Faculty of Economics and Business
MSc Thesis Supply Chain Management
The role of governance in Supply Chain Resilience: A multiple case-study By Jesse Dümmer Student number: S3011194 Email: j.r.dummer@student.rug.nl Supervisor / University Prof. Dr. D.P. van Donk
University of Groningen, Faculty of Economics and Business
Co-assessor / University Prof. Dr. J.T. Van der Vaart
University of Groningen, Faculty of Economics and Business
Word count: 11762
Abstract
Purpose: This research addresses the influence of governance on enabling resilience in supply
chains. More specifically, the role of contractual and relational governance on resilience is addressed.
Method/design: An explorative multiple case study was performed in six organizations. Data
collection occurred through semi-structured interviews with managers in the food, automotive and process manufacturing industry.
Findings: The data shows that relational governance enables visibility and velocity in the
supply chain and is particularly useful before, during and after disruptions. Whereas, contractual governance provides visibility before and during disruptions. When applied together, both forms of governance are found to be complementary in enabling supply chain resilience.
Value: This research is the first to consider both relational and contractual governance in
enabling supply chain resilience. The findings prove that both forms of governance are required in enabling resilient supply chains.
Keywords: Buyer-supplier relationships, Supply chain resilience, Relational governance,
Table of content
1. Introduction 4
2. Theoretical background 6
2.1 Supply chain resilience 6
2.2 Governance mechanisms 9
2.3 Governance in supply chain resilience 13
3. Methodology 16 3.1 Research design 16 3.2 Case selection 16 3.3 Data collection 17 3.4 Data analysis 18 4. Results 21 4.1 Relational governance 21 4.2 Contractual governance 23
4.3 Supply chain resilience 24
4.4 Influence of governance on supply chain resilience 28
5. Discussion 36
5.1 Relational governance in supply chain resilience 36
5.2 Contractual governance in supply chain resilience 37
5.3 Governance in supply chain resilience 37
6. Conclusion 39
6.1 Managerial implications 39
6.2 Limitations and directions for further research 40
7. Bibliography 16
8. Appendix 52
8.1 Appendix A – Interview protocol 52
8.2 Appendix B – Coding trees 55
1. Introduction
During a major hurricane, Chiquita, although losing significant supply, could increase the production at suppliers in another region. Its main competitor, Dole, had no alternatives for supply and lost 4% in revenue whilst Chiquita gained 4% in revenue as it had flexibility agreements with alternative suppliers (Tomlin, 2006). Disruptions can be characterized by different probabilities and severities of impact (Wagner & Bode, 2008) and could also involve issues like part shortages or communication and quality issues (Blackhurst, Craighead, Elkins & Handfield, 2005). For these disruptions, one might argue that instead of contractual agreements, it could be better for buying firms to make use of more relationally oriented approaches as these can promote the willingness of partners to adapt and increase flexibility under conditions of uncertainty (Zhou & Xu, 2012). Relational and contractual governance are two forms of governance present in buyer-supplier relationships (Griffith & Myers, 2005) and used to mitigate risks as well as promoting cooperation (Lumineau & Henderson. 2012). Nowadays, the tendency of organizations towards interconnectedness magnifies the impact of disruptions, this can cause disruptions across the whole supply chain (Sá, Miguel, Brito & Pereira, 2019). Therefore, dealing with risks and ensuring resilience of procurement channels has become a key focus for organizations (Bimpikis, Candogan & Ehsani, 2019). As such, it is important to understand what the role of governance in supply chain resilience is.
influence of contractual governance in buyer-supplier relationships. However, the perspective of supply chain resilience remains unexplored.
The influences of both relational and contractual governance in supply chain management has been widely discussed (Lumineau & Henderson, 2012; Poppo & Zenger, 2002). However, it appears there is limited consensus among researchers in the effectiveness of both forms of governance in supply chains (Schepker & Oh, 2013; Hubel, Fischer, Dibbern & Hirschheim, 2013; Lui & Ngo, 2004). Under high pressure of environmental turbulence, the positive effects of relational-based governance appear to be enhanced over that of contractual governance (Lee & Cavusgil, 2006). One could argue if this also holds in the context of supply chain resilience. In this research, we aim to extent these fields by studying the influence of both contractual and relational governance on the resilience of supply chains. Consequently, the following research question is proposed:
What is the influence of governance on the resilience of supply chains?
This paper aims to study the influence of governance on resilience by conducting a multiple case study at six organizations. In terms of theoretical contribution, this research will be the first to combine contractual and relational governance in literature on supply chain resilience. Firstly, the influence of relational governance on supply chain resilience is explored. Secondly, insight is provided in the role of contractual governance in supply chain resilience. Finally, theoretical and managerial insights are proposed on how buyers should enable resilience through governance in their buyer-supplier relationships.
2. Theoretical background
2.1 Supply chain resilience
The importance of reducing expenses and increasing efficiency for organizations has led to supply chains that are efficient under normal circumstances, but more vulnerable to potential disruptions (Stecke & Kumar, 2009). Therefore, Supply Chain Resilience (SCRES) is becoming highly relevant for organizations as it can improve an organization’s ability in dealing with disruptions from multiple sources, such as customer-side, internal or supplier-side (Purvis, Spall, Naim & Spiegler, 2015). The academic and professional community stressed that supply chains should be organized in a way that they are efficient, but also resilient to disruptions (Kamalahmadi & Parast, 2016). Given the increasing acknowledgment of the importance of SCRES, several authors have tried to define SCRES (e.g. Ponomarov & Holcomb, 2009; Ponis & Koronis, 2012; Tukamuhabwa et al., 2015; Kamalahmadi & Parast, 2016). But, according to Tukamuhabwa et al. (2015) and Kamalahmadi & Parast (2016) one of the most comprehensive and mostly used definition of SCRES is provided by Ponomarov & Holcomb (2009, p131) who stated that:
“SCRES is the adaptive capability of the supply chain to prepare for unexpected events, respond to disruptions, and recover from them by maintaining continuity of operations at the desired level of connectedness and control over structure and function”.
this research will proceed with these capabilities of SCRES and define the constructs in the following paragraphs.
Flexibility
“Flexibility allows companies to react faster to select suitable options during both positive and negative influences of the external environment” (Gunasekaran, Subramanian &Rahman, 2015, p.6813) In practice, this means that a flexible supply chain will help to fast reaction and recovery (Sheffi & Rice, 2005). By being flexible, unanticipated situations can be encountered, resolved and, potentially exploited (Jüttner & Maklan, 2011). Therefore, flexibility can be a valuable capability in times of turbulence as it can provide adaptability (Christopher & Holweg, 2011). It supports in detecting and responding to threats, and thereby affects the readiness to risky events (Sheffi & Rice, 2005). In operationalizing flexibility, Tang & Tomlin (2008) identified a flexible supplier base and manufacturing processes to achieve flexibility. A flexible supplier base indicates that there is high availability of alternative options of supply to shift order quantities across (Tang & Tomlin, 2008). Whereas, a flexible manufacturing process relates to the ability to shift order quantities around in machine or production plants (Tang & Tomlin, 2008).
Agility
The agility of supply chains is defined as “the ability to respond quickly to unpredictable changes in demand or supply” (Christopher & Peck, 2004, p18). According to Christopher & Peck (2004), visibility and velocity are the main elements of agility. Visibility enables the actors in a supply chain to monitor the environment and its supply chain, and thereby provides an opportunity to discover potential disruptions (Pettit, Croxton & Fiksel, 2013). Visibility is defined as the “ability to see from one end of the pipeline to the other” (Christopher & Peck, 2004, p19). The monitoring of the environment and supply chain actors results in information regarding orders, inventories, transport, distribution and events in the environment (Sheffi, 2001). This information can be applied to assist in discovering, and responding to disruptions in the supply chain, and alleviating the negative impact of e.g. the bullwhip effect (demand
distortion) (Lee, Padmanabhan & Whang, 1997), or identifying vulnerable suppliers (Jüttner
& Maklan, 2011). It is found that visibility in the supply chain is enabled through close collaborations between buyer and supplier (Christopher & Peck, 2004).
consensus on the higher the level of velocity in the supply chain is, the lower the required time to respond to a disruption (Christopher & Peck, 2004) and time to restore operations after a disruption (Jüttner & Maklan, 2011). It is, therefore, that velocity is essential in the response and recovery phase of a disruption (Jüttner & Maklan, 2011). There is increasing attention that contingency plans are an effective method to deal with supply chain disruptions (Kamalhahmadi & Parast, 2015). Also, reduction of in-bound lead-times is considered an enabler of velocity in the supply chain (Christopher & Peck, 2004). This method proposes that in choosing a supplier, the capability of the supplier to respond quickly to short-term demand changes is an important consideration.
Redundancy
“Redundancy involves the strategic and selective use of spare capacity and inventory that can be invoked during a crisis to cope” (Tukamuhabwa et al., 2015, p.11). It ensures that there is sufficient additional capacity built in organizations and supply chains to continue the usual operations during a potential disruption (Rice & Caniato, 2003). Additional capacity can also be used to reduce the vulnerability of organizations to potential disruptions and simultaneously build SCRES (Christopher & Rutherford, 2004). In addition to reducing vulnerability, additional capacity can also be considered as a means to achieve more flexibility in the supply chain (Jüttner & Maklan, 2011). Redundancy strategically considers the usage of additional capacity and inventories to handle disruptions (Christopher & Peck, 2004). These considerations involve e.g. keeping excess inventories, having low capacity utilization, sourcing from multiple suppliers (Sheffi, 2005), and is therefore considered a relatively expensive means of building resilience (Tukamuhabwa et al., 2015). All mentioned concepts and definitions mentioned in the preceding paragraphs are summarized in table 2.1.
Resilience capability Definition Tools
Flexibility “Flexibility allows
companies to react faster to select suitable options during both positive and negative influences of the external environment” (Gunasekaran et al., 2015, p.6813)
Usage of flexible supplier base, flexible manufacturing processes, multiple
Agility “The ability to respond
quickly to unpredictable changed in demand or supply” (Christopher & Peck, 2004, p18)
Supplier monitoring (Sheffi, 2001), close collaboration, reduction in-bound lead-times (Christopher & Peck, 2004), contingency plans (Kamalhahmadi & Parast, 2015).
Redundancy “Redundancy involves the
strategic and selective use of spare capacity and inventory that can be invoked during a crisis to cope”
(Tukamuhabwa et al., 2015, p.11).
Keeping excess inventories, having low capacity
utilization, sourcing from multiple suppliers (Sheffi, 2005)
Table 2.1: Overview of resilience capabilities
2.2 Governance mechanisms
Governance in the context of Supply Chain Management (SCM), is defined as “the mechanics with which some firms in the chain set and/or enforce the parameters under which others in the chain operate” (Humphrey & Schmitz, 2001, p20). It can be interpreted as the interaction principles between organizations in supply chains which specify the tasks to be performed by actors to achieve mutually agreed objectives (Um & Kim, 2018). In a broader sense, governance refers to “the formal and informal rules of exchange between partners” (Griffith & Myers, 2005, p255). It is an arrangement which ensures that decision making occurs according to the interests of all relevant actors involved (Gillan, 2006). Initially, governance was proposed to reduce opportunistic behaviour in buyer-supplier relationships through, for instance, contracts (Lumineau & Henderson, 2012). But, the development of literature on governance also suggests that it can be used to mitigate conflicts and encourage cooperation between actors in supply chain (Cao & Lumineau, 2015). Literature distinguishes two types of governance: relational (informal) governance and contractual (formal) governance (Poppo & Zenger, 2002).
Relational governance
based on the expectation that another party will act in a way that serves the other party’s interests (McEvily, Perrone & Zaheer, 2003). Therefore, less emphasis can be placed on formal contracts given that the limitations on the adaptive capacity of contracts can be overcome (Poppo & Zenger, 2002). This illustrates the added-value of relational governance since it can mitigate exchange hazards and respond to contingencies not dictated in the contract (Cao & Lumineau, 2015) Relational governance involves the following elements as found in literature: Information sharing, trust and cooperation (Poppo & Zenger, 2002).
Information sharing
The sharing of information in supply chains involves the velocity and quality of the information being shared among actors (Cao & Zhang, 2011). It is considered as one of the key aspects of coordination amongst parties in supply chains (Kumar & Pugazhendhi, 2012). Several authors highlighted the need for the sharing of information to improve the performance of supply chains (e.g. Lambert & Cooper, 2000; Lau & Lee, 2000). When shared in a timely manner, the sharing of information can potentially lead to improved visibility amongst actors in inter-organizational relationships (Christopher & Lee, 2004). The usage of Information Technology (IT) as a tool for information sharing can significantly improve the performance of supply chain systems (Yu, Yan & Cheng, 2001). Information sharing is characterized by frequent and personal contacts between buyer and suppliers (Wieland & Wallenburg, 2013), and generally entails sharing of inventory levels and forecasts (Tang, 2006; Lee & Whang, 2000).
Trust
In the context of SCM, trust is defined as: “one’s belief that one’s supply chain partner will act in a consistent manner and do what he / she says he / she will do” (Spekman, Kamauff & Myhr 1998, p. 56) Trust is considered as an excellent mechanism for organisational control (Dyer & Chu, 2000), as well as an important factor in the achievement of effective supply chain management (Capaldo & Giannoccaro, 2015). It should be clear to buyers that they are the ones who are responsible for cherishing the trust of their suppliers (Mokhtar, Genovese, Brint & Kumar, 2019). As buying firms maintain close contact with suppliers, the uncertainty about their behaviour can be reduced and in turn, increase the trust of suppliers (Ramon-Jeronimo & Florez-Lopez, 2017). The main benefit for buying firms to invest in the level of trust of their suppliers is related to minimization of opportunistic behaviours as perceived uncertainties in the relationship are reduced (Yawar & Seuring, 2015).
Cooperation is defined as “Similar or complementary, coordinated activities performed by firms in a business relationship to produce superior mutual outcomes or singular outcomes that are mutually expected over time” (Anderson & Narus, 1990, p 45). Effective supply chain management relies heavily on cooperation amongst actors in the chain and usually involves several activities to assess performance of individual SC actors and the entire supply chain. (Ellram & Cooper, 1990). Cooperation in relational governance, refers to the extent to which actors in buyer-supplier relationships participate in joint actions such as planning and problem solving (Claro, Hagelaar & Omta, 2003). Joint planning in this respect involves the making of clear agreements for unforeseen future situations, and the subsequent responsibilities for the parties involved (Dong, Ma & Zhou, 2017). Whereas joint problem solving refers to the degree to which supply chain parties in a relationship share the responsibility for problems and managing the actual relationship between them (Dong, Ma & Zhou, 2017).
All mentioned concepts and definitions mentioned in the preceding paragraphs are summarized in table 2.2.
Trust Information sharing Cooperation
Main concept Belief that one will act as
one promised
Velocity and quality of shared information Coordinating relationships between parties Relational mechanism
Controlling Coordinating Coordinating
Main elements Decrease potential for
opportunism
Facilitation of buyer-supplier relationships
Sharing of demand, forecasts and inventory levels
Information Technology
Joint problem solving Joint plans
Table 2.2: Overview of relational governance forms
Contractual governance
contract in terms of e.g. outputs to be delivered, monitoring procedures, duties and penalties (Poppo & Zenger, 2002). The purpose of contractual governance is to enforce parties to perform the necessary actions required to achieve mutual goals and can create and maintain long-term relationships between buyer-suppliers (Blomqvist, Hurmelinna & Seppänen, 2005). In practice, contracts assist in making mutual expectations and assumptions clear regarding transactions and responsibilities of both parties (Malhotra & Lumineau, 2011). As such, contracts can provide faster and smoother operations since policies determine how to react (Daugherty, Richey, Roath, Min, Chen, Arndt & Genchev, 2006). Contractual governance involves three different elements as found in literature namely safeguarding, adaptation and coordination (Schepker, Oh, Martynov & Poppo, 2014).
Safeguarding
The role of safeguarding in contracts is to decrease the potential for opportunism in buyer-supplier relationships and safeguard the investment of parties (Schepker et al., 2014). It is considered to be the traditional economic way of managing contracts and emphasizes the mitigation of conflict between exchange partners (Cao & Lumineau, 2015). Contractual safeguards can include a mechanism which can change the pay-off structure by increasing the cost of acting in self-interest (Lui & Ngo, 2004). Moreover, the allocation of decision rights, involves rights that are allocated to another party in the relationship when externalities occur in the environment which can in potential lead to moral hazard (Schepker et al., 2014). These elements of safeguarding all share the same goal of decreasing potential for opportunism by limiting transaction ambiguity (Lui & Ngo, 2004).
Adaptation
Coordination
Buyer-supplier relationships that have agreements which are characterized by high uncertainties and complexities have a higher probability of failing to achieve their goals (Eckhard & Mellewigt, 2006). Therefore, contracts that are not limited to the focal firm are required to coordinate the activities between parties (Schepker et al., 2014). Contracting parties potentially can modify contracts over time to clarify expectations, responsibilities and increase communication among employees in the different organizations participating in the contract (Mayer & Argyres, 2004). The coordination function of contracts is illustrated through arrangements in contracts that monitor the agreed processes rather than the outcomes (Schepker et al., 2014). To improve the coordination in buyer-supplier relationships, organizations can use contracts in various ways: to define roles and responsibilities, define provisions for monitoring the process, and to designate who is the project manager (Schepker et al., 2014, p212.
All mentioned concepts and definitions mentioned in the preceding paragraphs are summarized in table 2.3.
Safeguarding Adaptation Coordination
Main concept Safeguard investments Adapting to
uncertainties Coordinating relationships between parties Contractual mechanism
Controlling Adapting Coordinating
Main elements Decrease potential for
opportunism
Reduce conflict between exchange partners Procedures for unanticipated events Tolerance boundaries Modify contracts Monitoring processes Define responsibilities
Table 2.3: Overview of contractual governance forms
2.3 Governance in supply chain resilience
3. Methodology
3.1 Research design
There are limited insights in how governance influences the resilience of supply chains. It remains unknown what the influence of both contractual and relational governance is in enabling resilience in buyer-supplier relationships. Therefore, an exploratory multiple-case study design is deemed appropriate (Eisenhardt, 1989). Research using a qualitative approach can be characterized by seeking to explain ‘how’ and ‘why’ a phenomenon operates as it does in a given context (Kaplan, 2005). Case studies are particularly relevant to investigate complex, unique, and exploratory phenomena, as in this case, supply chain resilience and governance (Yin, 2009). A multiple case study is preferred over a single case study as it allows for cross-case analysis which improves the generalizability of results, but also minimizes the potential for bias by the researcher (Voss, Johnson & Godsell, 2016). In fact, it is essential to be able to compare cases as through comparing potential differences in influence of governance on resilience are visualized. Literature states that governance implies a focus on an exchange relationship (Griffith & Myers, 2005). As such, to study the influence of governance on resilience in supply chains, the appropriate unit of analysis is ‘buyer-supplier relationships’.
3.2 Case selection
have vulnerable supply chains and an extensive supplier base, it is therefore expected that relatively similar results can be produced (Yin, 2009).
Case Company industry Buyer-supplier relationships
A Packaging manufacturer >1000 B Automotive 1500-2000 C Food processing >1000 D Automotive 500 E Hygiene manufacturer 50 F Food processing 2300
Table 3.1: Overview of cases
3.3 Data collection
The primary data for this research was collected by conducting fifteen semi-structured interviews with managers (see table 3.2). All these interviews took place in November and December 2019. Interviewees who have knowledge regarding the organization’s
governance used in their buyer-supplier relationship. The description of their explanation can shed light on the influence of governance on supply chain resilience.
Case Interviewees function Interview duration
A1 A2
Supply Chain Manager N&C Supply Chain Manager Specialties
47:08 45:16
B1 B2 B3
Material Supply Engineer Supplier Quality Manager Manager Logistics Supply
50:21 61:21 59:51 C1 C2 C3 C4
Manager Corporate Demand & Supply Supply Chain Planner
Logistics Manager Transport Manager 61:14 34:05 36:48 42:16 D1 D2
Manager Operations Improvement Director Logistics Operations
49:37 40:48
E1 E2
Sourcing Director Manager Logistics Planner
48:30 46:35
F1 F2
Manager Supply Chain Management Category Buyer Procurement
55:11 46:53
Table 3.2: Overview of interviews
3.4 Data analysis
D2). Here, the interviewee explained that they mostly have single sourcing. As such, this quote is labelled to ‘limited dual sourcing’, as ‘multiple organizations’, related to ‘redundancy’. An excerpt of a coding tree is depicted in table 3.3 below. A more comprehensive coding tree is provided in appendix B.
2nd order code 3rd order code Dimension Theme
Availability of alternatives Supplier flexibility
Flexibility
Resilience
Manufacturing schedule
Internal flexibility Flexible workforce
Multiple production facilities Monitoring suppliers Visibility Agility Supplier training Prioritization Velocity Crisis team Emergency plan Quick adaptation Complete dual sourcing
Multiple organizations
Redundancy
Limited dual sourcing
Source alternative raw materials Multiple logistic service providers Inventory at supplier
Safety stock Limited inventory at focal firm
High inventory at focal firm Inventory at external warehouse
Table 3.3: Excerpt coding tree
Furthermore, to get clearer insights in the cases, a case narrative was written for each
individual case related to the resilience and governance (Appendix C). Afterwards, to be able to compare cases, a summary was made of the most notable findings per case which are included in tables in the findings section. To be able to identify patterns in the applied
governance and corresponding resilience capabilities, a ‘score’ rating is given to each concept (table 3.4). The ‘score’ rating should be interpreted as follows:
• Score (1) for information sharing corresponds to no information sharing or usage of IT for information sharing in the supply chain.
• Score (3) for information sharing corresponds to extensive fully open information sharing where everything is communicated to one another as well as high usage of IT in the supply chain.
Concept Score (1) Score (2) Score (3)
Information sharing No information sharing or usage of IT Only some information sharing regarding transaction and usage of IT High information sharing also outside of transaction and usage of IT
Trust Low reliance on trust
in buyer-supplier relationship Reliance on trust in buyer-supplier relationship Complete reliance on trust in buyer-supplier relationship
Cooperation No joint plans or
problem solving
Joint plans or problem solving
Joint plans and problem solving
Coordinating contracts
Contracts include only include essential agreements regarding the transaction
Contracts include almost all agreements regarding the
transaction
Contracts include all agreements regarding the transaction
Adapting contracts Contracts provide no
flexibility
Contracts provide flexibility for order volume or transport
Contracts provide flexibility for transport and order volume
Safeguarding contracts
Claims are not incorporated in contracts
Claims are
incorporated only for some suppliers in contracts
Claims are always incorporated in contracts
Flexibility Only manufacturing
flexibility, or multiple production facilities, or flexible supplier base Manufacturing flexibility, or multiple production facilities, and/or flexible supplier base
Manufacturing
flexibility and multiple production facilities and flexible supplier base
Visibility Only monitoring or
supplier visits or daily contact
Some monitoring, supplier visits and/or daily contact
High monitoring, supplier visits and daily contact
Velocity No crisis teams or
contingency plans
Crisis team or contingency plans
Crisis team and contingency plans
Redundancy Low safety stock or
dual sourcing
Some safety stock and/or dual sourcing
High safety stock and dual sourcing
4. Results
This section will provide an overview of the collected data. Firstly, the most relevant findings are visualized in tables (4.1, 4.2 and 4.3) and elaborated upon per subsection. Secondly, the findings regarding relational, contractual governance and resilience capabilities are explained. Then, the relation between governance and resilience will be presented.
4.1 Relational governance
Relational governance
Case A Case B Case C Case D Case E Case F
Information sharing Level of information sharing Waiting times, risks growth, forecasts are shared. But not 100% transparency Forecast for 12months, measured supplier performance, as transparent as possible Shared forecasts and volumes, not 100% transparency Shares everything, believes the most important thing in a relationship is open communication Shares forecasts and other some other KPI’s, but not 100% transparency
Forecasts and risks are shared Tools for information sharing X IT supplier portal IT (extranet) used share information
EDI SAP system X
Trust Trust High importance of trust, but strictly measure KPI performance Trust increases with duration of relationship and is important Relationships which involve trust are important as their suppliers are critical Trust is key in the relationship Trust is important but not everything is shared Trust is important, particularly with strategic partners Cooperation Joint problem solving X Help supplier in case of problems, not stopping until it is solved Help supplier and discuss how to prevent in future Visit suppliers and help them to go into action mode as quickly as possible X In case of disruptions, joint decision making in regular meetings on what to do Joint improvement plans Provides training for key suppliers Has a supplier development team that provides training X Suppliers are stimulated to improve, trainings are offered Partnering up with suppliers to improve X
Information sharing
Level of information sharing
All cases appear to share information with their suppliers but dependent on their relative position in the supply chain they have more transparency than others. It appears that if there is a higher dependency on suppliers, there is more interest in complete knowledge what is happening in the supply chain. For example, in cases A, E and F, the managers explained that they share regular information such as, forecasts but do not share everything with their suppliers. “We are not 100% transparent, because you don’t want the risk of the information ending up somewhere else, but we provide them with indicative volumes for the coming year (Case A1)”.
Tools for information sharing
In all cases, there is daily contact with suppliers, but there are differences amongst cases in the means to communicate. In cases B, C, D and E, buyers make use of forms of IT for information sharing with their suppliers. It appeared that most information that is shared through these systems involves forecasts and monitoring of general KPI’s. “We have a SAP system. We forecast for 1.5 years. We can see the trend. Besides, that, we monitor the deviations in the forecast, but also the deviations between the forecast and the volume they ordered, because that can change too” (Case E).
Trust
Trust
All cases mentioned the necessity of having trustworthy relationships but differ in their explicit reliance on trust in their buyer-supplier relationships. “Trust is a basic thing in a relationship: if they state something, I need to make sure I can build on that statement” (Case E1).
Cooperation
Joint problem solving
Joint improvement plans
In cases A, B, D, and E, managers explained that they provide a relatively more pro-active approach to preventing disruptions. These cases improve their suppliers by, for example, jointly going through their processes or offering trainings. By stimulating their suppliers to improve, they hope that potential disruptions will be prevented. “We looked into partnering up with that supplier. Together with the supplier we went through their entire process to see where the risks are. It was a strategic partner and together we looked into where we could make gains. This was a pilot case for us. Afterwards, we extended this partnering approach to all our critical suppliers.” (Case E1).
4.2 Contractual governance
Contractual governance
Case A Case B Case C Case D Case E Case F
Coordinating contracts
Extensiveness of contracts
Considers all KPI’s but also operational agreements Closed contracts which include all details of transaction Use contracts, unclear what is includes Everything is fixed, what has to be done, what is agreed upon Includes most in contract, but still a lot outside contract. Strict contracts, but not everything is secured. Adapting contracts
Product flexibility X Not included
in contracts, they “hope” that supplier can adjust Agreements are made what to do in case of disruption (e.g. rush orders) Contracts include service level agreement and flexibility levels for several years Contracts include that suppliers should be able to adjust to demand Contracts only include indications for volume, no fixed numbers
Transport flexibility Service level agreements including flexibility Very flexible contracts with transport carriers (20% up/low limit) Fast responses are included in contracts (e.g. extra drivers) X X X Safeguarding contracts
Financial claims Claims for suppliers that do not perform as agreed Contracts include financial claims Consequences are in place no matter what Included in contracts Claims for suppliers that make a mistake Financial claims are included in contracts
Table 4.2: Contractual governance findings per case
Coordinating contracts
Extensiveness of contracts
regarding for example, volume, quality and delivery specifications between buyer and supplier are mentioned often. “We usually stay with the same suppliers, but if things go wrong it is useful to have a contract which includes all agreements and consequences” (Case C2).
Adapting contracts
Product flexibility
Interviewees from case C, D, E and F explicitly mention they incorporate flexibility in the contracts with their suppliers. Buyers appear to attach great importance to ensuring delivery to the final customer. As a result, the contracts with their suppliers include a certain flexibility that the supplier should be able to deliver depending on the demand downstream in the supply chain. “We agreed with the suppliers, that they need to be able to switch for 5-10% of our regular volume, up and down” (Case E1).
Transport flexibility
In case A, B and C managers emphasized the relevance of continuation of transport in the entire supply chain. It appeared that managers explicitly incorporate flexibility in their contracts with transport carriers. “We should strive to tell them our daily volume and within upper and lower limits they should be able to move along with us. Like 20% more or less than the agreed volumes. Then that is something the carrier should be able to guarantee to us.” (Case B).
Safeguarding contracts
Financial claims
In all cases managers mention that they include financial claims and consequences in their contracts with suppliers. Managers appeared to consider the usage of these claims, as an incentive for suppliers to perform conform agreement. “We make sure in the contracts to be able to recover costs for disruptions on our supplier” (Case B).
4.3 Supply chain resilience
SCRES Case A Case B Case C Case D Case E Case F
Flexibility
Manufacturing flexibility
Flexible schedule
Fixed schedule Flexible if needed
Fixed schedule Flexible schedule Flexible schedule Multiple production facilities
Flexible supplier base
High Limited High Limited Limited High
Visibility Supplier monitoring Set of KPI’s which are constantly monitored Developed system to continuously monitor performance and then rate suppliers X Strictly monitoring of supplier performance Try to monitor performance as early as possible in the supply chain Monitoring of several KPI’s
Supplier visits No, mainly customers
Yes, often Yes Yes, very often X No
Supplier contact Daily Daily Daily Daily Daily Daily
Velocity
Contingency plans
No, not ready in case of disruptions
Yes Yes, mainly major disruptions Yes, roadmaps available Yes, ready in case of disruptions X
Crisis teams No Yes Yes Yes Yes No
Redundancy
Safety stock Based on supplier dependency
Limited, only for critical suppliers
High Limited, only for critical suppliers Relatively high based on supplier risk High
Dual sourcing High Only critical High Only critical High High
Table 4.3: Supply chain resilience capabilities per case
Flexibility
Multiple production facilities
All cases appear to have multiple production facilities that provide the organizations with some flexibility in the production capacity. “We have four end-assembly production locations, in Sweden, The Netherlands, France and Brazil. In case something really big happens and the production line falls still or there is a big strike, we are able to switch between production sites” (Case B2).
Flexible supplier base
Manufacturing flexibility
In cases A, C, E and F, managers explained that their manufacturing processes is relatively flexible in making changes as most products are made-to-stock. “We plan our production schedule for 2 weeks fixed, but if necessary we can deviate from that (C2)”. This provides managers with the opportunity to be relatively flexible to changes in supply or demand. However, in case B and D, it turned out that all products are made-to-order, and therefore, have limited flexibility in their manufacturing processes. “Nothing is pushed or standardized in our production process, every truck is unique and made to order” (D1).
Visibility
Supplier monitoring
In cases A, B, D, E and F, managers explicitly mention they monitor their supplier’s performance in several KPI’s. Through monitoring these measures the buyer aims to gain insights in the supplier’s performance. “Delivery performance, how many times did they deliver in time, how many times did they produce in time, how many times do they have “green score” where they had some safety stock available or not. Everything is considered” (Case A2).
Supplier visits
In case B, C, and D, managers mentioned they often visit suppliers to gain additional insights in their processes in case of a disruption. “We often go to the factory to see what goes wrong exactly” (Case B2).
Supplier contact
In all cases, there is almost continuous contact with suppliers. Particularly, in case of disruptions, contact in buyer-supplier relationships intensifies. Contact does not necessarily involve face-to-face or phone contact, it also includes contact through information technology. “We have daily contact, but not necessarily through phone, suppliers can access our systems. We would rather not have any contact at all, since that generally occurs if things do not go well” (Case D1).
Velocity
In cases B, C, D and E, managers include alternative means of action in the form of contingency plans in case of a disruption. As such, preparing themselves to be able to act quickly. “When disruptions occur we always have limited time to solve it and therefore we always come with an intermediate solution first” (Case B3). However, not all cases indicated the implementation of contingency plans in the case of a disruption and they merely rely on monitoring as a means to safeguard against disruptions. “We do not really have a contingency plan ready, for example, what happens if they get bankrupt? But the financial security is so far trustworthy that we rely on it, that it will be alright” (Case A1).
Crisis teams
In case B, C, D and E, managers mention they form crisis teams in case of a disruption. These teams include employees from different departments or even other organizations that work together to find a solution as soon as possible. Where after, organizations can start to look for more sustainable long-term solutions. Often, the main goal in case of a disruption is to find a temporary solution, rather than, the best long-term solution to minimize the potential negative effect in the supply chain. “Usually if there is a disruption we form a task force team. We look what actions are necessary at the supplier. The composition of this team can always differ because the composition is related to the problem” (Case B2).
Redundancy
Safety stock
Dual sourcing
In case A, C, E and F, the results show that managers decided to maintain high levels of dual sourcing. Due to the relative low complexity of their raw materials, there is the availability of a broad supplier base. Particularly preventing the risks related to single sourcing are an often mentioned reason for dual sourcing. “The last 10 years you can see a development going on there, getting rid of the single sourcing, and increasingly multi-sourced, so the spread of risk is improved” (E2). In contrasts, In case B and D, managers appeared to have relatively low dual sourcing. This is mainly due to the high costs involved with dual sourcing and the relative complex and expensive raw materials needed for their end-product. “We want to spread risks for strategic parts. We make a trade-off if it is necessary to have dual sourcing for some parts” (Case B3).
4.4 Influence of governance on supply chain resilience
In this section, the findings of the previous section are analyzed according to the score table provided in the methodology. Table 4.4 provides an overview of all cases and their scores in governance and corresponding resilience capabilities. Overall, the findings indicate that all cases use governance in their buyer-supplier relationships. However, the extent to which contractual and relational governance are applied turned out to be different. The next section will go more in-depth to reveal patterns in what the influence of each construct of relational and contractual governance is in enabling resilience. Firstly, the influence of relational governance will be discussed and subsequently, the influence of contractual governance is elaborated upon.
Score Case A Case B Case C Case D Case E Case F
Information sharing 2 2 2 3 2 2 Trust 2 2 2 3 2 2 Cooperation 2 3 2 3 2 3 Coordinating contracts 3 3 2 3 2 2 Adapting contracts 2 2 3 2 2 2 Safeguarding contracts 3 3 3 3 3 3 Flexibility 3 1 3 1 2 3 Visibility 3 3 2 3 3 2 Velocity 1 3 3 3 3 1 Redundancy 3 1 3 1 3 3
Influence of relational governance on resilience
Information sharing
Figure 4.1 visualizes the influence of information sharing on the resilience capabilities. It appears that all cases share information regarding forecasts, order volumes and potential risks, but show differences in transparency towards suppliers. “That is the most important thing, good communication with suppliers, so they inform us immediately if they have a problem. We stress this in every communication, if there is something going on, they are honest with us so that we can respond immediately” (Case D2).
The findings show that through information sharing, there is increased insights in the
supplier’s processes. Often, this allows buyers to know about potential disruptions before they occur and pro-actively prevent them. “We visit the supplier and ask what happened and discuss how to prevent it in the future” (C1). Buyers explained that through intensified contact or visits to supplier’s facilities, information is exchanged. As such, visibility is enabled in the supply chain through information sharing. Moreover, it appears that particularly when there is high emphasis on open communication in buyer-supplier
relationships, visibility and velocity is enabled. This is particularly relevant for cases which have low redundancy and flexibility in their supply chains. It appears that for these cases there is a higher incentive to have fully transparent information sharing with their suppliers. If there are disruptions at a supplier, the problems are immediately reflected on them too. As such, there is a mutual interest in quick resolution which is reflected in higher transparency in information sharing with suppliers. “’The sooner we get a signal from our suppliers, the quicker we can solve the issue. We go to their facilities and usually are the first buyer there to solve the issue” (Case D2). However, in most cases, managers explained that they purposely do not share all relevant information with their suppliers. “We are not 100% transparent, because you don’t want the risk of the information ending up somewhere else, but we provide them with indicative volumes for the coming year” (Case A2). For these cases, as clearly illustrated in figure 4.1, lower information sharing is often covered by redundancy and flexibility in the supply chain. “Information is partly shared. That is why you always need to have some buffers” (Case A2).
automatic orders via EDI and the supplier has to respond within 24 hours if they can handle the forecast of the next twenty days. If they cannot, they should contact us that they are not able to. When this happens, it does not mean we take over their process, but we do offer support if they need it” (Case B2). Overall, it can be concluded that for most cases information sharing enables visibility and velocity in the supply chain.
Figure 4.1: Spider diagram information sharing
Cooperation
Figure 4.2 visualizes the influence of cooperation on resilience. All cases cooperate with their suppliers either through offering trainings or jointly solving problems. The aim of these trainings is to pro-actively prevent disruptions by improving operational processes. Whereas, the aim of jointly solving problems is found to be re-actively solving disruptions as quickly as possible. “We invest a lot in our suppliers. For example, the work I do myself: going to a factory elsewhere for sometimes really small and simple errors in the product and discussing and improving the process together” (Case B2). The cases that have a higher dependency on suppliers appear to be more inclined to cooperation. This also allows them to build stronger relationships with suppliers over competitors. “We get a certain priority and have close connections with the suppliers, which enable us to respond fast” (Case D2).
The findings show that by offering trainings and visiting supplier’s facilities in case of disruptions, exchange of knowledge is facilitated. Moreover, in some cases, it is found that working together on solving disruptions also enables quicker resolution. As such, it is found
0 1 2 3 Information sharing Flexibility Visibility Velocity Redundancy
that through cooperation, visibility and velocity in the supply chain is enabled. For cases that have high redundancy and flexibility in supply, it appears that there is still an incentive to invest in cooperation with suppliers. “We give training to the suppliers, we give an indication of the principles and background we want them to focus on. They can then hire expertise for that if needed” (Case E). It is clear that cases cooperate with suppliers regardless of their position in the supply chain. But, the extent to which they fully invest and help their suppliers to quickly solve disruptions appears to be different. Overall, it is found that cooperation enables visibility in the supply chain. Dependent on the content of the cooperative activity, it can also enable velocity through quicker resolution of disruptions.
Figure 4.2: Spider diagram cooperation
Trust
Figure 4.3 visualizes the influence of trust per case in resilience capabilities. It appears that the role of trust is important in every buyer-supplier relationship but the explicit reliance on trust in relationships is different amongst cases. “Trust in the relationship is key, a good relationship is essential to react quickly, understand what needs to be done as in a good relationship you tell each other everything” (Case D2). It is found that trustworthy relationships with suppliers work as a facilitator for open communication and high cooperation in the supply chain. Hence, allowing for insights in supplier processes and timely notifications regarding disruptions. As such, the most notable finding is that higher levels of trust appear to enable visibility and velocity in the supply chain. Most cases, however, seem to understand the relevance of having trustworthy relationships but emphasize that they do not rely solely on trust. “If they state something, I need to make sure I can build on that statement. But trust does not mean you need
0 1 2 3 Cooperation Flexibility Visibility Velocity Redundancy
to give insights on all details” Case (E2). These cases often have redundancy and flexibility in their supply chains and therefore have limited incentive to rely fully on trustworthy relationships. It appears that for these cases, there is a stronger acknowledgment of the need for formalization in relationships rather than emphasizing the role of trust in buyer-supplier relationships. “Relationships develop. But we still attempt to secure the most important things. It should stay a professional relationship” (Case A2). Overall, it can be concluded that trust in relationships enables visibility and, in some cases, velocity in the supply chain.
Figure 4.3: Spider diagram trust
Influence of contractual governance on resilience
Coordinating contracts
Figure 4.4 visualizes the influence of coordinating contracts on resilience. It appears that regarding coordinating contracts, the importance of formalization of agreements is recognized in all cases. However, the findings show that there are differences on the exact usage of contracts in their buyer-supplier relationship. “I consider a contract more a means to explain what we expect and how we work, but also so the supplier can explain what they are able to do” (Case D2). Although contracts are generally considered as a strictly formal measure, it appears it also used in discussions with suppliers to understand one another. It turned out that
0 1 2 3 Trust Flexibility Visibility Velocity Redundancy
coordinating contractual agreements are not only used to guide transactions but also as a tool for clarification. Moreover, it is found that contractual agreements provide clear insights in what should be delivered. As such, facilitating the ability to monitor the relationship. “You have to put certain standards in contracts. Even if you have these standards in the contract it can become difficult. If you do not do that and you have more than 1000 suppliers, it is
impossible to keep track. We want to prevent discussion about everything. Instead, we want to be sure there is a clear mistake and then work together to solve it” (Case B2).
The findings also show that some cases place high value on formalization in buyer-supplier relationships. Also, when cases have redundant resources and highly flexible supplier bases, the need for formalization appears to be high. “Contract is as a guideline which includes all KPI’s, it really needs to be followed, “not nice to have” piece of paper” (Case A2). It is found that regardless of the relative position in the supply chain, the relevance of coordinating contractual agreements remains unmistakably important. The results indicate that contractual agreements facilitate the ability to monitor performance and gives clear insights in each other’s expectations and capabilities. Thereby, enabling visibility in the supply chain.
Figure 4.4: Spider diagram coordinating contracts
0 1 2 3 Coordinating contracts Flexibility Visibility Velocity Redundancy
Adapting contracts
Figure 4.5 visualizes the influence of adapting contracts on resilience. “We have these strict volumes. But most of the times, we agree on min/max” (Case F1). As may seem logical, one could argue that including flexibility in order and transport volumes enables flexibility in the supply chain. It appears that all cases incorporate some flexibility in their contracts with suppliers. But, the exact influence of incorporating flexibility is not clearly visible from the results. For example, whereas case F incorporated similar flexibility requirements in their contracts as case D, the influence on the flexibility dimension of resilience is completely different. “We have flexibility requirements, we want the longer the time horizon, the more flexibility the supplier should be able to give. But, of course they should always be able to actually deliver” (Case D2)
Therefore, it is unclear if incorporating flexibility in contracts actually enables flexibility. It appears that the main usability of incorporating flexibility in contracts with suppliers resides in its ability to provide flexibility in circumstances without disruptions. In case of disruptions, the functionality of incorporating flexibility in contracts is found to be limited. “You cannot write everything down in agreements or contracts, and sometimes it is just common sense” (Case A2).
Figure 4.5: Spider diagram adapting contracts
Safeguarding contracts
Figure 4.6 visualizes the usage of safeguarding contracts in relation to resilience. There is consensus on the necessity of incorporating financial claims in contracts, however its role in
0 1 2 3 Adapting contracts Flexibility Visibility Velocity Redundancy
enabling resilience remains ambiguous. The results show that regardless of the
trustworthiness of buyer-supplier relationships, claims are always incorporated in contracts. “Suppliers get penalties if they do not deliver as agreed, but we rather tell them to invest it in their own processes to improve than give us some money. We encourage them to come up with a plan” (Case D2).
By incorporating claims in contracts, suppliers have clear insights in what is agreed as the boundaries in performance levels. At the same time, it also provides an incentive for suppliers to perform conform agreement. However, the results indicate that in case of disruptions, sending financial claims to suppliers does not solve the problem at hand. “We do claim costs on the supplier, but we try to find solutions together” (Case B2).
It appears that financial claims only provide some visibility in the supply chain as both parties know from one another what is agreed as tolerance boundaries for performance. But, as visualized in figure 4.6, the role of safeguarding contracts in enabling any other capability of resilience is unclear.
Figure 4.6: Spider diagram safeguarding contracts
0 1 2 3 Safeguarding contracts Flexibility Visibility Velocity Redundancy
5. Discussion
As far as the author knows, this is the first research addressing the influence of both contractual and relational governance on resilience. The previous section illustrated that governance in buyer-supplier relationships has implications on the resilience in supply chains. The findings demonstrate that organizations make use of different forms of governance to detect, respond to and recover from disruptions in the supply chain. It is evident that governance in buyer-supplier relationships often dependents on the organization’s external environment, and influences resilience on different capabilities.
5.1 Relational governance in supply chain resilience
This study identified that relational governance enables resilience in supply chains. The results show that all cases appear to use relational governance in their buyer-supplier relationships. Earlier literature indicated that organizations often make use of redundant capacity and stock to reduce the impact of possible disruptions (Scholten & Schilder, 2015). The findings of this research illustrate that particularly for organizations that have limited redundancy and flexibility in their supply chains, have higher usage of relational governance. It appears that when buyers have a higher dependency on their suppliers, the incentive to invest in the relationship becomes stronger. This finding is also discussed by Tukamuhabwa et al., (2015) who found that single-sourcing and just-in-time supply, results in vulnerabilities that should be covered with strong buyer-supplier relationships which enable quick responses.
The results of this research indicate that investing in the relationship through intense cooperation and open communication with suppliers facilitates higher trust in buyer-supplier relationships. The findings show that trustworthy relationships are an enabler for higher transparency and hence, enables visibility and velocity. Previous research indicated that trust influences visibility, through enhanced confidence in information sharing in the supply chain, as well as velocity through gaining quick access to information during disruptions but also, enable flexibility (Johnson, Elliott & Drake (2013). These findings are partly reflected in this research given that there is limited evidence on the influence of relational governance on enabling flexibility.
It can be argued that the findings of this research extend earlier research on the role of social constructs in supply chain resilience (e.g. (Jüttner & Maklan, 2011; Scholten & Schilder, 2015; Pettit, Croxton & Fiksel, 2013; Wieland & Wallenburg, 2013). More specifically, this research provided in-depth insights in the effects of relational governance in enabling resilience given that buyers and suppliers are more inclined to help each other in detecting, responding to and preventing disruptions.
5.2 Contractual governance in supply chain resilience
This study identified that the role of contractual governance in enabling resilience is limited. There is consensus amongst cases in the necessity of having clear contractual agreements with suppliers. It appears that that contractual governance provides buyer and supplier with the ability to explain their expectations and capabilities before and during the relationship. It is found that thereby visibility is enabled. Thereby, building on earlier research which found that formalization in buyer-supplier relationships can improve performance by reducing ambiguity and clarification of priorities (Daugherty et al., 2006).
However, since supply chain disruptions involve unpredictable events (Craighead, Blackhurst, Rungtusanatham & Handfield, 2007), the results indicated that the usability of contracts appeared to be rather limited. As indicated by Christopher & Holweg (2011), supply chains can only perform if they are adjusted to withstand times of turbulence rather than stability. It is found that contractual governance particularly is useful in times of stability but has limited effect in times of turbulence as it provides no actual response to or recovery from disruptions. It appears that as indicated earlier, the role of contractual governance in buyer-supplier relationships resides in its ability to align objectives and incentives (Selviaridis & Spring, 2018). The results show limited evidence that contracts which incorporate elements such as, financial claims or flexibility, enable any other resilience capability except visibility.
5.3 Governance in supply chain resilience
6. Conclusion
This exploratory research has led to some interesting findings on how governance influences supply chain resilience in buyer-supplier relationships. The exact influence of both forms of governance on resilience remained unclear in existing literature. The findings of this research show that contractual and relational governance both enable resilience in buyer-supplier relationships. However, the extent to which each form of governance is capable in enabling resilience appears to be different. Contractual governance turned out to enable visibility in the supply chain and is particularly useful in dictating expectations and capabilities of buyer and supplier. However, its role in providing an accurate response to and recovery from disruptions is limited. Particularly, the unpredictable nature of disruptions results in limitations on the usability of contractual agreements in enabling resilience. On the other hand, relational governance shows to cover in the limitations of contractual governance. The findings show that relational governance allows for visibility and velocity in the supply chain. More specifically, through trustworthy, transparent and cooperative relationships, the ability to respond to and recover from disruptions is enabled. As such, when applied together, both forms of governance can be complementary in enabling resilience in supply chains. Overall, it can be concluded that if both forms of governance are applied in buyer-supplier relationships, the ability of the supply chain to prepare for, respond to, and recover from disruptions is enhanced.
6.1 Managerial implications
Besides implications on theory, this research also has significant contribution for practice. Firstly, it is widely acknowledged that organizations aim to be as resilient as possible in their supply chains. This research clearly indicates the importance of having relational governance mechanisms in buyer-supplier relationships. The benefits of trustworthy, transparent and cooperative relationships have been widely discussed in this research. Managers should realize the necessity of having relational governance with particularly their most critical suppliers to ensure resilience. In practice, this implies that managers should have intensified contact with their suppliers to build and maintain a cooperative relationship.
However, at the same time, solely relying on contractual governance to enable resilience results in limitations on facilitating responses to disruptions.
Thirdly, with respect to the combination of relational and contractual governance, managers should understand the interplay of both on resilience. It turned out that contractual governance provides visibility in supply chains in times of stability. It is, therefore, that managers should also realize the importance of investing in relational governance as it enables resilience in times of stability as well as turbulence.
6.2 Limitations and directions for further research
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