination of the Amish furniture industry, the Amish furniture cluster and the tourism cluster (Figure 2). The Amish furniture cluster is largely a function of the Amish’s secular orientation, inter-dependency, and woodworking aptitude. The cluster’s supply chain extends from the selection and felling of timber, to the delivery of

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the finished furniture product to the retail store. The Amish furniture cluster and tourism cluster are mutually dependent upon one another, as a great amount of furniture produced by the Amish is sold to tourists from local retail outlets. Many tourists travel to the area with the expressed intention of buying furniture and other handicrafts. The following is the first of three case examples that illustrate the major points in Porter’s framework (i.e. enhanced productivity, access to employees and suppliers and new business growth) and its application to the Amish furniture cluster. The Amish furniture cluster and productivity Eli Yoder’s “Wood-Gems” furniture making shop is representative of the numerous businesses that make up the area’s small cottage industry. If not for the inconspicuous hand painted sign, you would not recognize that the proprietor’s converted barn was a furniture making facility. Manufacturing bookshelves and benches, Eli started manufacturing furniture only after a foray into dairy farming. The money necessary to start a dairy farm was raised over several years while working his way up to the position of foreman at a local “English” auto equipment manufacturer. Measuring his progress one cow at a time, Eli left the factory after he had assembled a herd of 30 cows. After all his hard work, Eli realized that dairy farming was not his cup of tea, so he decided to sell the herd of cows and start his own furniture making shop, relying on skills he developed while working in his family’s furniture making business. Given his start up position, Eli has relied predominantly on component manufacturers and glue-up firms to minimize his labor needs and production times. Being part of a cluster allows companies to operate more productively by offering better access to employees and suppliers, access to specialized information, complementarities between businesses, access to institutions and public goods, and better motivation and measurement (Porter, 1998). Each of these attributes of cluster productivity and their application to the Amish furniture cluster are introduced and discussed in further detail. Better access to employees and suppliers. Companies in clusters can tap into an existing pool of specialized and experienced employees, which reduces their recruiting costs (Porter, 1998). Eli’s experience is typical for a start-up business in the Amish woodworking cluster, as woodshops draw on a skilled group of craftsman within the community. Small manufacturers rely primarily on family to staff their operation. As the young men finish their schooling at 14 years of age, many move on to other furniture manufacturers or an “English” firm. There are no great fluctuations in demand for labor, as manufacturers are often content to produce just enough to maintain a comfortable living. When faced with increased production demand, firms are faced with three alternatives: work longer hours, hire more labor, or extend lead times. More often than not, manufacturers choose to extend lead times rather than compromising on quality or impinging on time with family. A cluster also furnishes an efficient means of obtaining other important inputs from a deep and specialized supplier base (Porter, 1998). By sourcing glue-ups and partially completed components locally, manufacturers such as Eli are able to reduce the need to inventory, minimize labor requirements, reduce costs of market entry, and lower the risk that suppliers will overprice or renege on commitments. Also, proximity improves the communication between buyer and seller and makes it easier for suppliers to

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provide support services. Other things being equal, local outsourcing is seen as a better solution than distant outsourcing (Porter, 1998). Access to specialized information. Porter suggests that extensive market, technical, and competitive information accumulates within a cluster, with members having preferred access to it. He also takes the standpoint that personal relationships and community ties foster trust and facilitate the flow of information (Porter, 1998). In the Amish community, social occasions are most often the epicenter for communications within the community, regardless of whether the interaction concerns business or pleasure. Each Sunday a different Amish family hosts a church service in their home or barn, with 150-200 people from that church district in attendance. The actual church service begins at 8.30 or 9.30 in the morning and lasts approximately 3.5 hours. People then share a noon meal and visit until it is time to go home to do the evening farm chores (Kreps et al., 1997). It is under these informal conditions that relationships are developed, operating practices are discussed, and business deals are often struck, typically with a handshake. Complementarities. One form of cluster is the coordination of activities and components across companies in order to optimize their collective productivity (Porter, 1998). For example, in the Amish woodworking cluster, the success of Eli’s business depends on a reliable supply of furniture components from his lumber distributor, and component and glue-up suppliers. Additionally, he relies on the tourism cluster in the area to furnish the demand necessary to purchase his furniture. This host of linkages among cluster members results in a whole greater than the sum of its parts, as indicated by the popularity of the area as a tourist destination. Access to institutions and public goods. Investments made by government or other public organizations, such as public spending for specialized infrastructure or educational programs, is seen as enhancing the company’s productivity (Porter, 1998). The most visible example of this type of investment in Holmes County area is the activity conducted on behalf of the Holmes County Chamber of Commerce and Tourism Board. The board is a not-for-profit association of businesses that voluntarily contribute money, energy, and expertise in developing the local economy and promoting the area’s tourism industry. The organization answers 17,000 phone calls per year and sends materials all over the world at an annual shipping cost of $11,000 (Waite, 2001). More informally, the Amish community and the furniture industry itself act as a training ground for the development of the work ethic and wood working skills that help to make the local furniture industry a success. Better motivation and management. Peer pressure is viewed as amplifying the competitive pressures within a cluster, even among non-competing or indirectly competing companies (Porter, 1998). While pride and the desire to look good in the community prompts Amish manufacturers to excel, the motivations for doing so are typically based on a desire to maintain group norms and standing within the community, rather than an overt attempt to outdo a competitor. Those in the Amish furniture cluster have adopted a set of underlying operating principles that are driven by a desire to maintain an individual’s own reputation for fine work rather than downgrading the reputation of competitors. In essence, a set of informal performance expectations have been set in the community, with a general knowledge of the parameters in which furniture makers are expected to operate regulating the acceptance or dismissal of prospective business partners. While clusters make it easier

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to measure and compare performances because competitors share general circumstances, the Amish are unwilling to openly discuss or criticize their competitors’ deficiencies, perhaps as an attempt to maintain group harmony. The Amish furniture cluster and innovation Eli was faced with a dilemma. “Wood-Gems” was presented with an opportunity to expand its product line after having been in business for only six months. Eli’s best retail customer was dissatisfied with his present pie safe supplier and asked if “Wood-Gems” could meet their unmet demand. Eli’s first inclination was to contact his glue-up and component manufacturers to inquire as to whether they could meet his pie safe door and copper plate facing needs. As they had been supplying the same components to Eli’s competitor, they were more than happy to shift the supply to “Wood-Gems.” In addition to enhancing productivity, clusters play a key role in a company’s continuing ability to innovate. Some of the same characteristics that enhance current productivity are seen as having a dramatic effect on innovation visibility, enhanced flexibility, and lower experimentation costs (Porter, 1998). Each of these attributes of cluster innovation and their application to the Amish furniture cluster are introduced and discussed in further detail. Innovation visibility. Because sophisticated buyers are often part of a cluster, companies inside clusters usually have a better view of the market than isolated competitors do (Porter, 1998). The close relationships and sense of trust and commitment that Eli has developed with his customers allows him to stay closely in tune with their needs. It is with this sense of trust that one of Eli’s best customers approached Eli with the prospect of expanding his product line. It is not unusual for Amish furniture manufacturers to make such extensions based on similar requests, a practice that alone immeasurably enhances the perceived responsiveness of the manufacturer. This is most likely an outcome of ongoing relationships within the cluster, which allows manufacturers to learn early on about changing customer needs and service concepts. Such learning is facilitated by the ease of making on-site visits and frequent face-to-face contact (Porter, 1998). Enhanced flexibility. Clusters are also viewed as providing the capacity and flexibility to react rapidly to a customer request (Porter, 1998). Eli’s situation exemplifies how a company within a cluster can often source what it needs to implement innovations more quickly, given that local suppliers get closely involved in the innovation process. Eli was fortunate in this particular incident, as his supplier had reduced capacity due to his competitor’s declining demand, and the relatively low skill levels necessary to manufacture pie safes made changes in production possible. While still accommodating his customer’s needs, Eli would not have been able to react as quickly to a request for a piece of furniture requiring higher skill levels and greater supplier retooling, such as armoires or dressers. Also, supplier flexibility is seen as developing over time, perhaps after exchanging personal favors back and forth. While flexible, Amish suppliers tend not to overturn their schedules in order to meet new demand, as they try to maintain consistency in furniture production and their family life. Lower experimentation costs. Given the closeness of companies within a cluster, both in terms of geographic proximity and relationships, companies are seen as being able to experiment at a lower cost and delay large commitments until they are more

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assured that a particular innovation will be fruitful (Porter, 1998). For example, if Eli wanted to develop a new line of chairs, he could provide his glue-up company with specifications for a particular chair back template he wished to have produced and order various chair legs from his component manufacturer. If pleased with his results, he could then place a larger order for future deliveries. Eli also has the luxury of showing plans and samples to local retail outlets in order to gauge their response. In contrast, a company relying on distant suppliers may face challenges in obtaining feedback from their customers, depending upon the geographic distance and closeness of the relationship between the two firms. The Amish furniture cluster and new business formation Eli’s decision to give up his dairy farm operation in order to enter the furniture manufacturing business was not something he walked into blindly. It was a decision based on careful thinking and the encouragement and support of his family and members of the Amish community. Conversations with woodshop and retail furniture shop owners after church had convinced him that there was a fair amount of demand for bookshelves and benches, which matched the skill level he had developed while working in his family’s woodshop. Eli’s cousin owned a retail furniture shop, “Yoder’s Furniture” and had assured Eli that he would make some room to sell his first set of furniture. In addition, Eli’s younger brother was looking for a change and had offered to assist him in his new endeavor. Eli recognized that he was fortunate that he could generate the funding for his woodshop by selling his dairy cows, but he knew that should the need arise, he could approach family members for additional funding. Many new companies grow up within an existing cluster, rather than in isolated locations. This is not surprising because it is often easier to identify perceived gaps in the marketplace, there are lower barriers to entry than those outside the cluster, and there is a significant local market to which the new company can market their products (Porter, 1998). Each of these attributes of new business formation and their application to the Amish furniture cluster are introduced and discussed in further detail. Low barriers to entry. Clusters afford lower barriers to entry than elsewhere, as the needed assets, skills, inputs, and staff are often readily available at the cluster location, waiting to be assembled into a new enterprise (Porter, 1998). As is typical with closely-knit groups, the Amish are supportive of their members’ entrepreneurial endeavors, particularly when it concerns family members. The necessary start-up capital is often furnished by family members, as is a pool of skilled labor from which to draw on. Given the structure of the cluster, there is ample opportunity to grow a business from a small woodshop to a large furniture factory by taking advantage of the existing labor pool, glue-up suppliers and pre-fabricated components. Perceived gaps. Individuals working within a cluster can more easily perceive gaps in products or services around which they can build a business (Porter, 1998). The birth and growth of Eli’s business illustrates this assertion. Both the Amish community and the woodworking cluster facilitate close relationships and communication. It is through these relationships that Eli and other proprietors are able to recognize and measure market needs and opportunities. Eli was able to determine the viability for a woodshop specializing in bookshelves and benches through his initial contacts with woodshop and retail outlet owners following weekly church services. While interacting with his local retail customers on a regular basis, he was also able to recognize and take

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advantage of the need for an additional pie safe supplier in the marketplace, while extending his product line in the process. Significant local market. Clusters often present a significant local market, making it easier for new market entries that may benefit from established relationships (Porter, 1998). This assertion holds true for the Amish furniture cluster, as local retailers absorb a substantial quantity of the furniture produced by manufacturers in order to meet the demands of the tourist industry. Not only do local retailers serve as the first market for furniture manufactured in the industry, but they also lend financial support to the Amish community through the Amish ownership of some retail shops and the employment of Amish employees. Positive feedback loop. Porter (1998) suggests that the formation of new businesses within a cluster is part of a positive feedback loop, with an expanded cluster amplifying all of the benefits of a cluster discussed thus far. In typical circumstances, the increased collective pool of competitive resources would benefit all the cluster’s members. This assumption has evidently held true for the Amish furniture cluster, as it his witnessed unprecedented growth in new business startups (669 percent) and out-of-state sales over the past ten years. As the local retail market has become saturated, manufacturers have been forced to become more innovative in their marketing strategies, by partnering with brokers in order to meet customer demand outside the area and marketing directly to customers through the development of web sites promoting both wholesale and retail sales over the internet. The cluster model and supply chain management By introducing the cluster model, Porter (1998) proposes that in the future, firm competitive advantage will not be determined chiefly by greater efficiencies in the sourcing of inputs, but rather by the ability of firms to exploit the resources available in the “cluster” or network of local individuals and companies, in which they operate. In doing so, he suggests that greater competitive advantage can be derived by examining the immediate business environment outside the firm, rather than focusing on what happens inside the firm. The vast majority of benefits proposed by Porter’s cluster model were evident throughout the course of this study. The insularity and self-dependency of the Amish community have proven to create a unique environment in which a large pool of skilled woodworkers has been developed and refined, deep relationships have been formed, and a closely-knit social network is in place to support group norms of behavior. All of these factors are evident in way the Amish go about their daily lives, whether it includes hosting 200 community members for church services and socialization or gathering together to raise a neighbor’s barn. These unique cultural factors have been carried over into the workplace, providing members of the Amish furniture cluster with a competitive advantage based on their relationships, core competencies, and close proximity. The pool of skilled labor in the Amish community, coupled with a well integrated and complementary supplier network, allows furniture manufacturers to operate more productively in sourcing inputs, accessing information, and coordinating with related companies. In addition, given the closeness of the ongoing relationships between suppliers and customers, manufacturers are better able to anticipate customer needs, rely on the flexibility of their supply network in meeting those needs, and experiment with the development of

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new products at a lower cost. Finally, the Amish furniture cluster possesses characteristics that are seen as reducing the perceived risks of market entry and exit, should the enterprise fail. Cluster characteristics and benefits also have a positive impact on supply chain management practices (Table II). Although the Amish furniture cluster supports Porter’s assertions, there are several inconsistencies that should be noted. While, the Amish culture is viewed as being the key determinant in making the Amish furniture cluster possible, the insularity of the Amish and their desire to maintain a simple, family focused lifestyle may be viewed as inhibiting its growth. First of all, as the Amish are very family-focused, growth of the business is not an end objective in and of itself. The Amish hope to earn just enough to maintain a simple lifestyle, while not carving into time with family in order to meet business objectives. This attitude runs counter to traditional business owners in America, as the needs of the business are often placed before those of the family. Secondly, reflecting their insularity, the Amish are somewhat resistant to developing relationships with the “English” or those outside the Amish community. However, growth in markets outside the local community does not appear to have been dampened by this fact. Lastly, future growth in the Amish furniture cluster will most likely be a function of the reluctance of younger Amish men to farm in order to earn a living. As more Amish men seek to earn a living away from the farm, the local furniture manufacturing base should swell, in which case local retailers and manufacturers will make greater efforts to distribute their products outside of the local area. Conclusions This case analysis of the Amish furniture industry has established a linkage between cluster theory and supply chain management theory. Clusters can be thought of as geographic concentrations of competing, networked supply chains. Performance improves for individual firms and the overall supply chain when the inter-firm processes and relationships within the chain are actively managed. In clusters, firms
Evidence found for positive impact of cluster characteristics (proximity, core competencies, relationships) on Amish furniture industry SCM practices? Wood-gems links to retailer (customer) and component suppliers Weekly community social gatherings Community support of entrepreneurial endeavors Business agreements made on informal basis by parties with high level of mutual trust Wood-gems and component supplier cooperation to benefit retailer Cottage industry manufacturers coordinate with local suppliers to assemble matched sets of furniture Local retailers sell the furniture products of local manufacturers and meet product demands of local tourist industry

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Supply chain management practices Integrated behavior Mutually sharing information Mutually sharing risks and rewards Cooperation Same goal and same focus on serving customers Integration of processes Partnering to build and maintain long-term relationships

Table II. Evidence for cluster impact on SCM practices

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benefit from increased competition, better access to employees and suppliers, access to specialized information, complementarities (i.e. superior performance of firms in related industries), access to institutions and public goods, better motivation and measurement, innovation and new business formation (Porter, 1998). Most, if not all, of these features were evident in the Amish case study. As a supply chain or more accurately, a supply network, the Amish furniture industry generally demonstrated the attributes that define linked businesses: . integrated behavior (i.e. incorporating customers and suppliers); . mutually sharing information; . mutually sharing risks; . cooperation; . firms having the same goal and focus on serving customers; . integration of processes; and . partners building and maintaining long-term relationships. The demonstrated applicability of both theories to the Amish furniture industry supported our research propositions linking the cluster and supply chain management theories. Analysis of the Amish cluster can provide managers practical insights for improving their supply chain practices. Managerial implications include: (1) Treat customers like family. It is evident that the Amish cluster and supply chain benefit from the family like relations between members of the cluster. This is evident in their interdependence and cost efficiencies. (2) Realize that maximum return on investment (ROI) is not possible on every sale and may even be detrimental to long term relationships. The Amish know when to work and when to stop and enjoy family activities. As a result, maximum ROI and market share growth are secondary objectives toward building long-term customer loyalty. (3) Long-term relationships may inhibit innovation and change. While the Amish family is a source of strength, the downside is that it may inhibit change. In business transactions long-term partners may forget why they became partners and lose their commitment to change and innovation. (4) The lack of focus on ROI and slower growth complement and support quality goals. A focus on long-term competitive advantage may not produce instant results but it has produced long-term prosperity for the Amish furniture industry which is widely regarded for its high quality. (5) Firms should focus on developing resources in their clusters to take fullest advantage of the competitive benefits of proximity (clusters) as they seek to identify key supply chain partners; benefits of proximity may provide lower total costs that outweigh the low price advantages of distant outsourcing. Although the Amish experience offers some evidence of the synergy between cluster theory and supply chain management, some limitations do exist for this study. A common concern about case studies is their perceived lack of generalizability. It is

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difficult to generalize from a single case, or even a single experiment. But insight and generalizability can be gained from multiple case studies, which are replications in which the same results are predicted for each case. Replication findings are generalizable to theoretical propositions, not to whole populations (Yin, 1994). This Amish case study can contribute to theory, but not to an understanding of how often the practices observed occur in general. The current study provides insight regarding the benefits of concentrating supply chain participants in one location and building strong inter-firm relations. These findings could be strengthened by replicating this study in other Amish communities or in other geographically concentrated, highly interdependent industries. In summary, despite the movement to global outsourcing, a firm should strategically assess its local area for resources that might provide a lower total cost alternative in better managing its supply chain. Firms considering relocation should analyze geographic regions that currently possess cluster characteristics or that have emerging potential for developing clusters. Cluster areas can improve both supply chain and firm performance and allow leveraging of complementarities (e.g. retail sales for Amish cluster) and external sales. Upstream and downstream partners may exist in these areas that can provide synergistic benefits that do not occur as readily with distant supply chain configurations. The integration of cluster theory and supply chain management offers firms a way to build competitive advantage by initially focusing primarily on local resources when selecting supply chain partners, rather than looking only for low cost advantage through distant outsourcing.
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