THE EFFECT OF UNBALANCED POWER ON DELIVERY RELIABILITY

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THE EFFECT OF UNBALANCED POWER ON

DELIVERY RELIABILITY

Master thesis, MSc. Supply Chain Management

University of Groningen, Faculty of Economics and Business

Xu Xuechun

Student number: s2181053

Email: bridget-happy@live.cn

Research theme: Supplier reliability

First supervisor: Dr. N.D. Van Foreest

Second supervisor: Dr. J. A. A. Van der Veen

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ABSTRACTS

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1. INTRODUCTION

1.1 Case Background

HAFDC is a medium-sized Chinese national electricity company that has the problem of late delivery from its coal suppliers. HAFDC purchases two types of coal, which are coal with high and low quality. They burn the combination of coal with high and low quality. This is because coal with high quality is very expensive while lower quality coal is cheaper. The combined use of high and low quality of coal has the same function with burn coal with only high quality. However, only burn coal with low quality is not functional. The proportion of coal with high and low quality is 60% and 40% respectively. HAFDC purchases high quality coal from big coal companies, and purchases low quality coal from small coal companies. This is because large companies are more reliable than small companies. The process of coal purchasing can be described as: HAFDC asks quote for the price from coal suppliers and decides whether to accept the price. If HAFDC accept the price, it will issue orders to coal suppliers. Orders contain requirements such as order quantity, delivery time and price. Then, suppliers will decide whether to accept the order based on the requirements proposed by HAFDC. If suppliers accept the purchase order, then they will arrange coal delivery to HAFDC. If suppliers do not accept orders, some negotiations would be required to make a new agreement, otherwise the business stops.

1.2 Problem Introduction

When the supply of coal is limited in the market, coal suppliers can decide when to deliver coal to which customer at what price and quantity. Sometimes, coal suppliers deliver late on purpose, without considering the promise of delivery date. They deliver coal to HAFDC as late as they want. As a customer, HAFDC can do nothing, but accept their decisions. Sometimes, HAFDC needs to wait a month to get coal. HAFDC only keeps stock for nearly 10 days as the effectiveness and quality of coal will decrease if storing time increases. Therefore, HAFDC arranges deliveries no earlier and no later than the demand. For instance, if it makes an agreement with a coal supplier that delivery time is 10 days, then on the eleventh day, HAFDC will run out the safety stock if coal cannot be delivered on time. Since the Chinese government does not allow electricity companies to stop production, therefore, if the delay of coal longer than 10 days, HAFDC will purchase oil as the substitute of high quality coal, or use high quality coal to substitute low quality coal. Considering that oil is much more expensive than coal, and high quality coal is more expensive than low quality coal. Thus, the delay of coal increases costs significantly.

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5 claims: (1) unbalanced power negatively influences the buyer-supplier relationship and (2) a bad buyer-supplier relationship negatively influences delivery reliability. Therefore, it can be deduced that unbalanced power between buyer and supplier influence the delivery reliability negatively. However, whether the unbalanced power always negatively influences the delivery reliability has not been investigated.

Therefore, this paper aims to find out whether unbalanced power always influences delivery reliability negatively. If not, what are the reasons behind it? If yes, besides the buyer-supplier relationship, are there any other factors which may influence the relationship of the unbalanced power and delivery reliability.

We propose the research question as:

"Does unbalanced power between buyer and supplier always negatively influence delivery reliability?"

We conduct multiple-case studies at HAFDC to provide evidence to support whether unbalanced power always influences the delivery reliability negatively. Multiple case studies enable us to gain a rich knowledge and compare the results among cases. From the literature perspective, this paper fills in the literature gap mentioned above and enriches the knowledge of the influence of unbalanced power on the delivery reliability. From the practical perspective, the purchasing manager of HAFDC can get an in-depth insight of the influence of unbalanced power on delivery reliability, so that they can make use of the positive influence and avoid the negative influence of the unbalanced power, to achieve a better delivery performance.

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2. LITERATURE REVIEW

In this part, we first introduce the background of unbalanced power and its sources, and delivery reliability. Then we develop the proposition of the effect of unbalanced power on delivery reliability and the conceptual model.

2.1 Unbalanced Power and Its Sources

Power is defined as “the ability that one individual or group to get another unit to do something that it would not otherwise have done” (Dhal, 1957, p 202). The unbalanced power enables one party to manipulate other party’s behavior (Muthusamy and White, 2006). Porter's five forces model was developed to analyze the industry structure and competitive forces (Porter, 1998a, and b). The competitive forces provide sources of power. Even though many other power sources exist, such as the mediated/ non-mediated and coercive/ non-coercive power (Maloni and Benton, 2000), after discussion with the purchasing manager of HAFDC, they think that the five forces model can best reflect the power distribution in the electricity and coal industry. Therefore, in this report, the source of power is analyzed through the five forces model. The model includes the threat of new entrants, the buyer bargaining power, the supplier bargaining power, threat of substitute products and rivalry among competitors (Porter, 2008).

 Rival. Benjaarfar et al. (2007) state that when there are many alternative suppliers in the market, the competition among suppliers is fierce. This is because many suppliers are able to provide the same products at the same price and service level (Porter, 2008). Thus, customers have the power to choose suppliers who can supply products with a good performance at a low cost. In order to attract customers, suppliers do their best to meet customers’ requirements. On the contrary, when suppliers have plenty of alternative customers, the competition among customers is fierce. Thus, suppliers have the power to choose customers and customers have to accept suppliers’ decision (Porter, 2008). To conclude, whoever has more alternative choices can manipulate another party to do something. Thus, we can say that the different alternative availability between two companies may lead to the unbalanced power.

 Threat of substitute. Substitute could achieve the same goal by using a different method. If an organization has a high threat of substitute, then its power is weak (Porter, 2008). For instance, email is an attractive substitute of mail to send messages to people as it is faster and cheaper than mail. In this case, people who send messages have the power to decide to use which method. Therefore, either buyers or suppliers can be substituted; they have weaker power. In another words, different substitute availability between two companies may lead to unbalanced power.

 Threat of new entrants. New entrants to either customer market or supplier market will increase the number of competitors, thus, increase the competition (Porter, 2008). The barrier of entering the market determines the level of threat of new entrants. The barrier could be generated from supply-side economies of scale, demand-side benefits of scale, customer switching costs, capital requirements and unequal access to distribution channels (Porter, 2008).

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7 usually sells products/ service at a higher price, limits the quality of products or service, or shifts costs to other partners in the supply chain. Company’s uniqueness and attractiveness can greatly influences the bargaining power. For instance, customers who purchase products/ service with a large volume and high value, are attractive to suppliers (Kraljic, 1983). For the sake of gaining huge profits, suppliers will make compromises if these buyers have specific requirements. On the contrary, when suppliers provide differentiated products, customers have to meet suppliers’ requirements to get the products (Kraljic, 1983; Porter, 2008). Thus, we can say that unbalanced power exists when the level of attractiveness and uniqueness is different between two parties. Switching cost is another factor which may lead to unbalanced power. That is, when the cost of changing suppliers is higher than the cost of changing customers; suppliers have stronger power than customers (Porter, 2008). Moreover, the level of dependency is also an important factor which leads to the unbalanced power. To illustrate, customers may heavily rely on the suppliers due to the resource dependency. Resource dependency theory treats a company as an open system, which relies on other companies to provide essential resources (Pfeffer and Salancik, 1978). The resource dependency could make the supplier more powerful (Astley and Sachdeva, 1984; Astley and Zajac, 1990; Dhal, 1957 and Wong et al., 2008). Suppliers may also depend on customers. For instance, small manifacturers may depend on retailers’ distribution channel (Rey and Whinston, 2013). Thus, we can say that when one company depends on another company, the unbalanced power exists between these two companies.

Based on Porter's five forces model analysis, we summarized five factors which may lead to the unbalanced power. These factors are the availability of alternatives, the availability of substitutes, a company's attractiveness and uniqueness, switching costs and dependency level.

2.2 Delivery Reliability

Delivery reliability measures the ability of delivering the right products on time according to the promises (Biong and Selnes, 1997). The on time delivery is very important as a slight late delivery at the upstream of the supply chain may result in a significant delay at the final customer (Pinto et al., 2013). There are many reasons, which may lead to the late delivery. For instance, disasters and supplier related risks (Chen, et al., 2013), lack of internal (Hult, et al, 2004) and external collaboration (Chen, et al., 2013), or the insufficient information sharing (Gurnani, et al., 2012; Milder, 2009).

2.3 Propositions and Conceptual Model

Many authors have proved that unbalanced power influences the buyer-supplier relationship negatively. For instance, Maloni and Benton (2000) consider that when imbalanced power exists between buyer and supplier, the party with stronger power prefers to manipulate and control the other party, instead of building a mutual relationship by creating a win-win situation. New (1998) also says that under the situation of “weaker stronger customer”, or “stronger supplier-weaker customer”, the supply chain partnership can hardly be built. This is because not all partners can be treated fairly, the party with stronger power can easily hazard the party with weaker power (Liu, et al., 2012).

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8 et al., 2011). The reason could be that a strategic relationship enables companies to react to the changes quickly (Hoyt and Huq, 2000), share information (Stuart, 1993), facilitates mutual production planning and problem solving (Chen, et al., 2004). All these activities facilitate a reliable delivery (Prajogo, et al., 2012).

Based on the existing literature, we can conclude that unbalanced power negatively influences the buyer-supplier relationship while the bad buyer-supplier relationship negatively influences the delivery reliability. Thus, we can deduce that the unbalanced power can negatively influence the delivery reliability. Moreover, Kumar (1996) supports this deduction by finding out that a company could be hazarded if it uses power to squeeze its partner for short term winning. Reasons could be firstly, using power to achieve maximum profits at other partners’ costs could harm the company itself if the position of power shifts. For instance, Procter and Gamble (P&G) used power to manipulate supermarket chains to accept product quantities and participate in the promotion. When supermarket chains have become mature and powerful, the chains turn out to use power to manipulate P&G to pay them for introducing new products and require them to participate in the chains' promotional activities. It can be found out that if the party uses power to force its partner to do something, when the power shifts, its partner will ask it to pay back. Therefore, it is possible that if buyers use power to squeeze suppliers’ profits, when the power shifts, suppliers may also use power to force buyers to accept the late delivery. For instance, the supplier may deliver goods based on its own scheduling without considering the delivery agreement made with the customer. Thus, the shipment may be delayed. Secondly, when the power leads to an unfair business, victims may find ways to resist (Kuar, 1996). For instance, if a buyer squeezes its suppliers’ profits too much, its suppliers may find new customers and reduce their dependency on this buyer. Once they find new customers, they may give the delivery priority to the new customers. In this case, the shipment could also be delayed due to the scheduling issues. Therefore, the proposition is proposed as:

Unbalanced power between a buyer and a supplier has a negative influence on delivery reliability.

Figure 1. Conceptual model

Different switching costs Different alternative availability Different dependency level Different substitute availability Different company attractiveness and uniquess

Unbalanced power

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Reliable delivery

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3. METHODOLOGY

The aim of this research is to explore whether the influence of unbalanced power on delivery reliability is always negative. If not, what are the reasons behind it; if yes, are any other relevant mediators influencing the relationship between unbalanced power and delivery reliability. That is to say, we want to investigate the relationship between unbalanced power and delivery reliability and explore relevant mediators and reasons. Meredith (1998) mentions that when the phenomenon can be understood by observing actual practice and the study is explorative; the case study is appropriate. Case study includes single case study and multiple case studies (Eisenhardt, 1989). We use multiple case studies in this research. This is because first we want to know whether the unbalanced powerful always negatively influences the delivery reliability; thus we need to analyze and compare different cases. Besides, a single case may not include all the relevant mediators that we want to explore while multiple case studies can help to find more relevant mediators.

3.1 Research Design

Unit of analysis

We define the unit of analysis as an individual coal supplier. This is because all the useful data, like power distribution, delivery performance and purchasing context can be collected through analyzing coal suppliers.

Number of cases

In this study, we selected four coal suppliers. This is because unbalanced power between HAFDC and coal suppliers involves two situations, either HAFDC has a stronger power, or its coal supplier has a stronger power. Four cases involve both situations and the number of cases achieve the minimal case number of multiple case studies proposed by Eisenhardt (1989), who says at least four cases should be studied until there is no innovative data can be collected. Moreover, after contacting with the purchasing manager of HAFDC by phone, they said they can provide at most four suppliers.

Case selection criteria

In this report, we only select coal suppliers, as HAFDC is only interested in the issue of coal delivery. The selected coal suppliers should have either stronger or weaker power than HAFDC. Moreover, at least one of these coal suppliers should have experienced late deliveries due to their own problems. Based on the criteria, the purchasing manager first choose four coal suppliers by himself. Subsequently, we use measurements to measure the strength of power for the selected coal suppliers and HAFDC. The four selected coal suppliers are Chinese National Coal Group Corporation, ShenHua Group Corporation Limited, Dong Cheng coal company and Huai'an Coal company. In order to simplify the supplier's name, we use A, B, C and D to represent them respectively.

3.2 Measurement Development

3.2.1 Power

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11 dependency level, and company’s attractiveness and uniqueness as power measurements. Even though there are many other power measurements (Trepend and Ashenbaum, 2012), the purchasing manager indicates that power distribution can be well presented by analyzing these five factors. In the questionnaire (see APPENDIX A), the questions, which are used to reflect these five measurements were adapted from Terpend and Ashenbaum (2012), Porter (2008) and Wong et al. (2008). They have made statistical tests to ensure that their questions are reliable and valid. The way of measuring who has stronger power is similar with the guideline proposed by Miles and Huberman (1984). That is, the answer for the measurement scales from 1 to 7, where 7 implies the strongest power and 1 implies the weakest power. The purchasing manager was required to give scores to each item for HAFDC and four coal suppliers. Then, the scores were averaged and compared. The company, who has a higher score, has a stronger power. If the averaged score is equal, it means the power between buyer and supplier is balanced. For instance, if the scores of five items for HAFDC and coal supplier A are "2, 3, 2, 5, 3" and "6, 5, 4, 7, 3", the average scores are 3 and 5 respectively. In this case, coal supplier A gets a higher score, therefore, the coal supplier A has a stronger power than HAFDC.

3.2.2 Delivery reliability

While many key performance indicators can measure delivery reliability (Soepenberg, et al., 2012), we use the percentage of late delivery as the indicator of delivery reliability. The reason that we use it as a measurement is because Soepenberg et al. (2012) indicate that this is the most popular indicator of delivery reliability. Moreover, the purchasing manager of HAFDC suggests that it is the best and appropriate performance indicator as the final consequence of all the other unreliable issues like unreliable quality and quantity is late delivery. This is because no matter what unreliable issues happen, HAFDC needs to spend extra time on solving the issues. For instance, when a coal supplier delivers a less quantity of coal, HAFDC spends more time on finding coal suppliers and organizing shipping; thus the shipment is delayed. When a coal supplier delivers coal with insufficient quality, HAFDC would not accept the coal and this coal supplier should replace the coal with required quality. This also causes a late delivery. Therefore, the percentage of late delivery can reflect all the reliability issues. We define the percentage of late delivery as within a year, the number of late deliveries out of the total number of delivery. Considering that delay for more than 10 days is unacceptable for HAFDC, and we want to investigate the unreliable delivery which may cause serious consequences. Therefore, in this report, when the shipment is delayed more than 10 days, it is defined as late delivery.

3.2.3 Relationship

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Relationship characteristics

Traditional relationship Supply chain partnership Number of suppliers Many suppliers Few key suppliers

Supplier selection criteria

Price is the only criteria Multiple criteria to select suppliers

Short/ long term relationship

Short-term contract Long-term relationship

Information sharing No information sharing Information sharing

Mutual benefits Power is the efficient solution when the problem arises

To achieve mutual benefits

Table 1. Characteristics of the traditional relationship and supply chain partnership, adopt from Stuart (1993).

partnership. We think that supply chain partnership is better than traditional supply relationship, as this has been widely accepted by many scholars (Lai et al., 2010, Lee, 2009, Ragatz et al., 2002).

3.3 Preparation

We designed a semi-structured questionnaire (in Appendix A) to help to conduct the interviews. Semi-structured questionnaire includes both closed and open questions. Closed questions aim to collect data about the delivery performance of coal suppliers and the strength of power. Based on the answer of these closed questions, we can know the power distribution and the delivery performance of coal suppliers. Open questions mainly investigate the context when HAFDC was doing business with its coal suppliers. For instance, what kinds of relationship that HAFDC have with its suppliers. To ensure the quality of the questionnaire, we sent the questionnaire to fellow students and supervisor for improving. After that, we sent the semi-structured questionnaire to the purchasing managers of HAFDC before we conduct the interview. Thus, they can prepare the answer and relevant information. In order to ensure the quality of the interview, we designed a data collection protocol (in Appendix B). Moreover, we conducted a pilot test to ensure that the purchasing manager can understand questions correctly, and answer questions comprehensively.

3.4 Data Collection

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4. RESULTS

This research investigates whether the influence of unbalanced power on delivery reliability is always negative. If not, why? If yes, are any other relevant mediators like relationship exist? This section describes the results of research: firstly, we describe the power distribution between HAFDC and its coal suppliers. Then, we introduce the way that HAFDC and its coal supplier use power. Lastly, we show the delivery performance.

4.1. Power Distribution

This part describes the power distribution of HAFDC and its coal suppliers. The result shows that when the supply of coal exceeds the demand, the overall performance of five factors determines the power strength. When the demand of coal exceeds the supply, resource dependency turns to the most important factor that determines the power strength. The purpose of this part is to give a clear picture of power strength of HAFDC and its coal suppliers. Thus, in the discussion section, we know from what aspects that unbalanced power influences the delivery reliability.

When the supply of coal exceeds the demand, the power strength is analyzed as follows:

The availability of alternatives. As mentioned before, HAFDC purchases high quality coal from

large coal suppliers, and low quality coal from small coal agencies. Large company do not supply low quality coal, and small coal agencies do not supply high quality coal. Therefore, large companies are not the alternatives for small coal agencies. A and B are large coal companies. There are only few large coal suppliers in China, as becoming large coal companies, they have to own large coal mines, transportation line and selling point, and they have the advantage of economic scale. It is very hard for a coal company to achieve these advantages. C and D are small coal agencies. There are thousands of small coal agencies as they do not need to satisfy the rigor requirements like large coal companies. They only need to purchase coal from small coal mine, and then sell it to their customer. It is much easier to find than own a coal mine. A and B have many customers like HAFDC while C and D can hardly find another customer like HAFDC.

The availability of substitutes. Coal can hardly be substituted. Even though there are many other

energy sources, like wind and water, can be used to produce electricity, they are not widely used yet because the technology is not mature and costs are high. However, coal is the important material in many other industries, like the steel industry. Therefore, HAFDC can be substituted by coal suppliers.

Company’s attractiveness and uniqueness. For small coal suppleirs C and D, HAFDC purchases

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Switching costs. The switching costs between HAFDC and coal suppliers are high. To illustrate,

HAFDC has invested a lot of money on negotiating, assessing, investigating and developing relationship with large coal suppliers. Even though HAFDC can change small coal agency easily, the risk and cost of doing business with new small coal suppliers are high as a lot of information needs to be communicated, and new coal suppliers are easy to make mistakes while mistakes increase costs.

Level of dependency. Since only few large coal suppliers can supply high quality coal, and high

quality coal is an important material; thus, HAFDC heavily relies on large coal suppliers A and B. However, HAFDC does not depend on small coal agencies C and D. On the contrary, C and D rely on HAFDC, as most of their revenue comes from HAFDC.

According to the measurements in the questionnaire, we calculated the average score. Table 2 shows the result (The original data is in Appendix A; method of calculation can be found in methodology part). We can find out that A and B have higher scores than HAFDC, which implies they have stronger power than HAFDC. C and D have lower scores than HAFDC, which indicates that HAFDC has a stronger power than C and D.

HAFDC A B C D

Average score

5.6 6.2 6.2 3.5 3.5

Table 2. Average score for power distribution

However, power distribution between HAFDC and its coal suppliers is not always constant. The demand of electricity increases significantly in winter and summer every year; therefore, the demand of coal increases significantly as well. Under this situation, the demand of coal exceeds the supply. When the provision of coal is limited, availability of coal turns to the most important power source. That is to say, all of these four coal suppliers turns to have stronger power than HAFDC.

4.2. How Does HAFDC Treat Coal Suppliers

The way that HAFDC treats A and B is similar, and the way it treats C and D is the same.

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16 production. Moreover, senior managers of A and B and HAFDC build a good relationship as well, this is represented by senior managers visit each other quite often. They exchange information frequently and timely so that the adjustment like delivery date can be made. They adjust the price and coal requirements in response to the market, but they never squeeze each other's profit and benefits.

For the coal supplier C and D, when the supply of coal exceeds the demand, the competition among small coal suppliers is fierce. Under this situation, HAFDC usually invites bid. They list the requirements like coal quality, quantity and lead time. Then small coal suppliers bid privately, which means coal suppliers do not know their competitors' price. HAFDC choose the most appropriate coal supplier according to the requirement of quality, quantity and delivery time, and negotiate with them for a lower price with the same service. This is because the price is not the only consideration when choosing a supplier, the overall performance of coal quality, quantity and delivery time are also important, as ensuring the availability is the most crucial for HAFDC. Some coal suppliers are able to provide a better service on quality, quantity and lead time; however, their price is also higher. Therefore, HAFDC would like to negotiate with them for a lower price. In most cases, C and D are the selected coal suppliers. The average price in the market ensures that coal suppliers can earn a reasonable profit. The contracts with C and D are short term. Normally, the term of validity of the contract is less than one month. This is because they do not always have stable coal sources. HAFDC shares information with C and D, but not as much as shared with A and B. Instead of squeezing their profits too far, HAFDC first realizes the benchmark coal price in the market; then negotiates with them to lower prices and make the price close to the benchmark price. By doing this, HAFDC maintains a good relationship with C and D, and when the power shifts to C and D, they will also care about HAFDC. HAFDC plays a dominant role among small coal suppliers so that coal suppliers try to satisfy all the requirements proposed by HAFDC.

Table 3 summarizes the relationship with A/B and C/D. We can find out that the relationships with A and B satisfy all the characteristics of supply chain partnership while the relationships with C and D meet four out of the five criteria of supply chain partnership. Even though that HAFDC or C/ D use power to squeeze each other’s profits, but they always leave some profits to each other. This means they paid attention to achieving mutual benefits; otherwise they will maximize their own benefits. Thus, we can say HAFDC have supply chain partnerships with A, B, C and D. We can also find out that HAFDC has better relationships with A and B than with C and D. This is because HAFDC has long term contracts with A/B, while only has short term contracts with C/D. Moreover, HAFDC shares more information with A/B than with C/D.

A and B (high quality coal) C and D (Low quality coal) Number of suppliers Only collaborate with A

and B

In most cases, HAFDC purchases coal from C and D.

Occasionally, HAFDC purchases from other small coal suppliers

Information sharing Share plenty of information. e.g. the forecast information,

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17 production planning and B

Supplier selection criteria Multiple criteria. E.g. price, quality, shipping distance, reputation, etc.

Multiple criteria. E.g. price, quality and quantity, delivery performance, etc.

Short/ long term relationship Long term relationship and

long term contract

Long term relationship, but short term contract

Mutual benefits Achieving mutual benefits Use power to put their benefits first, but still leave some profits to its partner.

Table 3. Relationship with coal suppliers

4.3. How Do Coal Suppliers Treat HAFDC

When the coal provision is limited, coal suppliers have the power to decide deliver how much coal to whom and when, even though they have signed the contract. The penalty of breaking the contract is 1% of the total amount of money, which is not as significant as the profit they can earn if they break the contract. Under this situation, A and B do not increase the promised price or delay the delivery on purpose, but they reduce promised quantity. For instance, they should sell 100000 tons of coal, but they only sell 80000 tons. By doing this, A and B can take care of all the customers that they have. Besides, A and B use “first come first serve” policy to deal with customer orders. As they have many customers like HAFDC and they do not put HAFDC as the prior customer. To be specific, HAFDC usually issues orders on the 10th of every month. If other customers who issue orders earlier than HAFDC and their orders are not completely handled before the 10th of that month, A/B will firstly handle the earlier orders, then handle HAFDC's order.

However, small coal suppliers would catch up this opportunity to ask HAFDC for a higher price even when they have signed contracts. To be specific, some small coal suppliers pretend that they do not have coal yet and ask HAFDC for a higher price without any space for negotiation. If HAFDC agrees to pay a higher price, coal suppliers deliver coal to HAFDC. If the negotiation fails, coal suppliers insist that they do not have coal so that they sell the coal to another customer who offers a higher price. In this case, HAFDC surrenders to coal suppliers to ensure the availability of coal. However, the cooperation with these small coal suppliers is short term, when the coal is not limited provided, HAFDC will never purchase coal from them anymore. Unlike these small coal suppliers, C and D do not increase prices without reasons; they negotiate and try to convince HAFDC that they cannot sell coal at the original price. Only when HAFDC understands why they increase the price and accept that price, then they will adjust the order, and resign it again. If HAFDC shows great unwillingness or angry at the increased price, coal suppliers C or D will negotiate and bargain to reach a new agreement. C and D do this is because they still want to sell coal to HAFDC when the power shifts to HAFDC. However, the negotiation prolongs the delivery time. HAFDC did not squeeze its coal suppliers’ profits when it has a stronger power. Thus, C and D also take care of HAFDC, and they try to minimize the delay so that the serious consequences could be minimized.

4.4. Delivery Performance

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18 is to say, the percentage of late delivery, which is less than is 5% is a good performance. It can be found out from table 4 that C and D perform well on delivery, only 2% and 1% of late delivery respectively, and both of them are less than 5% of late delivery. However, the performance of A and B is not as good as C and D, as they have 5% and 10% of late delivery respectively. We can say that A and B perform badly as their percentages of late delivery are no less than 5%.

Coal suppliers Percentage of late delivery

A 5%

B 10%

C 2%

D 1%

Benchmark < 5% perform well >= 5% perform badly

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5. DISCUSSION

This section mainly discusses the influence of unbalanced power on delivery reliability. Unlike the claims from the literature that unbalanced power influences the buyer-supplier relationship negatively, and buyer-supplier relationship influences the delivery reliability positively. The result shows the opposite situation. The results are discussed as follows.

5.1 Unbalanced Power Does Not Equal To A Bad Relationship

The unbalanced power exists between HAFDC and its coal suppliers; however, their relationships are good. This result can be explained by Hofer et al. (2012) that unbalanced power influences buyer-supplier relationships through the way that the powerful party treats the weaker party. That is to say, the powerful party can either use its power to improve the whole supply chain performance and all the partners within the supply chain can achieve benefits, or use its power to maximize the benefits at other partners' costs. It can be found out from the results that no matter coal suppliers A, B, C, D have power, or HAFDC has power, they do not use power to achieve themselves benefits at their partners’ costs too much. For instance, when C and D have the power to force HAFDC to accept the increased price, instead of forcing HAFDC to pay the increased price, they try to negotiate and convince HAFDC that they have to increase the price. If HAFDC is still unsatisfied with the increased price, C and D will decrease the increased price to reach a new agreement. They do this is because they are afraid of that HAFDC will not purchase coal from them anymore when the power shifts to HAFDC. It will be a great loss if C and D cannot sell coal to HAFDC as HAFDC purchases a large amount of coal and the payment term is the best. Therefore, C and D pay attention to maintaining the relationship with HAFDC even though they have stronger power. It is the same that when HAFDC has stronger power, they do not squeeze C and D’s profits too much as well. This is because even though there are many alternative small coal suppliers available, the workload and costs of doing business with a new coal supplier are huge as much information needs to be exchanged, and many things needs to be prepared. Moreover, the risk of unreliable quality, quantity and delivery increases. Therefore, it is not wise that HAFDC changes coal suppliers frequently. Considering that C and D have sold coal to HAFDC for many times, they know exactly what HAFDC needs so that HAFDC does not need to spend time and money on exchanging information and telling them what to do and how to do. Therefore, HAFDC also pays attention to maintain relationships with C and D.

5.2 The Positive and Negative Influence of Unbalanced Power On Delivery

Reliability

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20 be that, in these cases, there are many other factors playing the dominant role in influencing the delivery reliability. The following two sections explain these influential factors in detail.

5.2.1 The positive influence of unbalanced power on delivery reliability

When the supply of coal exceeds the demand, HAFDC has a stronger power than small coal suppliers as it has a plenty of alternative small coal suppliers. This makes the competition among small coal suppliers is fierce (Benjaarfar et al., 2007; Porter, 2008). In order to attract and maintain the customer, small coal suppliers try their best to deliver on time. This result can be supported by many authors (Smith, 1973; Konings, 1998; Murayama & Elliot, 2012) who have proved that competition is positively influencing the delivery performance.

Besides, when the price of coal undergoes the trend of decreasing, the delivery performance is good as well. This is because C and D want to deliver coal as soon as possible. This is because the longer they hold coal, the more risks they will have. For instance, if the coal price is agreed on 700 Yuan per ton, but four days later, the market price of coal has decreased to 650 Yuan per ton. If C or D does not deliver coal within four days, they will face the risk that HAFDC is not willing to pay 700 Yuan per ton; instead, they want to purchase at the price of 650 Yuan/ ton. If HAFDC insist on reducing the price, coal suppliers can do nothing but agree. This is because the availability of coal has been ensured and coal suppliers may not easily find another customer as good as HAFDC. Thus, coal suppliers are active to deliver on time, or even earlier than the promised delivery date.

Moreover, HAFDC purchases a large amount of coal and the payment term is the best. This enables HAFDC to have stronger bargaining power and makes it as an ideal customer for small coal suppliers. Besides, HAFDC does not excessively squeeze the coal supplier's price even when coal price decreases significantly. Therefore, small coal suppliers treat HAFDC as a preferred customer. Nollet et al. (2012) mention that suppliers provide better treatment to preferred customer than the normal customer. The advantages of being a preferred customer are (1) suppliers will particularly take care of the shipment, (2) are willing to give priority to the customer when the supply is limited, and (3) adjust delivery schedules when necessary (Christiansen and Maltz, 2002; Huttinger, et al., 2012; Ulaga and Eggert, 2006; Ulaga, 2003). Therefore, the delivery performance is more flexible and on time.

5.2.2 The negative influence of unbalanced power on delivery reliability

A and B have stronger power than HAFDC, and they have less desirable delivery performance. According to the purchasing manager, scheduling is the most frequent reason which leads to the late delivery. As mentioned in the results section, A and B are large coal suppliers, and their revenue do not rely on HAFDC as they have many customers like HAFDC. It happens that HAFDC issues order later than many other customers. In this case, A and B have the power to decide whom to deliver on what quantity and when to deliver. Normally, they follow the first come first serve policy and deliver coal to HAFDC only when coal has been arranged to deliver to customers who issue orders earlier than HAFDC. Therefore, when there are many customers who issue orders earlier than HAFDC, the late delivery is easy to happen.

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6. CONCLUSION AND RECOMMENFDATION

6.1. Summary of Findings

The result shows that unbalanced power is able to influence the delivery performance positively. That is to say, the influence of unbalanced power on delivery reliability is not always negative. To be specific, the stronger buyer power may influence the delivery reliability positively. The reason could be summarized as the stronger buyer power increases the supplier competition, and the risks for suppliers, and makes the buyer as a preferred customer. All these factors influence the delivery reliability positively. On the contrary, when the supplier has stronger power, the delivery performance is not desirable as suppliers put their scheduling and benefits as the first consideration.

6.2. Recommendations to HAFDC

When the supplier has stronger power, being a preferred customer of coal suppliers. Many

authors have proven that being a preferred customer could positively relate to the delivery performance (Christiansen and Maltz, 2002; Huttinger, et al., 2012; Ulaga and Eggert, 2006; Ulaga, 2003). The fact that C and D treat HAFDC as a preferred customer and put HAFADC as the prior customer so that there is no scheduling problem to delay the shipment. However, A and B do not treat HAFDC as a preferred customer because they have many customers like HAFDC. Therefore, HAFDC should try to develop itself and be a preferred customer of A and B. Huttinger et al. (2012) summarize that a customer may increase its attractiveness from the aspects of market factors, like size, growth rate, and influence in the market; customer competition position; financial and economic factors, technological factors and socio-political factors. Considering that HAFDC develops itself continually, such as purchases more machines to increase the output, introduces advanced technology to increase productivity, and so on. The continuous development enables HAFDC to be competitive in the market. Therefore, HAFDC could keep developing itself, and make use of these developments to be a preferred customer of coal suppliers.

When HAFDC has stronger power, achieving mutual benefits with coal suppliers. Even though

HAFDC does not develop a supply chain partnership with C and D, it does not squeeze C and D’s benefits when it is able to do so. In return, when the provision of coal is limited, C and D take care of HAFDC’s benefits as well, and try to minimize the time of delay. This can be compared with the situation that when HAFDC has stronger power, it squeezes some other small coal suppliers’ benefits. Then when the power shifts, these small coal suppliers do not care about HAFDC anymore, and only put their own benefits in the first place. In this situation, the delay time is much longer than the delay time of C and D. Therefore, do not use power to squeeze suppliers and care about key suppliers’ benefits will lead to a long-lasting good delivery performance.

6.3. Limitations

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23 companies, more companies from different industries and their suppliers can be analyzed and compared.

6.4. Further research

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APPENDIX A. SEMI-STRUCTURED QUESTIONNAIRE

Questionnaire "The effects of unbalanced power

on delivery reliability"

Huan'an Fa Dian Chang

Xu Xuechun

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1. Introduction

We appreciate that you are willing to participate the interview and thank you for your time. In the following 1.5- 2 hours, we will ask you questions which aim to investigate whether the unbalanced power can always influence the delivery reliability negatively.

The questions are structured in five topics: 1) background of HAFDC and the interviewee 2) coal purchasing processes, 3) power distribution between HAFDC and coal suppliers, 4) performance of supplier delivery reliability, 5) how do you treat your coal suppliers.

In case you are not able to answer questions to the best of your knowledge, we would appreciate it if you could provide us the specific documentation / information after this interview.

We would like to tape the interview in order to ensure the quality of our report. The tape will be kept confidential and will be destroyed after the research is completed. Is it fine with you if we record this interview?

Do you have any questions or remarks before we start? If not, then we will start the interview. --Start tape now --

In this questionnaire, A, B, C, D represents each coal supplier. To be specific: A: Chinese National Coal Group Corporation

B: ShenHua Group Corporation Limited C: Dong Cheng coal company

D: Huai'an Coal company

2. Background of HAFDC and the interviewee

(1) What is the purchasing manager's working experience?

(2) To what extend does the purchasing manager understand the coal and electricity industry? (3) How much coal do you consume each month?

(4) How many coal suppliers do you have? (5) What is the consequence of late delivery?

3. Coal purchasing process

(1) What is the process when you purchase coal? (2) What is the purchasing policy in HAFDC?

(3) Generally speaking, what is the lead time of coal delivery?

4. Power distribution

Answer scale: 1-7 where 1 means strongly disagree and 7 means strongly agree

Based on the statement below, please give a score from 1 to 7 for HAFDC and coal supplier A/ B/ C/ D.

HAFDC A B C D Notes

(1) Established firms in this industry have substantial resources which may be used to prevent the entry of new

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31 competitors.

(2) New firms entering this industry must spend a large amount of capital on risky and unrecoverable up-front advertising and/or for research and development.

5 7 7 3 3

(3) Retaliation by established firms toward new entrants into this industry is and has been strong.

5 6 6 4 4

(4) In this industry, price competition is rare.

7 6 6 4 4

(5) There are little alternatives in the market.

5 7 7 3 3

(6) This industry's product serves

functions which may be hardly served by many other products.

7 7 7 7 7

(7) The needs which this industry's products satisfy may be hardly

satisfied by products from many other sources.

7 5 5 3 3

For HAFDC only

(8) The market size is smaller than the supplier capacity.

6

(9) The purchasing volume is huge while comparing with other customers.

6

(10) The switching costs will be low if there is a need to change suppliers.

6

(11) HAFDC is able to integrate backward. 1

For suppliers only

(12) Coal supplier is almost a monopoly. 6 6 2 2 (13) HAFDC is heavily relying on coal

supplier.

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5. Performance of delivery reliability

(1) What is the percentage of late delivery of coal supplier A? What is the reason for late delivery?

(2) What is the percentage of late delivery of coal supplier B? What is the reason for late delivery?

(3) What is the percentage of late delivery of coal supplier C? What is the reason for late delivery?

(4) What is the percentage of late delivery of coal supplier D? What is the reason for late delivery?

6. How to treat coal suppliers

(1) When HAFDC is more powerful, did/ do you force coal supplier A/ B/ C/ D to do anything, which achieve maximum benefits for you, but at coal supplier's costs? For instance, you force them to accept a low price. If not, what did/ do you do to cope with coal suppliers? 6a. Do/did you have many coal suppliers so that they have a fierce competition among each other?

6b. Do/did you squeeze your coal suppliers' benefits to maximize your own profit? 6c. Do/did you have a short term contract with coal suppliers?

6d. Do/did you share information with your coal suppliers? If yes, what kind of information that you share?

6e. Do/did you involve coal suppliers to your product planning? 6f. Anything else?

(2) When coal supplier is more powerful, how did/do they treat you? Did/ do they compel you to do anything, which achieve maximum benefits for them, but at costs of HAFDC? For instance, they increase the coal price and force you to accept it. If not, what did/ do they do to cope with HAFDC?

6g. Does/ did coal supplier A/B/C/D increase price?

6h. Does/ did coal supplier A/B/C/D deliver late on purpose?

6i. What are the criteria for coal supplier A/B/C/D to choose customers? 6j. Anything else?

(14) Coal is differentiated provided by the coal supplier.

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APPENDIX B. DATA COLLECTION PROTOCOL

Due to the chance of interview is limited and the purchasing manager does not have too much time for us. Therefore, we developed a data collection protocol to ensure that we are collecting the right and comprehensive data. The protocol is developed by the guidelines from Yin (2009) and Brereton et al. (2008).

1. Data needs to be collected. 1) Background of HAFDC and the interviewee, 2) coal purchasing processes, 3) power distribution between HAFDC and coal suppliers, 4) performance of supplier delivery reliability, 5) how do you treat your coal suppliers. A semi-structured questionnaire, which contains the detailed content of five topics, was designed to help to collect data.

2. Data collection plan.

Data collection method Interview

Interview company HAFDC

Place Purchasing manager's office,

Huai'an, China

Interviewee and position The purchasing manager

Interview time 1.5-2 hours

Interview tool A semistructured questionnaire First interview and pilot test 25th April, 2013

Improve semi-structured questionnaire 25th April, 2013 Second interview 26th April, 2013 Procedure and content

a) A semi-structured questionnaire will be developed.

b) The first interview will be conducted on 25th April, 2013. During the first interview, the four coal suppliers will be selected with the help of purchasing manager of HAFDC. The two criteria which are used to select the coal supplier can be found in methodology part. After selecting coal suppliers, the semi-structured questionnaire will be conducted on one coal supplier to check 1) if all the questions can be understood, 2) whether all the questions can be answered and 3) if the data is comprehensive enough to answer the research question.

c) We will improve the questionnaire based on the feedback from pilot test.

d) The second interview will be conducted on 26th of April. The semi-structured questionnaire will be conducted to collect data for the rest three coal suppliers. 3. How the data will be stored. The interview will be recorded during the interview. After

THE EFFECT OF UNBALANCED POWER ON DELIVERY RELIABILITY