Master Thesis MSc Supply Chain Management | MSc Technology Operations Management

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Master Thesis

MSc Supply Chain Management | MSc Technology Operations Management

Power and its effect on governance

mechanisms in sustainable supply chain

management: a case study

By

Joost Willem Askes

University of Groningen

Faculty of Economics and Business

Jul 2020

Word count: 11079

S2779331

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Abstract

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1. Introduction

In 2018, the EU presented their plans for a climate-neutral EU by 2050 (European Commission, n.d.). Essentially, this means that the future economy must have a net-zero greenhouse gas emission. In 2019 Japan and the UK announced the same goals for 2050. These strategic plans reflect the governmental pressures with regards to sustainability worldwide (Sauer, 2019). However, it also implies that companies located in those areas need to comply to those new sustainability standards. For instance, Rolls Royce, aims to comply to the 2050 goals by developing technologies and procedures that decreases the aircraft CO2-emissions by 75 percent, reduce noise by 65 percent and reduce nitrous oxides by 90

percent compared to an airplane build in 2020 (Koh, 2017). Besides governmental pressure, societal pressure increases. For example, scandals at H&M in which their suppliers did not provide their workers with enough wages caused societal concerns (Osborne, 2018). These and other scandals have made stakeholders much more critical of corporate policies regarding sustainability throughout the supply chain. As a result, companies are under increased pressure from stakeholders, consumers, NGOs, local communities and regulation to implement corporate social responsibility (CSR) management across the whole supply chain (Govindan, Khodaverdi & Jafarian, 2013).

Especially the focal companies of supply chains need to implement sustainability standards throughout the whole supply chain as they can be held responsible for the practises of their suppliers as well (Seuring & Müller, 2008). However, how should focal companies implement sustainable practises across the whole supply chain to cope with these pressures? To cope with external pressures, focal companies may need to encourage and even force suppliers to follow their sustainable supply strategy. On top of that, they need to establish effective governance mechanisms to manage their supply chain relationships with the aim of improve sustainability performance (Wilding et al., 2012). One way to manage the sustainability throughout their supply chains is by means of governance mechanisms (Gimenez & Sierra, 2013). Governance mechanisms are referred to as practises that are used by firms to manage the relationships with suppliers and to improve sustainability performance of suppliers (Gimenez & Sierra, 2013). Especially, focal companies should focus on the approaches of supplier assessment and collaboration if they want to pursue environmental performance (Gimenez & Sierra, 2013). Furthermore, Gimenez and Sierra (2013) first recommend starting with supplier assessment to evaluate the performance of the supplier. Subsequently, the focus should be on collaboration to steer suppliers towards improvements.

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6 contractual mechanisms. The first is based on long-term agreements with social relationships and social norms, whereas the latter is based on short-terms gains, unilateral investments and formal contracts. Especially stronger partners may exploit their power by adopting more control mechanisms to avoid dependency and to protect their innovations with the supplier, whereas suppliers preferred a relationship based on trust in which the relationship continuity would improve because of higher commitment. Stronger buyers use commitment mechanisms to exploit their reward power to favour themselves in the bargaining process (Miguel & Brito, 2017). In addition to the reward power, no statement is made of the possibility of other types of powers that may influence the governance mechanisms since coercive power or non-mediated power, like expert, referent and legal legitimate powers, could be used to influence suppliers to comply with the ever-changing requirements of the buyers (Chae, Choi & Hur, 2017). This shows that less corporate governance studies researched the role of power in sustainable supply chain management (SSCM). Therefore, this research aims to answer the research question: what kind of power is needed to effectively use governance mechanisms in SSCM?

Power may influence the adaption of sustainable practises throughout the supply chain (Gimenez & Sierra, 2013). However, research thus far does not distinguish between mediated and non-mediated power and their effect on governance mechanisms in SSCM, whereas knowledge regarding the interaction between non-mediated power and mediated power is limited (Reimann & Ketchen, 2017). Therefore, this research investigates whether the two powers complement or undermine each other. It addresses these gaps and aims to provide empirical evidence by conducting a multiple case study. It also strengthens the current knowledge of power and governance mechanisms. However, this research brings understanding in the differences between the mediated power and non-mediated power and their influence on governance mechanisms. It specially answers the following research questions:

1. How does mediated power influence the governance mechanism assessment in SSCM? 2. How does non-mediated power influence the governance mechanism collaboration in SSCM? 3. How do non-mediated and mediated power interact with each other in influencing the

governance mechanism assessment in SSCM?

4. How do non-mediated and mediated power interact with each other in influencing the governance mechanism collaboration in SSCM?

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7 managers of focal firm-supplier dyads. These different perspectives help to identify the answers to the ‘how’ and ‘why’ questions of the effects of power of focal firms in managing their SSCM by governance mechanisms. The virtual interviews are conducted according to the research protocol in which the subjects and questions are stated. The interviews are transcribed and coded to identify patterns during within case and cross-case data analysis.

Hereby, this research contributes to the literature on power and governance mechanisms within the context of SSCM. It mainly contributes to the literature by showing how these two forms of power influence the components of collaboration and assessment. Where mediated power influences both assessment and collaboration, non-mediated power is solely effective on collaboration. Coercive power only influences the assessment, legal legitimate power influences assessment and interacts with reward power on collaboration. Referent and expert power influence collaboration. Managerial implications are that buyers should enforce their requirements on suppliers to make them effective. Long term agreements (LTA’s) should be used as support to strengthen the collaboration. The expert power that buyers possesses could be translated to develop suppliers based on the risks of non-conformities resulted from the assessment. Therefore, it is necessary for a focal firm to monitor and assess the current power position of the firm. Based on the power assessment, the focal firm should decide whether the company can exert that power to make these governance mechanisms effective. Practitioners can use mediated power to set the requirements for the suppliers and to monitor and evaluate their suppliers on those requirements. Non-mediated power should be helpful to develop the supplier and to implement sustainability initiatives that are needed to meet the stakeholder’s requirements.

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2. Theoretical background

This section will highlight the three dimensions concerning sustainability within a supply chain context. An overview of SSCM will be given with focus on the current literature about governance mechanisms. Furthermore, non-mediated power and mediated power will be introduced in more detail. The influences of the concepts are then explained in the preliminary discussion. Finally, the research framework will show the relevant concepts and their influence.

2.1 Sustainable supply chain management and its main governance mechanisms

2.1.1 Sustainable supply chain management

SSCM can be defined as “the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains” (Carter & Rogers, 2008, p. 368). Focal firms should involve both the operational drivers of profitability and their connection to the planet and people which require a long-term vision (Kleindorfer, Singhal & Van Wassenhove, 2005). This is due to increasing pressures from both society and the government on focal companies to become responsible and behave accordingly. To cope with these external pressures, focal firms need to raise the level of supplier monitoring to enhance supplier compliance (Boyd et al., 2007).

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9 extended by using agency theory to delegate responsibility to the first-tier supplier to ensure the sustainability at the upstream suppliers to create a multi-tier SSCM (Wilhelm et al., 2016). Governance mechanisms can aid in process of managing both suppliers and subcontractors on the three dimensions (Grimm, Hofstetter and Sarkis, 2016).

2.1.2 Governance mechanisms in sustainable supply chain management

Formentini and Taticchi (2016) define “sustainable supply chain governance mechanisms as “practices,

initiatives and processes used by the focal firm to manage relationships with 1) internal functions and departments and 2) their supply chain members and stakeholders with the aim of successfully implementing their corporate sustainability approach (p. 1921)”. External and internal governance

mechanisms distinguish the boundaries of the focal company and its supply chain (Formentini & Taticchi, 2016). There are several researchers that identity different governance mechanisms. For instance, Li et al. (2014) identified two mechanisms: efficiency mechanisms and legitimacy mechanisms. Alongside, Heide, Kumar and Wathne (2014) focus in their study on monitoring and solidarity norms when considering governance mechanisms. Moreover, other studies state that collaboration and assessment are the two main governance mechanisms for managing supplier sustainability (Gimenez & Sierra, 2013; Wilding et al., 2012; Koberg & Longoni, 2019; Grimm et al. 2016). Formentini & Taticchi (2016) highlight two other relevant mechanisms, namely collaboration and formalisation. Essentially, every study uses other terminologies, although in essence we can differentiate between two main governance mechanisms: collaboration and assessment (see Table 2.1). Koberg and Longoni (2019) underline this in their systemic review of SSCM, where they label the differences into the main governance mechanisms: collaboration and assessment. To improve the sustainable practises of suppliers, focal firms should pursue both types of governance mechanisms (Gimenez & Sierra, 2013). These governance mechanisms are effective in extending the sustainability practises to suppliers (Wilding et al., 2012). Therefore, this research focusses on the collaboration and assessment governance mechanisms (Gimenez & Sierra, 2013; Wilding et al., 2012; Koberg & Longoni, 2019; Jia et al., 2018; Grimm et al., 2016).

Governance mechanisms according to multiple studies in SSCM

Collaboration & Assessment Gimenez and Sierra (2013); Wilding et al. (2012); Koberg & Longoni (2019); Jia et al. (2018); Grimm et al. (2016)

Collaboration & Formalisation Formentini & Taticchi (2016) Efficiency & Legitimacy Li et al. (2014)

Relational & Contractual Miquel & Brito (2017) Buyer-to-supplier & Peer-to-peer Jiang (2019)

Monitoring & Solidarity norms Heide et al. (2014)

Formal & Informal Tachizawa and Wong (2015); Alvarez, Pilbeam, and Wilding (2010)

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2.1.3 Assessment

Assessment can be labelled as gathering information to monitor or evaluate a supplier, codes of conduct and private standards (Koberg & Longoni, 2019). To get the integration of suppliers into the focal firm system, focal firms develop their own codes of conduct based on widely accepted principles of the world business community or society and expect commitment of suppliers (Turker & Altuntas, 2014). Accordingly, focal firms need to review the progress of those suppliers. Turker and Altuntas (2014) claim that “compliance, monitoring and auditing are the main components of current SSCM to avoid risks, improve supply chain performance and set clear criteria for suppliers” (p. 847). The assessment process has two objectives: improving the overall supplier performance and avoiding economic, social and environmental risks in the supply chain (Turker & Altuntas, 2014). However, according to Lim and Phillips (2008) it is not sustainable to only rely on assessment, collaborative relationships are needed for improving the sustainability performance. On top of that, supplier assessment is an enabler of supplier sustainable developments due to the need of determining which supplier to develop and which areas to improve. Accordingly, buyer firms should first implement supplier assessment to evaluate the supplier and then providing them directions for improvements (Gimenez & Sierra, 2013).

2.1.4 Collaboration

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2.2 Buyer power – mediated and non-mediated power in sustainable relationships

Power can be defined as the ability of one party to overcome the resistance of another party (Emerson, 1962). It can be explained by the means of the resource dependency theory, in which firms need to access resources that they do not possess and that creates power to firms that do (Reimann & Ketchen, 2017). Power can be classified into two categories: mediated power and non-mediated power.

2.2.1 Mediated power

Mediated power includes coercive, legal legitimate and reward power and involves influence strategies of one party specifically administrates to another party with the intention to get some desired actions (Benton & Maloni, 2005). “Coercive power exists when one firm has the ability to exert punishment to influence another firm” (Nyaga et al., 2013, p. 47). Mediated power is related to both positive and negative outcomes. As for positive outcomes, reward power, in which a firm has the ability to reward other firms with intention to influence the other party (Nyaga et al., 2013; French & Raven, 1959), tend to have a positive effect on the buyer-supplier relationships (Benton & Maloni, 2005). The strength of reward power lies in the magnitude of the rewards (French & Raven, 1959). As for negative outcomes, coercive power can damage long-term commitment of suppliers (Nyaga et al., 2013; Pulles et al., 2014). The use of coercive power can be competence destroying for a supplier. It decreases the supplier’s perceived competence and perceived autonomy and thereby the intrinsic motivation of a supplier (Choi & Hur, 2017). Legal legitimate power will exist when a firm utilizes its judiciary right to influence another firm based on contractual agreements (Nyaga et al., 2013). Both legal legitimate and coercive power negatively influence buyer-supplier relationships (Benton & Maloni, 2005).

2.2.2 Non-mediated power

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12 asymmetries hinder sustainable supply chain policies. Moreover, Boyd et al. (2007) argue that to achieve CSR within a supply chain you will be seen as a “bully” while seeking to gain compliance by the use of coercive machines rather than a CSR “champion”. High levels of supplier monitoring results in lower supplier CSR compliance and negatively affect the performance on the supply chain relationships (Boyd et., 2007).

2.2.3 Interdependence between mediated and non-mediated power

Mediated and non-mediated powers within the buyer-supplier relationships could influence each other with regards to the supplier relationship commitment (Chae et al., 2017). Essentially, non-mediated power positively interacts with the buyer reward power on supplier commitment. It facilitates the social environment where a supplier accepts the buyer’s influence due to the rewarding knowledge and values of the buyer (Chae et al., 2017). Non-mediated power negatively interacts with the buyer coercive power on supplier relationship commitment. Suppliers that are strongly influenced by buyer’s non-mediated power are intrinsically committed to the relationship, while coercive power can undermine that relationship due to the feeling of being constraint and losing control (Chae et al., 2017). Thus, reward power is enhanced by non-mediated power and therefore has a stronger positive influence on supplier relationship commitment, while coercive power is strengthened by non-mediated power and therefore has a stronger negative influence on the supplier relationship commitment.

2.3 Preliminary discussion about the roles of these powers in SSCM governance

mechanisms

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13 Nyaga et al. (2013) highlight that expertise and reputation have an impact on suppliers’ willingness to adapt and collaborate. Chae et al. (2017) find evidence for this interplay between mediated and non-mediated powers. This research wants to explore if this relationship still holds when you are considering governance mechanisms in SSCM instead of supplier relationship commitment. Improvements of coordination and control systems require an update of collaboration and assessment governance mechanisms to strengthen trust and to reduce the abuse of power of firms in a supply chain (Vurro et al., 2009). Vurro et al. (2009) designed a matrix with network density and centrality of the focal firm as determinants for sustainable supply chain governance (SSCG) models. Network density is the degree of completeness of the ties between firms in a network and the corporate responsiveness that affects the communication and the efficiency of information flows. The degree of centrality means to what extent an organization holds a central position in a network and can influence the willingness of other actors to accommodate to the focal firms’ requests. The latter indicates that power does influence governance mechanisms assessment and collaboration. However, no distinction in power has been made.

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2.4 Research framework

The research framework is represented in Figure 2.4. The roles of the different forms of power on the governance mechanisms in a SSCM context are displayed. It is currently an unexplored research area and therefore the potential relationships between the concepts are showed in a holistic view.

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3. Methodology

This section will explain the research design in which the chosen method will be discussed and motivated. The case selection follows and explains the criteria of the selected cases. Then, the data collection will be highlighted. Lastly, the data analysis will be explained in which the coding method and the method of analysis is shown.

3.1 Research design

The aim of this research is to gain an in-depth understanding of the role of non-mediated and mediated power and their effect on the governance mechanisms assessment and collaboration in SSCM. This also includes the interplay between mediated and non-mediated power. Therefore, the research questions are as follows:

1. How does mediated power influence the governance mechanism assessment in SSCM? 2. How does non-mediated power influence the governance mechanism collaboration in SSCM? 3. How do non-mediated and mediated power interact with each other in influencing the

governance mechanism assessment in SSCM?

4. How do non-mediated and mediated power interact with each other in influencing the governance mechanism collaboration in SSCM?

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3.2 Case selection

To enhance the generalizability, this research is conducted with multiple cases. This allows the researcher to use replication logic that enhance the external validity (Rowley, 2002; Karlsson, 2016). The selection of the cases is based on the criteria displayed in Table 3.2. The characterises of the cases are the focal firm-supplier dyad, different industries and the presence of ISO14001 and code of conduct. Companies with higher levels of proactivity in SSCM have higher levels of implementation of assessment and collaboration governance mechanisms and higher environmental performance (Gimenez & Sierra, 2013). Moreover, companies with low levels of proactivity (inactive or reactive strategies) are more likely to focus on assessment to improve sustainability, whereas companies with high level proactivity put their efforts into collaboration (Gimenez & Sierra, 2013). Therefore, this research focuses on industries with a high level of proactivity in SSCM. Industries that adopt certifications for their environmental management systems tend to pass their sustainability requirements to their suppliers (González, Sarkis & Adenso‐Díaz, 2008). Therefore, companies qualify for this research when they possess ISO14001 and have a code of conduct. Mamic (2005) finds that implementation and developing codes of conduct needs to be complemented by collaboration method training and educating of suppliers, which makes it suitable for collaboration. The presence of widely accepted codes of conduct and the ISO14001 reflects the proactiveness towards sustainability to their suppliers. The distinguishing part of the case selection are the deliberate use of different industries to increase the generalisability. I followed a literal replication strategy in which I identified similarities and highlighted patterns in the use of powers on collaboration and assessment. This strategy is used to predict similar results (Karlson, 2016; Yin, 2012; Ridder, 2017). Once the focal companies in the different industries were chosen, the selection of suppliers was done during the interviews with focal companies. During these interviews, suppliers are discussed which are involved in sustainable development programs in order to select focal firm-supplier dyads with sustainable practises. However, it was only possible to conduct an interview with one supplier in one case.

Case Focal firm Supplier Industry ISO14001 Code of conduct

1 B1 - Aerospace Yes Yes

2 B2 B2.1 High-tech Yes Yes

3 B3 - Automotive Yes Yes

4 B4 - Food Yes Yes

5 B5 - Bicycle Yes Yes

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3.3 Data collection

The data used for this research is collected by conducting semi-structured interviews. This interview method allows the researcher to ask follow-up questions and leads to a more detailed interview. All the interviews are conducted digitally via Microsoft Teams. For focal firms, I did not succeed to interview two persons within the same company to get different perspectives. Multiple perspectives within both suppliers’ view enhance the validity and triangulation of the data (Karlsson, 2016). The interviews are conducted according to an interview protocol to enhance the reliability of the research (see Appendix A). The interview protocol contains the subjects, questions and the information required for the interviewee (Karlsson, 2016). The interview protocol was sent to the interviewee before the actual interview, so that the interviewee knew which subjects the interview would cover. I adopted a funnel model approach in which the interviewer starts with broad open-ended questions an becomes more and more specific as the interview continues (Karlsson, 2016). Before each interview, a description of this research is given, and permission of recording is asked. All the interviews are recorded, so that I can transcribe them. For translating interview data to evidence-based interpretations, transcripts are required to code in data-analysis (Stuckey, 2014). It could increase the accuracy of interview data (Stuckey, 2014). All the interviewees have received the transcribed interview to approve it for this research. Table 3.3 shows the functions of the respondents and the duration of the interviews.

Case #Interview Company Function Duration

B1 1 Focal company Quality manager ± 90 min

2 Focal company Supply Chain Project Lead ± 60 min

B2 3 Focal company Supply Chain Manager ± 90 min

4 Supplier Account manager ± 75 min

B3 5 Focal company Quality and Environment Manager ± 90 min 6 Focal company Specialist Environment Management ± 100 min

B4 7 Focal company Procurement Manager Europe ± 50 min

B5 8 Focal company Group Procurement Director ± 110 min

Table 3 .3: Char acteri sti cs i nterview s of d at a coll ect ion

3.4 Data analysis

3.4.1 Coding

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18 literature (Hsieh & Shannon, 2005). Essentially, the coding start with the theory and during the coding process this can be refined or added through relevant research findings (Elo & Kyngäs, 2008). During the coding process, the final categories were refined. Ultimately, this leads to the categories displayed in Table 3.4.

Initial pre-defined codes Final categories

Assessment Assessment Collaboration Collaboration SC requirements SC requirements Power Power Relationship Relationship Sustainability strategy Pressure

Table 3.4 Pre-d efined codes and ultimat e cat egories of t he coding proces s

During encoding the transcripts, relevant sentences were linked to one of the final categories. The first case is used as trail to link all the open codes to the categories. For example: “We do not want to ruin

the planet, I have kids I want them to have a nice life as well. we also have projects for our facility in Hoogeveen, for example for waste management” is labelled as SC requirements: Waste Management.

Once finished, the categories were parsed to come up with sub-categories from the findings as well as using theory to identify sub-categories. So, in the end the code ‘SC requirement: Waste management’ is part of subcategory ‘SC Sustainability initiatives’. These sub-categories were used for all the other cases and refined if necessary. For example, “And how we motivate them in this is to show what it yields for

them. They also struggle for the seasonal pattern. In the spring it is immensely busy and in the autumn, it is not necessarily quiet but a lot less busy. So ideal for them to be able to spread production” is coded

as ‘Collaboration benefits: spreading production of seasonality' with collaboration as category and benefits being it’s subcategory. Ultimately, this gives the opportunity to immediately link a sentence to a subcategory without linking it to the ultimate category at first. In that case, “In the bicycle industry,

although this had already been arranged for me, we have, according to WFSPI SRI, a cycling component and one audit protocol has been drawn up for the bicycle industry” is labelled as ‘Auditing: One industry

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19 Raw interview material Open coding Subcategories Final categories

We have various agreements with these suppliers under one contract, delivery agreement, technical specifications, cleanliness specifications. Contract: Agreements contract Contract Supplier relationship

And if look at the contract form, we have a rolling 5-year contract. This means that we yearly assess whether we want to continue with them for another 5 years. And so, it remains continuously for 5 years, unless we say that it is not going well and then we have 4 years to get rid of each other. So then we don't extend it by those 5 years.

Contract: rolling 5-year contract

You actually speak with strategic suppliers on a daily basis.

Communication: Daily basis with strategic suppliers

Communication

And every month we have a meeting or a call with those suppliers in which we indicate the performance against us or the supplier in terms of quality, lead time, capacity and any developments

Communication: Monthly meetings about performance

For strategic suppliers in some cases we have a partnership, in other cases the components are divided between some alternative suppliers.

Relationship: Collaborative partnership

Relationship

Our supplier can make investments because they are guaranteed of that turnover

Relationship: Investments

About 20 suppliers represents the big flow of purchasing

Supply base: 20 big flow strategic suppliers

Supply base

A couple hundred suppliers in total and if I could give an estimation is it around the 800 suppliers.

Supply base: 800 suppliers

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20 ATLAS.ti allows the researcher to the highlight the text into codes, but in this case, subcategories or categories are immediately included in open coding, so that you do not make mistakes in grouping them afterwards. This coding process is an iterative process in which you continuously assess your (sub)categories. Ultimately, 6 coding networks, one for each company, are published in which you can see the differences per firm (see Appendix B). This is necessary for the data analysis in which you check for similarities or differences between the cases. The final aim is to recognize the patterns of the use of power on the governance mechanisms which are used by companies in these different industries.

3.4.2 Analysis

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4. Findings

This section outlines the data analysis of the five cases that this research covers. The aim of these findings is to reveal the underlying factors of mediated and non-mediated power and their interaction with assessment and collaboration to safeguard SSCM-practises of companies. It examines the data with the goal of identifying the different forms of buyers’ power and the extent to which they use this through the governance mechanisms to ensure sustainability at their suppliers and in their supply chain. First, I analyse within cases to show the interesting aspects of every case and these case descriptions can be found in Appendix C. In this chapter, similarities and differences are identified by using cross case analysis.

4.1 Sustainable supply chain management

For companies, the biggest incentive to become more sustainable comes from the government. The government is mentioned as a motivator for making the company more sustainable through stricter legislation. The emphasis is on the government, because they can prohibit certain chemicals through REACH-compliance, which means that companies must change their processes and material use. Therefore, the government policy has a direct effect on the sustainability policies of companies. Yet it is not only the government that puts pressure on companies, because for B1 and B2 the customer also has a lot of say in the company's policy. B3 and B5 perceive a lot of pressure from their parent company and thus the shareholders. B3 mentioned about this the following: “The parent company is listed on the

stock exchange and they have achieved continuous profit for 80 years, which is why they are doing everything they can to avoid writing red numbers this year”. B5 mentioned their own co-workers, which

they call ‘millennials’, to be an incentive to become more sustainable, due to the bold questions they dare to ask. All in all, the external pressures from firms to engage in SSCM are mainly related to the government, parent company or young employees.

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22 created. The energy saving or energy efficiency initiatives are used to decrease the energy consumption. B4 wants to make a separate energy audit to be able to get a standard in their supply chain. Resource consumption is also about the waste streams in the supply chain. Most companies want to eliminate waste, although this is more from a cost-perspective than an environmental perspective, and thereby enhances the efficiency which is beneficial to the resource consumption. To conclude, economic sustainability is of up and foremost importance whereas environmental sustainability is mainly convenience as its aim is to reduce costs while being sustainable. Companies only focuses on social sustainability if companies expect social risks such as bad working conditions at suppliers or companies have intrinsic motivation to strengthen a specific region.

4.2 Assessment and the effect of mediated power

Within assessment, monitoring, evaluation and audits are important means to assess suppliers. For monitoring the performance of suppliers, the key performance indicators (KPI’s) used are Quality, Logistics, Technology and Costs (QLTC). For evaluation, several different tools are used. B1 uses a supplier profile tool in which they monitor the suppliers based on the guidelines that they have signed. B2 does it by a monthly overview, whereas B3 uses a Vendor Rating Environment (VRE). These three different tools are essentially used to identify and thematize risks which are useful for future audits. Besides monitoring the performance of the suppliers, the corrective actions that follow from audits are monitored as well. The companies want to assess whether the supplier is making progress. Audits are used to control and assess the practises of suppliers. However, B1 and B2 are doing most of the audits themselves whereas B3, B4 and B5 mostly use third parties. For new suppliers, the first audit is always done by the focal firm to ensure that the suppliers can meet the intended requirements. For B1 and B2 their in-house expertise is the reason that they do the audits themselves. So, when it comes to auditing of specific areas such as chemicals, B1 does use a third party. B3 and B5 are more mature in assessing suppliers. For example, B3 has a VRE in which specific questions about environmental aspects are asked. The Registration, Authorization, and Evaluation of Chemicals (REACH) are also taken into account, and questions are asked about sustainable initiatives and even about sustainable investments in the field of the environment. B5 has one audit protocol for their industry where the results are shared with affiliated companies of this federation. This removes the audit fatigue for the suppliers, so that they do not have to meet all individual requirements. It is positive for the focal firm as this speeds up the qualification. New suppliers that are already in the database do not need to be auditing again.

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23 but in this research all cases needed to comply to REACH. ISO14001 is the only environmental management system (EMS) that controls the impact of companies’ activities in all these cases. The code of conduct is used by companies to propagate their standards in the chain. These standards are stricter than the governmental regulations. The code of conduct and the ISO14001 are initiated by the focal firm and every supplier is expected to meet those requirements. Even more industry specific requirements are the Stichting Emissiepreventie Koudetechniek (STEK)-certificate and the F-gas diploma when suppliers have to work with cooling installations. The code of responsibility is only mentioned by B1. All companies use coercive power to get these requirements enforced at their suppliers. In doing so, a supplier must adhere to these rules and be given room to comply with them. If they do not succeed within the given time, focal firms will remove the business. B1 even uses punishments by reimbursing the costs of corrective actions. These corrective actions need tracking/monitoring/control systems to check whether suppliers are on-track. The companies also have a slightly different approach to the follow-up of the audit. One company allows the supplier to set up a corrective action plan while others writes the corrective action plan themselves and strictly check it. For all companies, if the supplier does not have the intention to commit to the corrective action plan, the partnership is over. Which means that this follow-up, the corrective actions, is imposed by the focal firm. Furthermore, the actual corrective actions do not belong to assessment. Due to the methods used to accomplish this it belongs to collaboration. To sum, my findings do not support an interplay between mediated and non-mediated power, whereas my findings do support that coercive power is used for assessment.

B3 uses legitimate power to eliminate complaints and to make agreements about them in contracts. Furthermore, legitimate power is used for forcing suppliers to initiate saving and optimization programs. These stimulation contracts are used to come up with new ideas and savings that could improve their businesses. These contracts and agreements are also made, so that the focal firm can use the contracts if suppliers do not comply with their requirements. Still, B2.1 says that “If you need the contract, then you

are on the wrong side of the discussion. When you have to go back to a contract, there is usually something going on and then someone wants to prove something why he is right or wrong”. This

indicates that using legitimate power on this supplier would have a negative influence on the relationship. All in all, monitoring, evaluation and audits are used as assessment tools. My findings suggest that coercive and legitimate power are used for assessment. Where coercive power focusses on the requirements, legal legitimate enforces standards and stimulations in contracts.

4.3 Collaboration and the effect of both mediated and non-mediated power

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24 the collaboration through the need of more frequent communication. The cooperation for changing processes due to the REACH-compliance is often mentioned in which the focal firm and supplier have to come up with ideas to tackle these problems and to use other materials or processes instead. For all cases, the supplier and focal firm have to be transparent and need to involve each other early in the process. Information sharing is therefore necessary, while in some cases this is forwarded stronger. For instance, B2 and B5 explain that they also share forecasts and coordinate the planning, so that suppliers exactly know when and what to produce. Especially for B5 this results in benefits for both B5 and the supplier. B5 makes products that are seasonal. Suppliers therefore have difficulties in producing the products on time. Sharing forecasts helps so that suppliers can keep stock, and this considerably shortens the delivery time and saves costs. The advantage for the supplier is that he can spread production and thus easily meets the demands of B5 and other customers. So, for collaboration communication, information and knowledge sharing, support and training is used.

For support, companies use long-term agreements (LTA) with their strategic partners in which they express their importance and strong partnership. A small difference between the cases is the contract duration, from a 2+1-year construction to an open-end contract with yearly commitments. During those contracts, they see their collaboration as way of maturing and developing suppliers. They prefer to do more with less suppliers, because “it is better to develop further with one supplier than with the second

supplier trying to catch up with the same developments”. The contracts allow the focal firm to reward

suppliers in case of good performance. Especially the 2 + 1 year construction and the 5-year rolling contract is based on yearly assessment in which the focal firm rewards the suppliers with longer terms. In addition, contracts are also used to invest in the relationship. B2 prefers not to invest directly in machines at suppliers, but to invest in relationships by agreeing a guaranteed turnover. This gives suppliers confidence in the partnership, which means that they dare to invest in new machines that are dedicated to their collaboration. These are two forms of legitimate power used to enhance collaboration. Both influence the support of a supplier, however the LTA’s are used in all cases, whereas the latter is only used at B2. The LTA’s with the possibility to reward suppliers based on good performance is an interaction between reward power and legitimate power to influence the collaboration between a focal and a supplier. Although an interplay is found between legitimate and reward power, my findings do not support the interplay between mediated and non-mediated power on collaboration. To conclude, my findings show that there is an interplay between legitimate power and reward power that support the collaboration. There is no support for an interplay between mediated and non-mediated power on collaboration.

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25 developing. To accomplish these corrective action plans all collaboration methods are used: sharing information, sharing knowledge, training and support. Information is shared to give into the processes and material use. Training for suppliers is necessary for suppliers that do not acquire the necessary knowledge or expertise in-house. The B3-interviewee: “Our buyers do receive training to get a better

understanding of the environment”. During training, tacit knowledge is transferred with the goal of

improving the capabilities of the supplier to accomplish the corrective action plan and to meet the requirements of the focal firm. The trainings also work the other way around in which the supplier of B2 and B3 train or share knowledge with the focal firm. For B2, this resulted in better alignment of the companies and therefore less waste. For B3, the supplier initiates trainings and toolboxes for employees of B3 to better separate waste. In this way both parties benefit from sharing knowledge. New suppliers are often trained to get the supplier on the required level. My findings show that reward power is used to show suppliers appreciation of the performance in terms of long-term contracts. So, firms that implement activities such as training suppliers allows them to transfer tacit knowledge and therefore know-how to support the collaboration with suppliers (Modi & Mabert, 2007). The findings suggest that expert power is key in this process, because focal firms have the knowledge whereas suppliers desire the knowledge for development. B2.1-interviewee: “We have grown into what we are by our customers

not because we did it ourselves”. Support is given through investing in the collaboration by putting

engineers at suppliers. In this way, focal firms can help suppliers by improving their performance. So, for corrective actions expert power is used to enable suppliers to retrieve the necessary capabilities to meet the corrective action plan.

Also, suppliers of B1 admire and are proud to work with B1 even though they are very small in their turnover. Furthermore, B2 and B2.1 identify themselves in their collaboration. B2.1-interviewee: “I

think there should be a connection. With B2 it connects, because we have the same mentality”. Because

of this, they indicate that they both do their utmost to help each other. This falls under referent power since the supplier of B1 identifies with B1, while B2 and B2.1 already have the feeling that they propagate the same values. To summarize, for corrective actions all the collaboration methods are used to improve the supplier. Expert, reward, legitimate and referent power influence collaboration. Expert power has an influence on the transfer of tacit knowledge, referent power to willingness and commitment of suppliers and reward power in combination with legitimate power to support the collaboration.

4.4 Power assessment and asymmetry and the effect on coercive power

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26 leads to constriction of coercive power over the suppliers. In that case, companies do not have the possibility to enforce assessment on those suppliers. One example that is given in multiple cases is the cobalt production in Congo. They mention that the working conditions are bad, but they state that they cannot do something about this misconduct in their chain. B5-interviewee: “Am I going there as B5, a

big player in the bicycle industry, but small on a global scale, to influence that? Am I going to demand that they do it in a certain way? No, I can't, but you should have the discussion”. Furthermore, they also

state that for big suppliers they cannot oblige to sign their code of conduct. Instead they check the code of conduct of the supplier and check if this is similar enough to theirs to accept it. So, power asymmetry and mainly a power disadvantage leads to outcomes in which you have to deviate from your own strategy. To illustrate this, Figure 4.2 shows the supported influences of the types of powers on the governance mechanisms.

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5. Discussion

This research examined the influence of mediated and non-mediated power on assessment and collaboration in a SSCM context. It researched the incentives of pressures that encourage focal firms to propagate sustainability in their supply chain. This study especially investigates the various influences of mediated and mediated powers to achieve this. It differentiates within mediated and non-mediated power to be able to specify the influence of coercive, reward, legal legitimate, expert and referent power on the governance mechanisms. I provide empirical evidence that coercive and legal legitimate power influence assessment, while reward and referent power influence collaboration. In addition, there exists an interplay between legitimate power and reward power on collaboration. Furthermore, coercive power is influenced by the power asymmetry within the buyer-supplier relationship.

5.1 Sustainable supply chain management

This research contributes to the literature as it shows the incentives and outcomes for companies to implement sustainable practises throughout the supply chain. The incentives and pressures for sustainability practises come from the government, shareholders, parent company, customers, clients and young employees. This is consistent with the findings of Jia et al. (2018) where they research the drivers to adopt SSCM initiatives. This research found regulatory drivers in the form of government pressure, normative drivers in the form of economic incentives and competitive advantage and cultural cognitive drivers in the form of intrinsic motivation that comes from young employees. My findings suggest the outcomes of adopting SSCM initiatives are related to all three dimensions of sustainability. Jia et al. (2018) extends this view by introducing operational, public image/reputation and organisation learning as outcomes as well. Then my findings support the operational outcomes because the findings show that efficiency is of high importance.

5.2 Assessment and the effects of non-mediated power

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non-28 conformities, this could lead to punishments or removing business. Therefore, focal firms rely on their power to impose assessment on suppliers to enforce their standards (Koberg & Longoni, 2019). Coercive power is also known as decreasing the perceived competence and perceived autonomy which leads to lower intrinsic motivation of a supplier (Choi & Hur, 2017). However, my findings show that a supplier can embrace these requirements even though the initiative did not come from the supplier.

My findings show that legitimate power influences assessment. Legitimate power is used to eliminate issues and to make agreements in contracts. The contract is used to enforce sustainability standards in the supply chain such as the obligation to come up with creative ideas to use new sustainable materials and resource reduction. The agreements stated in the contracts are used to check during audits if they comply to those agreements. However, my findings support that legitimate power does not purely influence in a positive way which is in line with Nyaga et al. (2013). It could also have a negative impact on the relationship if focal firms heavily rely on the contracts (Nyaga et al., 2013). My findings do not support the interaction between mediated and non-mediated power on assessment. Where Chae et al. (2017) mentioned that coercive power could undermine the influence of non-mediated power, my findings did not find this interplay. An explanation could be that suppliers who already are intrinsically committed to the relationship do not suffer from coercive power of focal firms. In such situations, a focal firm does not have to exert power to force suppliers if they are already willing to adopt SSCM-practises.

5.3 Collaboration and the effects of mediated and non-mediated power

This research contributes to the literature by showing insights of mediated and non-mediated power on collaboration. Before supplier development programs are initiated, firms have to assess the performance of suppliers and identify the areas that require development (Gimenez & Sierra, 2013). The corrective action plan is what follows from this assessment. For corrective actions, developing programs are tools to support suppliers which results in the possibility to develop their own capabilities (Bai & Sarkis, 2010). The collaboration methods have found are information sharing, knowledge sharing, support and training (Koberg & Longoni, 2019). Grimm et al. (2016) mentioned this also means transfer of employees and investments in the relationships. Especially for the latter I found that legitimate power is used to enforce the relationship with investing in LTA’s. My findings support that for strategic suppliers a combination of reward and legitimate power is used to foster the long-term relationship and to reward suppliers for good performance. This long-term relationship allows the focal firm to initiate knowledge transfer activities (Modi & Mabert, 2007). These knowledge transfer efforts that are made by the focal firm requires commitment of resources and time (Dyer & Nobeoka, 2000).

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29 & Mabert, 2007). Especially on the collaboration methods sharing knowledge and training the effect of expert power is visible. Sharing knowledge allow suppliers to improve their sustainability performance and joint development of sustainability solutions (Vachon, & Klassen, 2006, 2008).

My findings show that referent power influences collaboration. This is supported by Nyaga et al. (2013) which state that the reputation of the buyer has an impact on the willingness to collaborate. The willingness to collaborate makes it for buyer firms easier to implement sustainable practises at suppliers. The findings suggest that there is no interaction between non-mediated power and mediated power in influencing collaboration. Although the interaction between legitimate power and reward power on collaboration is found, the interaction between mediated and non-mediated power on collaboration is not supported.

5.4 Power asymmetry

My findings suggest that power asymmetry moderates the coercive power on assessment. The power that focal firms possess in their relationship with the supplier is dependent on the resource. The resource dependency theory shows that firms, with resources that other companies like to access, possess power in that relationship (Reimann and Ketchen, 2017). Furthermore, power assessment is also based on the ability to switch to another supplier and the amount of money that is involved in the relationship. The power positions of the focal firms are continuously monitored to know if they can exert power to enforce their requirements. This continuous monitoring of the power positions and the interdependence is in line with Miguel and Brito (2017) who state that focal companies should assess this for determining the appropriate governance mechanisms. When companies do have enough power, it can be used to enforce sustainability requirements that increases the implementation of sustainability practises which is in line with Touboulic et al. (2014). However, Halldórsson et al. (2010) argues power asymmetry can also hinder sustainable supply chain policies if the power advantaged firms do not want to agree on sustainability terms. The findings show that power asymmetry limits the amount of coercive power. This extends the view of Grimm et al. (2016) where they mention that the lack of channel power results in only targeting their own suppliers on their condition. It could even mean that they cannot target their own suppliers when they have a power disadvantage.

5.5 Managerial implications

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30 agreements with which you can also guarantee turnover for the supplier. For collaboration all the methods of Koberg & Longoni, (2019) could be used to enhance the capabilities of the suppliers. The LTA’s allow companies to transfer tacit knowledge to the suppliers with takes a lot of time and resources. Companies that possess expert power use their knowledge for suppliers that are committed in the relationship. Referent power makes it easier to collaborate with suppliers as they rank focal firms higher and are already proud to be able to work together.

5.6 Limitations and future research

Although this study is an important contribution to the literature and has interesting managerial implications, it contains some limitations. The limitations are related to the data collection of this research. The goal of this research was to interview both buyer and supplier to hear the two perspectives on the same relationship. Interviewing both sides of the relationship enhances the validity of the interviews. Furthermore, I did not succeed in multiple interviewees within the same company to validate the interviews. Also, this research did not use secondary data which could be useful in giving insights. For instance, contracts could shed lights on the exact rules and mechanisms that are present in the contracts. Due to the limited time of this research the amount of industries that this research covers are limited.

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6. Conclusion

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8. Appendices

Appendix A: Interview protocol

Part 1: Introduction

1. Information on research and the interview

- Information on this research, duration of interview, parts/sections, other research data

Part 2: Background information interviewee and focal firm

- Years of experience and title current function

- Function, role and responsibilities within the company Background information case company

- Industry - Vision - Turnover

- Number of employees

Part 3: Sustainability within case company

1. What is your personal interpretation of sustainability? 2. What is your organization’s vision towards sustainability?

3. What are the main reasons and motivations behind your company’s engagement in sustainability?

- (e.g., governmental regulations; customer demand; business case)?

4. What are major social and environmental sustainability issues your firm is facing within your SCs?

- How do/did you address this? (examples)

5. Which organizational sustainability policies or standards are currently in place? 6. Which supply chain sustainability policies or standards are currently in place? 7. Which sustainability programs should/will be in place in the upcoming years?

Part 4: Buyer-supplier relationship

General

8. Can you describe the composition of your supply base? - How many suppliers

- Strategic vs non-strategic suppliers

BSR supplier 1 and 2

9. Can you describe the contractual arrangements with this supplier? - Length, goals

10. How would you describe your relationship (history) with this supplier? - Collaborative/partnership, transactional/assessment

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38 - Who are the key managers in charge of maintaining this relationship?

12. Could you describe how you communicate with this buyer/supplier about sustainability? 13. How would you describe the interdependence between your company and this supplier?

- Alternative suppliers/buyers share in supplier’s turnover

14. How do you incentivize the supplier to work closely and cooperatively with your company? 15. From your perspective, what makes this supplier preferred over its competitors?

16. How committed are you to working with this buyer/supplier to implement a sustainable strategy?

17. Can you give examples of sustainability projects you have been involved in with this buyer/supplier?

- Which practices/methods are used (e.g. communication, knowledge/information sharing, training and support)?

18. Can you elaborate how you jointly develop sustainability goals?

19. Could you describe how decisions on planning, development and implementation of sustainability initiatives are made within this relationship?

- Investment in relationship capabilities or resources to facilitate implementation of sustainability initiatives/practices

20. In general, how would you evaluate your working relationship with this buyer/supplier regarding sustainability?

- How has working on sustainability affected your relationship

21. How has working on sustainability with this buyer/supplier influenced your business? - E.g. performance, financial, non-financial aspects

Part 5: Supplier compliance

Performance

22. How would you describe the buyers/supplier’s performance in general and in regard to sustainability?

23. Did you experience any difficulties in incentivizing the suppliers/meeting the buyers sustainability standards?

- What difficulties?

- How did both partners act to resolve these difficulties?

Control/monitoring

24. What are the main drivers for your suppliers to comply with your issued requirements? - E.g. governmental regulations; customer demand; business case.

25. How does your organization control/monitor suppliers for compliance with your (corporate) sustainability standards?

- E.g. audits, site visits?

26. Which measurements are used to assess the sustainability performance (of your and supplier organization)?

- E.g. KPIs