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Master Thesis Supply Chain Management
University of Groningen
Faculty of Business and Economics
The value of supplier development activities for supply chain resilience
By
Koen Spaansen
S3030970
k.spaansen@student.rug.nl
Supervisor University of Groningen: Dr K. Scholten
Co-assessor University of Groningen: MSc A.C. Noort
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ABSTRACT
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INTRODUCTION
While traditionally supplier development (SD) focused on reduction of cost and increasing material quality, nowadays SD also considers for example sustainability (Lu, Lee, & Cheng, 2012), new product development (Chen, Ellis, & Holsapple, 2015), and building expertise (Bai & Sarkis, 2016). The broadened scope of SD potential has, however, not yet picked up on supply chain resilience, “the adaptive capability of a supply chain to prepare for and/or respond to disruptions, to make a timely and cost effective recovery, and therefore progress to a post-disruption state of operations – ideally, a better state than prior to the disruption” (Tukamuhabwa, Stevenson, Busby, & Zorzini, 2015: 5599). As supply chains are becoming more complex due to globalization (Carvalho, Barroso, MacHado, Azevedo, & Cruz-Machado, 2012), new management philosophies such as Lean (Christopher & Peck, 2004), while companies still need to be flexible to adapt to rapid changing market conditions (Gaonkar & Viswanadham, 2007) supply chains become more vulnerable for disruptions (Hallikas & Lintukangas, 2016). As supplier development is executed jointly by parties in the supply chain (Shokri, Nabhani, & Hodgson, 2010), and supply chain resilience is viewed as a concept that can only be of value when adapted by the full supply chain (Roberta Pereira, Christopher, & Lago Da Silva, 2014), the two concepts can complement each other as collaboration is essential for both.
4 Kant, 2013; Roberta Pereira et al., 2014), can lead to the capabilities required for resilience (Ponomarov & Holcomb, 2009), it remains unclear how different types of SD influence the capabilities of resilience. Even though collaboration is essential for supplier development and supply chain resilience, most severe disruptions originate at the supplier’s side (Roberta Pereira et al., 2014), resilience is becoming more important (Hallikas & Lintukangas, 2016), and the scope of supplier development activities is widening, the link between the two has not yet been made in literature. Therefore, it is not well understood how the capabilities of supply chain resilience can be developed by different types of supplier development activities. As effective allocation of resources has always been crucial for companies to survive (Sánchez-Rodríguez, Hemsworth, & Martínez-Lorente, 2005), it is important to understand the linkage between SD activities and supply chain resilience so that managers can make better informed decisions in assigning resources when building resilience. Roberta Pereira et al. (2014) suggest research in this direction, as they propose future studies that focus on how the purchasing department can help in achieving supply chain resilience. As supplier development can be seen as a responsibility of the purchasing department (Krause & Ellram, 1997), this research builds on their suggestion.
From the previous, the following research question is derived:
How do supplier development activities lead to supply chain resilience capabilities?
The aim of this paper is to address the gap identified by Roberta Pereira et al. (2014) and build theory in the area of supply chain resilience (Kamalahmadi & Parast, 2016). By performing a case study of thirteen supplier development activities in the processing industry the aforementioned gap in literature can be addressed. Furthermore, by gaining knowledge on how supplier development activities can lead to supply chain resilience, companies who want to be resilient will know what activities of SD are most important for resilience and therefore gain knowledge on how resources need to be assigned (Sunil Kumar & Routroy, 2017). Theoretically, this research is the first that links supplier development to supply chain resilience, thereby extending supply chain resilience literature as suggested by Wieland and Wallenburg (2013). Specifically, this research identifies how resilience can be achieved through collaboration with the supplier.
5 discussed with regard to contemporary literature. Finally, a conclusion is drawn, implications for practitioners are presented, and future research directions are given.
THEORY
Supply chain resilience
As supply chains become more complex, they become more vulnerable for disruptions as was mentioned in the introduction. A disruption can be seen as any event, expected or unexpected, that affects the operations in the supply chain (Barroso, Machado, & Machado, 2008). Examples of disruptions are natural disasters, terrorist attacks, or bankruptcy (Tang, 2006). Being able to respond adequately to these external disruptions and therefore being able to continue business as usual, or preferably in a better state than before the disruption, is a key ability to stay competitive in every market. This capability is defined as resilience (Tukamuhabwa et al., 2015). However, in supply chain resilience literature multiple definitions of resilience exist, as the term originates from different fields (Linnenluecke, 2017). In the psychological field resilience is defined as the “universal capacity that spans multiple levels from individuals to communities to plan, respond, and recover from adversity” (Ponomarov & Holcomb, 2009: 128). While in the field of ecosystems resilience is defined as the “degree, manner, and pace of restoration of initial structure and function in an ecosystem after disturbance” (Ponomarov & Holcomb, 2009: 126). All definitions however show that resilience consists of four phases; readiness, response, recover, and growth (Hohenstein, Feisel, Hartmann, & Giunipero, 2015). The definition of Tukamuhabwa et al. (2015) originates in the field of economics and is found to cover the main message of the different definitions, and will therefore be used in this paper. As resilience is differently defined, also the operationalization has been widespread. Table 1 shows some examples of recent literature with the capabilities they associate with supply chain resilience.
6 2015) (Kamala hmadi & Parast, 2016) (Jüttner & Maklan, 2011) (Soni, Jain, & Kumar, 2014) (Roberta Pereira et al., 2014) (Ponoma rov & Holcomb , 2009)
Table 1 capabilities of supply chain resilience in literature.
The main capabilities that return in literature are flexibility, visibility, collaboration, redundancy, and agility. Not one author however has defined exactly these capabilities for supply chain resilience. This can be explained by the different terminology in the field of supply chain resilience. Redundancy, for example, is often used to define flexibility and velocity (Jüttner & Maklan, 2011), and agility often referred to as the capabilities of velocity and visibility (Christopher & Peck, 2004). Adaptability is sometimes used as a synonym for flexibility (Skipper & Hanna, 2009). And finally, integration is found to be an intensive form of collaboration (Prajogo & Olhager, 2012). In this study the capabilities proposed by Jüttner and Maklan (2011) are used, flexibility, visibility, velocity, and collaboration, because of their overall acceptance in this field of research (Johnson, Elliott, & Drake, 2013). These capabilities will be discussed in more detail below.
Interrelatedness of SC resilience variables
7 other capabilities of supply chain resilience, flexibility, velocity, and visibility. Chan, Wang, Luong, and Chan (2009), also found that collaboration affects flexibility (2009). In their research they state that a lack of information sharing leads to delayed reactions to a disruption, and thus reducing flexibility. This delay in reaction can also be seen as velocity. Brandon-Jones et al. (2014) furthermore conclude that visibility is an antecedent of supply chain resilience.
Flexibility
Flexibility is the ability to bend easily but not break (Jüttner & Maklan, 2011). Bending easily is important because the impact of the disruption needs to be absorbed, and then a slightly new position should be taken so the impact of the disruption is minimized for a possible next disruption (Jüttner & Maklan, 2011; Skipper & Hanna, 2009). A disruption or risk can never be fully prevented, thus the ability to absorb the disruption is of great importance (Skipper & Hanna, 2009). Therefore, it is not surprising that Hohenstein et al. (2015) found that flexibility is the most important resilience capability in all the stages of supply chain resilience. Several activities are identified in practice by researchers that build flexibility. Jüttner and Maklan (2011) found that strategically outsourcing of activities can contribute to flexibility, as outsourcing requires collaboration between organizations which leads to a joint effort in absorbing the disruption (Stevenson & Spring, 2007). Another possibility in becoming flexible is providing training to supplier’s to increase their capabilities so they are able to handle different situations that might be created due to a disruption (Krause, Handfield, & Tyler, 2007).
Velocity
8 inventory (Jüttner & Maklan, 2011), sharing information on time (Scholten & Schilder, 2015), and overcapacity (Hohenstein et al., 2015). For example, by sharing information on-time about a disruption, the necessary actions can be undertaken quickly. Whereas safety stock and overcapacity create the ability to quickly deliver or produce more than normal if the buyer is damaged by a disruption from another supplier and therefore places more orders at one supplier.
Visibility
In order to be able to react to the disruption, it is important to be aware of the risk. That is where visibility comes in. Visibility is defined by Francis (2008: 182) as “the identity, location and status of entities transiting the supply chain, captured in timely messages about events, along with the planned and actual dates/times for these events”. Visibility can be used to monitor inventories, demand patterns, and supply conditions (Roberta Pereira et al., 2014). By having greater visibility throughout the supply chain, managers can make informed decisions better, and thereby reduce the probability of disruptions (Christopher & Lee, 2001). Hohenstein et al. (2015) concluded that visibility is mainly important when initially responding to the disruption as it is critical to know where the disruption originates so that the necessary actions can be undertaken to resolve the root cause. This capability can be achieved by close collaboration with supply chain members (Christopher & Peck, 2004), information sharing, preferably real-time information (Brandon-jones et al., 2014), and sharing knowledge (Jüttner & Maklan, 2011). Collaboration
9 fundamental for supplier development (Bai & Sarkis, 2016), the section below explains supplier development in more detail.
Supplier development
Supplier development is defined as “any activity that a buyer undertakes to improve a supplier’s performance and/or capabilities to meet the buyer’s short-term or long-term supply needs” (Handfield et al., 2000: 37–38). Supplier development is not likely to be started with every supplier as it is an investment for considerable amount of resources (Blonska, Storey, Rozemeijer, Wetzels, & de Ruyter, 2013). Therefore SD activities are likely to be executed with strategic suppliers. Different activities can be initiated dependent of the aim of the development. “The most limited aim of supplier development is to intervene in order to teach ‘maintenance capability’ with respect to a specific component. At the other extreme, the most ambitious aim is for a company to replicate at its supplier a whole set of organizational ‘routines’ underlying its own evolutionary capability” (Sako, 2004: 284). With different aims, also different types of supplier development activities are initiated. There can be a difference in investment, using knowledge, capital, or both (Bai & Sarkis, 2016), low or high involvement of the buyer (Chen et al., 2015), and also the initiator can differ as power dependencies can play a role in a relationship (Cox, 2001).
Type of investment
10 Weitz, 1992). Such investments are usually made to increase quality, increase speed of new product development (Dyer, 1996), or to increase automation of production lines (Sako, 2004).
On the other hand, knowledge investments are intangible aspects, such as training of personnel, providing advice, or joint problem solving (Bai & Sarkis, 2016). Knowledge investment is more appropriate when one tries to transform the organization’s efforts into improvements (Bai & Sarkis, 2016; Modi & Mabert, 2007). As knowledge acquisition from outside the own company is found to be more relevant for improvements of capabilities than internal knowledge exchanges (Arroyo-López, Holmen, & De Boer, 2012).
Capital and knowledge investment are not mutually exclusive, rather they can be complementary (Bai & Sarkis, 2016). Depending on the goal of the supplier development activity, and the capabilities a supplier already has, one or multiple types of investment will be done (Talluri, Narasimhan, & Chung, 2010). For example, if a buyer invests in new machinery for the supplier and also provides training on how to best use the new machine a combination of both is used. A company with limited resources however, is likely to be unable to commit in different types of investment, and therefore has to prioritize the types (Bai & Sarkis, 2011).
(In)direct supplier development
11 would opt for the direct approach, as joint activities can improve the relationship (Chen et al., 2015). Direct investments however also pose the risk of opportunistic behavior (Li, Humphreys, Yeung, & Edwin Cheng, 2007), making visibility more important as if the needs of the supplier are better communicated, the focal company can undertake necessary actions to maintain the supplier.
Power dependence
Lastly, all companies in the supply chain operate in an environment which is relative to power (Cox, 2001), which makes power dependences an important aspect to take into consideration for supply chain activities. Two situations exist with regard to power, total interdependence and asymmetric interdependence (Caniëls & Gelderman, 2007). Total interdependence refers to a situation in which two parties have equal power and dependence on each other. Such situation is often characterized by commitment, trust, and cooperation (Geyskens, Steenkamp, Scheer, & Kumar, 1996). Asymmetric interdependence refers to the situation in which one party has a dominant position over its network (Caniëls & Gelderman, 2007). Companies that are in the dominant position, are more likely to initiate supplier development activities as they dominate the exchange (Caniëls & Gelderman, 2007). However, even if the supplier is in a dominant position, SD activities are usually initiated by the buying company (Sánchez-Rodríguez et al., 2005) or jointly set up by buyer and supplier (Handfield et al., 2000). This dominant position is not necessarily a worse situation, as trust can be a moderating factor that enables a good relationship (Caniëls, Gelderman, & Ulijn, 2010). The power one has over other companies is also reflected in resilience, e.g. if one company has all the power due to scarce resource availability, flexibility in the supply chain is reduced as sourcing opportunities are limited.
Conceptual model
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Figure 1. Conceptual model
METHODOLOGY
Research design
As the research question and theoretical framework suggest, this paper aims to build theory by gaining a better understanding of the relationship between supplier development activities and supply chain resilience. Case study research is deemed highly appropriate if theory building is the aim of a research (Ketokivi & Choi, 2014; Yin, 1994), and to explore a real-life situation (Yin, 2009) in this case supply chain resilience. A case study is found to be best suitable because it allows giving a full understanding of the context of the phenomenon (Benbasat, Goldstein, & Mead, 1987), which is necessary because supplier development activities depend on their context, such as what type of supplier is the activity initiated with. Furthermore, by using a multiple case study approach, external validity is guaranteed and observer’s bias minimized (Voss, Johnson, & Godsell, 2016). However, a multiple case study also limits the depth of the research (Voss et al., 2016). The unit of analysis in this research is supplier development activities.
Research context
The cases are studied within the context of nine companies, who share mutual conditions; company size, international supplier base, and operating context. The size of the companies are large, as they have
Supplier development
• Type of investment
- Knowledge
investment
- Capital investment
• (In)direct
development
• Power dependence
- Total
interdependence
- Asymmetric
interdependence
13 more resources available to invest in supplier development activities (Wagner, 2003). Furthermore, international companies usually have a larger, global, and therefore more complex supplier base which increases supplier risks, and therefore the likelihood of activities to reduce such risks are higher. Also, the intensity of supplier development activities is expected to be larger in companies who are active in a complex environment, than companies operating in simple environment (Welker, van der Vaart, & van Donk, 2008). Lastly, Roberta Pereira et al. (2014) suggested research of how the purchasing department can add value to supply chain resilience in one industry; therefore all cases are active in the processing industry. This industry is interesting for supplier development activities as it deals with variable yield of raw materials (Lyons, Vidamour, Jain, & Sutherland, 2011). This makes it more likely for companies to undertake actions to reduce, or control, the impact of these natural risks. These conditions are deemed appropriate because they increase possibilities for disruptions to happen, and therefore the likelihood of activities that are in place to reduce the disruptions are higher. Table 3 shows an overview of the organizations together with the interview details.
Case selection
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Case Type of investment
Initiator Aim of SD activity
Case A Capital Jointly Increase quality
Case B Knowledge Buyer Increase quality
Case C Knowledge Buyer Increase quality
Case D Knowledge Buyer Reduce risk
Case E Knowledge Buyer Improve performance
Case F Knowledge Buyer Reduce cost
Case G Capital Buyer Increase availability
Case H Knowledge Buyer Increase quality
Case I Capital Jointly Increase quality
Case J Knowledge Buyer Reduce cost
Case K Knowledge Jointly Increase quality
Case L Knowledge Jointly Increase quality
Case M Capital Buyer Risk reduction
Table 2. Characteristics of the cases
Data Collection
Data is collected by means of fourteen semi-structured interviews with key persons in the supplier development activities, i.e. mostly purchasing managers. Twelve of the interviews were conducted at the interviewee’s office, while two were done at the University of Groningen. The details of the interviews are shown in table 3 together with an overview of organizations.
Organization Case Operating context
Yearly turnover Number of FTEs Position of the interviewee Interview length (minutes) Company 1 G Processing industry €550,000,000 1,300 Director sourcing and contracting 99 H Company 2 D Processing industry €70,000,000 130 Sourcing manager 60 E Purchaser 49
15 industry manager Company 4 I Processing industry €1,100,000,000 75,000 Inbound logistics manager 56 J Company 5 Processing industry $32,300,000,000 86,500 Category manager & Procurement manager 76 Company 6 A, B Processing industry €225,000,000 1,200 Project manager procurement 59 C Purchaser 56 Company 7 M Processing industry €10,400,000,000 21,000 Project leader 56 Company 8 K Processing industry $2,400,000,000 5,275 Purchasing category manager 119 L Purchaser 82 Company 9 Processing industry €11,000,000 22,000 Project manager outsourcing 41
Table 3 Overview of organizations and interview details
16 In order to counter for cases that are not usable it is important for future research to clearly state what is meant with the terminology that is researched, in this case supplier development. Even though it might sound straightforward, terminology can be differently interpreted.
Prior to the interviews, an introductory letter was send to the interviewees to inform them about the subject of the research and the procedure of the interview. Together with the letter a consent form was send out that had to be read and signed before the interview to inform the interviewees about what happens with their answers, and to make them aware of their anonymity and confidentiality. Also, interviewees were asked to fill out a few closed questions that shortly describe the supplier development activity. In this way, the interviewers could prepare for the interview. Such research protocol increases reliability of the study (Yin, 1994). In this questionnaire the type of supplier is addressed, product or services, the length of the relationship, when the development activity is started, who initiated the activity, and what the aim of the activity is. The questionnaire can be found in Appendix A. The interviews were conducted in the period between April 2017 and May 2017 and were done with two researchers to increase confidence in the findings (Eisenhardt, 1989). The interview is based on a funnel model (Voss et al., 2016), first broad open-ended questions are asked and as the interview continues the questions become more specific. In this way the interviewee can become comfortable with the interviewers and therefore is more likely to provide more detailed information (Mandel, 1974). The specific supplier development questions are set up in a way that first the reason for the supplier development activity is described. Then how the activity is undertaken and executed, to be followed by the results of the development activity. In this way a full understanding of the situation can be developed, which was found to be necessary for qualitative research (Benbasat et al., 1987). After the interviews were conducted, the recordings were transcribed and send back to the interviewee for verification. This was done as soon as possible after the case visit to “maximize recall and to facilitate follow up and fillings of gaps in the data” (Voss et al., 2016: 185). After verification from each case a narrative was made with the problem that occurred, the solution, result, and how it influenced resilience. These narratives can be found in Appendix B.
Data analysis
17 capability; e.g. reducing production stoppages (descriptive code) influences velocity (supply chain resilience capability) by smoothening the production process (interpretive code). The definitions that were used to code for supply chain resilience and supplier development are shown in table 4. A small part of the code tree can be found in the Appendix. For each case the relation between supplier development and resilience was made by identifying returning interpretive codes. Then, cases with similar interpretive codes were compared to see if these cases had similar or different origins in terms of development activity (e.g. same type of investment or different etc.). This formed the input for the findings section.
Concept Main code Definition
Resilience (Jüttner &
Maklan, 2011: 251)
Collaboration The level of joint decision making and working together at a tactical, operational or strategic level between two or more supply chain members.
Flexibility The ease with which a supply chain can change its range number (i.e. the number of possible “options”) and range heterogeneity (i.e. the degree of difference between the “options”) in order to cope with a range of market changes/ events while performing comparably well.
Velocity The speed with which a supply chain can react to market changes/events.
Visibility The identity, location and status of entities transiting the supply chain, captured in timely messages about events, along with the planned and actual dates/times for these events.
Supplier
development (Bai &
Sarkis, 2016; Caniëls et al., 2010; Krause et al., 2000)
Knowledge investment
A buying company’s investment in a supplier by means of intangible resources.
Capital investment
A buying company’s investment in a supplier by means of tangible resources.
Direct development
The buying party itself is engaged in the supplier development activity.
Indirect development
18 Total
interdependence
The situation in which two parties have equal power and dependence on each other.
Asymmetric interdependence
The situation in which one party has a dominant position over its network.
Table 4 Definitions of supply chain resilience that were used for coding
FINDINGS
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Figure 2 How supplier development activities influence supply chain resilience
Flexibility
Flexibility is enabled by supplier development activities that aim for quality improvements. Six out of eight cases that influence flexibility have quality improvement as the aim for the activity (Cases A6, B6, C6, H1, I4, and L8). This can be explained by improvements that lead to redundant resources, thereby increasing the options on where to allocate these resources. Also, as a result of the development activity the skills of the supplier are increased, making the supplier capable of performing more activities, increasing the options of tasks allocated to the supplier. However, significant capital investments, as in case G1, can limit flexibility due to long time commitment.
20 in the supply chain. This is illustrated by a quote from case I4; “the big advantage with the carts is that the returns flow we currently have, it costs a lot of money, and now we don’t have that return flow anymore”.
Cases G1, H1, and L8 are development activities that have led to respectively product range, market, and task expansion. This increases the capabilities of the supplier, thereby increasing options to allocate tasks to these companies. The interviewee from case G1 noted “It started with a very concrete set of products that he would make for us but over time other products have been added to the portfolio so now his total volume is much bigger than we anticipated”. The expansion of the suppliers has led to increased knowledge because the suppliers operate with new products, markets, or tasks. One would therefore expect that these cases are knowledge investments. However, only cases H1 and L8 are knowledge investments, while case G1 is a capital investment. This means that capital investments can also lead to an increase in knowledge. Also, by being able to allocate more tasks to a supplier, the buying company has redundant time due to fewer tasks to be performed. This time can be invested elsewhere. The manager from Case L8 mentions: “It will relieve production manager and team leads, crew chiefs, to release them for workload. So they can do their own job, instead of being busy with organizing that enough people will be there”. However, case G1 also impacts flexibility negatively. The supplier development which was executed involved a significant capital investment which made the buyer and supplier committed to each other for ten years. Thereby making it not possible to switch suppliers in case of for example changing needs of customers.
Velocity
21 communication lines information can be spread throughout the chain much faster, and therefore the supply chain is able to react faster to changes.
Cases A6 and C6 are development activities that resulted in a decreased number of production stoppages at the buying company due to improvements in quality. In case A6 the process that was shown during the site visit resulted in an adjustment at the supplier’s side to better align the processes. This meant for the buying company that the supply of goods increased in quality and therefore production disturbances reduced, thereby increasing velocity. For case C6 a meeting was held to discuss a production problem of the buyer. Due to joint discussions the products of the supplier were adapted which resulted in less production disturbances, because the machine did not jam anymore due to increased quality of input. By decreasing stoppages in the production line, velocity is increased. The interviewee from case A6 depicts the impact on velocity due to the development activity: “we have less disruptions because when there was a meal ingredient going through which did not meet the specifications, the packaging machine would get stuck and it took like ten minutes to restructure everything and then ten people on the line to process the meal ingredients waited for ten minutes”.
Case L8 shows that velocity increased due to shorter communication lines. Shorter communication lines are per definition faster for sharing information, but also another reason was given in the interview by the purchaser from case L8: “the complexity here is the interpersonal relationships”, by shortening communication lines discussions about decisions are avoided. In case L8 the interpersonal relationship wanted to be avoided, while in case E2 velocity increased due to an increased relationship. After several improvement projects, regular meetings, and insights into each other’s businesses, the relationship increased. The purchaser from case E2 notes: “We saw the results in quicker response on questions”. The fact that interpersonal relationships were avoided in case L8 points towards asymmetric interdependence, as one party is able to decide to disregard the other party. However, the development activity was jointly initiated, which would suggest a state of total interdependence. It is furthermore interesting that in case E2, where the relationship increased, the development activity was initiated by the buyer, which would suggest dominance in power. The initiation of the development activity might therefore not be only related to power in the relation.
22 Visibility
Visibility is enabled by all type of supplier development activities. In all cases visibility is influenced, no matter the aim of the activity, type of investment, or power dependences. Therefore it can be concluded that every supplier development activity influences visibility as information is shared. Visibility is enabled by site visits, regular meetings, and joint projects. Ultimately this means that information sharing is the enabler for visibility.
In cases A6, B6, and C6 site visits are the basics of sharing information. By inviting the supplier to the buyer’s plant, the supplier’s knowledge of the processes and products the buyer uses increases. The director sourcing and contracting from case A6 mentioned: “we invited the supplier to come over here and look at our machines and we had some kind of gate at the beginning of the line through which all meal ingredients should fit through in order to be able to be produced. It was very simple so they saw our process and they say okay we copy the gate”.
Cases E2, F3, I4, J4, K8, and L8 all have regular meetings with their supplier to discuss the supplier development, thereby sharing information ranging from stock levels, to specifications of the product. For example, in case I4 the buyer has continuous improvement meetings with his suppliers to continuously address problems and seek improvements. Due to these meetings the knowledge of how entities flow through the supply chain is increased and also the visibility of how the other party operates. This is illustrated by a quote from logistics manager from case I4: “it makes both us and our suppliers work in a similar fashion, which makes the alignment of processes easier”. Furthermore, these meetings are mostly done with representatives from different departments of both supplier and buyer. As the interviewee in case G1 mentioned; “in the entire process there were many people involved (...) so there was a lot of exchanged information”. Much information is shared that normally would not be shared due to cross functional teams.
23 buying company are very specifically detailed by the buyer. As when the buyer initiates a capital investment they appear to have the knowledge how the investment should look like. The manager from case M7 noted: “we had the knowledge, because we know how our raw material can be best processed but we, for whatever reason, we didn’t want to do it ourselves”.
Collaboration
Collaboration is enabled by all types of supplier development activities, as initiating a supplier development activity and working together to improve is collaboration. It is therefore concluded that any supplier development activity enhances collaboration. In the cases collaboration is affected by means of joint knowledge creation, information sharing, decision synchronization, goal congruence, and resource sharing.
Cases A6, C6, H1, and K8 all lead to collaboration due to joint knowledge creation. This is expected, as these cases are all knowledge investments. For cases A6 and C6 the supplier was invited to the buying firm to see the process they are delivering to. By increasing the supplier’s understanding of the buyer’s processes the quality of the supply increased significantly. In cases H1 and K8 the buyer and supplier researched the market and adapted to the newly won information. In case H1 this meant that more widely educated personnel could be hired, while in case K8 this meant that the supplier changed to a healthier and more environmental friendly caterer. By increasing the knowledge of the market the companies are better able to adapt to changes in the market.
24 meetings were introduced. Due to these meetings a proactive attitude was developed towards each other to continuously stimulate each other to improve. As the development activity was initiated by the buyer, but as a result the relationship became two-sided proactive, the dominance in the relation shifted from asymmetric interdependence to total interdependence. The purchasing manager in this case mentioned; “we have improved our relation. So that is really more actively towards each other, discussing more things. That is also very important result. It is not, you cannot really, it is really intangible, you cannot really say what is the money, but it helps you to improve your process, so in the end it will certainly also save money”.
Cases I4 and J4 are different in the type of investment, initiator, and in aim of the activity, but both influence collaboration by decision synchronization. Before the actual implementation of the activities trial programs are run to find the best levels of inventory. Case I4 concerns the development of a Kanban system with the supplier. Before implementing the system, a pilot was run to test the system and see how processes could be best aligned. Case J4 uses a similar system as Kanban, but instead of testing the system by a pilot, the best alignment and settings are set up by trial and error. The boundaries of the inventory levels are continuously adjusted based on the trials until the best spot was found. Case J4 also shows an improvement in the relation after the development activity. During the trial and error phase of the Kanban system, the supplier noticed that the buying company was not as strict on rules as was anticipated before. The interviewee from case J4 noted; “they thought that we were strict on well it is this rule or no rule. And we have shown for at least some items that we can make a difference in how we measure. So it does help to get more alignment”. So by collaborating also alignment is strengthened.
25 knowledge of the supplier by letting the supplier’s employee join all meetings of the buyer. By getting the supplier in-house, resources are spend for this supplier, as in office space, and thereby collaboration enhanced.
Case B6 affects collaboration by creating a win-win situation, or in terms of collaboration; incentive alignment. The interviewee from case B6 mentions: “sometimes a supplier has to harvest the product earlier so they make a lower margin on that, because the kilos you order are less. But in the end it is better for us and because we can save some cost in our factory”. This was tried to turn around to a win-win situation by introducing a more flexible buying price so that the supplier also benefits. If the supplier meets the specifications, or has the best products, they receive more money for the product and when they do not meet the demands or they are the worst supplier they receive less. Although the development activity was initiated by the buyer, which would suggest that the buyer has more power, a win-win situation was created. This suggests a relationship that is matured, and therefore usually has equal power.
DISCUSSION
Contemporary research indicates that disruptions tend to happen more often upstream in the supply chain (Roberta Pereira et al., 2014) making collaboration among supply chain members of greater importance, as resilience should be covered by the whole chain instead of one company. Following on the research of Roberta Pereira et al. (2014) and Kamalahmadi (2016) this research identified how supplier development activities can lead to capabilities associated with resilience (Jüttner & Maklan, 2011). This research shows that supplier development leads to increased resilience capabilities of the supplier. By making the supplier capable in a broader range of skills, the supplier is more likely to be able to adapt to a new situation in the supply chain after the occurrence of a disruption. More specifically, flexibility is affected by development activities that aim to increase quality, velocity is affected by knowledge investments, while visibility and collaboration are increased by all types of supplier development activities.
26 Similarly, Carr and Kaynak (2007) conclude that an increase in quality leads to increased financial performance, which means that extra resources that are created can be spend elsewhere in the supply chain. Following this of thought, the following proposition is stated:
P1. Supplier development activities aimed at quality improvements lead to increased flexibility due to redundant resources that can be allocated differently
Second, Modi and Mabert (2007) concluded that with increased knowledge problems that arise in the supply chain can be solved faster, which therefore minimizes the length of stoppages. This research showed that by knowledge investments the number of stoppages in the process of the buyer is reduced. Not only in terms of production can knowledge investment be of value, also in product innovation as more knowledge leads to faster product innovation (Wang & Wang, 2012), which can be a necessity when adapting to a new situation after a disruption (Pettit et al., 2010). Also, with new knowledge, novel contingency plans might be developed which would lead to being able to handle a disruption faster (Skipper & Hanna, 2009). Considering this, the following proposition is stated:
P2. Supplier development activities characterized as knowledge investment lead to increased velocity due to more knowledge that creates faster problem solving skills
Every type of supplier development activity has led to increased visibility, while the characteristics of the SD activity do not play a role. This can be explained by the fact that “it is very difficult to successfully implement supplier development only through organizational investment, without further supplier involvement and collaboration” (Bai & Sarkis, 2016: 584). Therefore to successfully execute the supplier development activity information need to be shared in a regular fashion to keep one another up to date about progression of the activity but about new development in the industry. Johnson, Elliott, and Drake (2013) furthermore mention that regular meetings help in building a common understanding of the processes and products, making it more likely that alignment of an action plan in case of a SC disruption is done more smoothly as the other’s point of view can be understood, and possibly are aligned already (Inkpen & Tsang, 2005). From this, the following proposition is proposed:
P3. All type of supplier development activities increase visibility because information needs to be shared in each activity
27 extensive project that involves multi-disciplinary teams from both parties (Matook, Lasch, & Tamaschke, 2009) while the ultimate responsibility is with the purchasing department (Krause & Ellram, 1997). During the SD activity both parties have to share sensitive information in order for the project to work (Blonska et al., 2013), which is one of the aspects of collaboration (Cao & Zhang, 2011). Also, for each project that is jointly executed, parties try to seek advantages for both parties, creating incentive alignment (Cao, Vonderembse, Zhang, & Rago-Nathan, 2010; Manojkumar & Kant, 2013). Therefore, the following proposition is stated:
P4. All type of supplier development activities lead to collaboration as supplier development requires collaboration
The SD sub-variable power dependence seems to not play a role in the effect of SD on resilience. A possible explanation can be that companies who engage in supplier development activities are in the same stable stage of a relationship and therefore power dependences do not play a significant role (Johnsen, Johnsen, & Lee, 2010). Also, as relationships where collaboration is sought, which can be in the form of supplier development, high levels of trust are present (Li et al., 2007), which also suggest a stable stage in the relationship. The relationship aspect is however not specifically enough identified in this research; future research should therefore take the relationship aspect more into account to identify the relational impact on resilience.
CONCLUSION
28 can be seen as an antecedent of SC resilience (Brandon-jones et al., 2014; Scholten & Schilder, 2015), and all SD activities lead to visibility and collaboration, it can be concluded that supplier development activities are an enabler of resilience.
Beside the theoretical implications, this research also brings practical implications. The practical implications of this research come in twofold. First, by gaining knowledge of what type of mechanisms lead to an impact on different capabilities of resilience, managers can steer on such mechanisms and create more value out of a development activity. By being able to improve the return on investment of supplier development activities companies can create a competitive advantage. Secondly, capital investments require a significantly higher investment of liquid funds than is required for knowledge investments while the benefits of capital investment are lower with regard to resilience. Companies should therefore carefully analyze the return of investment of capital investment in the field of where they aim to improve, as for resilience the impact of capital investment is lower than knowledge investment.
Even though the research has brought some important insights in supplier development activities and supply chain resilience, it also has some limitations. First, as each case is viewed upon by only the buying company the results of the development activity are only seen from one side. It is possible that the supplier has fewer or more advantages. Future research should therefore look into the effect of supplier development from multiple viewpoints, i.e. buyer and supplier. Second, all cases were initiated by supply chains active in the processing industry. This industry has specific characteristics that might be acted on with development activities. Therefore, the mechanisms or effects on resilience can be different in other industries. Another future research direction is therefore identifying which mechanisms are in place between supplier development activities and supply chain resilience in other industries.
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34
APPENDIX A: QUESTIONNAIRE
Please recall two supplier development activities with a strategic supplier.
Activity 1
1. Supplier for
☐Product, namely ______________________________________________________ ☐Service, namely ______________________________________________________ 2. Length of relationship: _________________________________________________________
3. At what point in the relationship did you start with the development activity? (months/ years from the start of the relationship) _________________________________________________
4. Initiator of the supplier development activity:
☐Buyer ☐Supplier
☐Joint agreement 5. Aim of the development
☐Increase quality of product/service ☐Increase on-time delivery
☐Reduce costs ☐Other, ____________________________
Activity 2
1. Supplier for
35
3. At what point in the relationship did you start with the development activity? (months/ years from the start of the relationship) _________________________________________________
4. Initiator of the supplier development activity:
☐Buyer ☐Supplier
☐Joint agreement 5. Aim of the development
☐Increase quality of product/service ☐Increase on-time delivery
36
APPENDIX B: CASE NARRATIVES
Case A6
Case A6 concerns the process of processing meal ingredients. The machinery that was used required a fairly precise sizing of the ingredients; “we can work with tolerance of 1 centimeter so instead of 30 it could be 29 or 31 but not more or less than that”. The problem occurred that the incoming ingredients were not of the right size, or shape, causing the packaging not to close properly and therefore jammed the packing machine. At first this problem was communicated with the supplier, but due to the product being handmade the supplier replied that “this is no problem because it is ambient”.
Therefore the supplier was asked to visit the factory, so that he could see how his ingredients were being processed, a knowledge investment. A gate was used at the beginning of the production line through which the meal ingredients should fit in order to be able to be produced. Because it happened often that the supply of ingredients did not fit through the gate, an employee stood in the beginning of the line to move the ingredients through the gate, or reject them if needed. This supplier was not familiar with the automated processing of meal ingredients and therefore was not aware of the strict requirements of his ingredients. Ultimately the supplier proposed to build a similar gate at the end of their production line, a capital investment, so that the ingredients can be reformed at the supplier instead of the buying company. After testing their gate and sending samples to the buying company, to check the sizing, the gate was integrated in the process of the supplier.
This modification of the supplier’s production process has led to “more streamlined and more efficient production”. Because of “less disruptions where there was a meal ingredient through which did not meet the specifications”. As when the packaging machine got stuck it stopped production for about ten minutes. Furthermore, it created less waste of meal ingredients as fewer ingredients are rejected. And consequently one person less at the production line, as there was enough confidence to not have someone at the beginning of the line to check all the meal ingredients.
37 and can be used elsewhere in the production process. Lastly, by showing the supplier the production process, the knowledge of the supply chain increases and thereby visibility in the chain.
Case B6
Case B6 concerns the optimization of the supply chain for vegetables to increase the quality of the product and optimize the input for the production process and let it run in the most efficient way. The buying company invited all five suppliers to the factory to show the production process for their vegetables, and the buying company visited the suppliers as well, indicating a knowledge investment. Then, the suppliers and buying company researched what the best conditions to harvest were; “when is the best time to harvest during the day (when it’s sunny or early in the morning), what is the best temperature to deliver the product”. Ultimately this meant that the specifications of the vegetables had to change. This led to the situation in which the supplier sometimes has to make more costs, “sometimes a supplier has to harvest the product earlier so they make a lower margin on that, because the kilos you order are less. But in the end it is better for us and because we can save some cost in our factory”. This was tried to counter by introducing a more flexible buying price so that the supplier also benefits. If the supplier meets the specifications, or has the best products, they receive more money for the product and when they do not meet the demands or they are the worst supplier they receive less. This has led to a more efficient production line and due to this flexible pricing quality has also improved.
The supplier development activity, which is defined as a knowledge investment, has influenced supply chain resilience mainly by collaboration, because it was tried to search for a win-win situation by introducing a flexible buying price. The joint project also meant that information was shared in a timely fashion, and as the suppliers were invited to the buying company visibility also increased. Furthermore, by having a standard specification for all of the suppliers, quality of the suppliers should all be of approximately the same quality. This makes the choice from which supplier to be supplied broader, thereby increasing flexibility.
Case C6
38 should be picked. As it stopped production when this happened, an employee was placed at the machine to check if the problem occurred, and to quickly resolve the problem.
The buying company invited the supplier to the factory to show the problem and together they investigated why the machines picked up multiple trays at once. The problem was found to be that the trays were squeezed into each other. The supplier therefore suggested adjusting the tray so that a little edge was made in the trays which made it much more unlikely that the trays squeezed into each other. The outcome of this joint development of the product is mainly visible in the production process, as no more disturbances occur. This means that production runs smoother, and the one employee does not have to check the machine.
This knowledge investment means for supply chain resilience that mostly velocity is increased due to the decrease in production disturbances. Also, flexibility is increased as one employee at the beginning of the line is removed and can be used elsewhere in the production process. Lastly, by showing the supplier the production process, the knowledge of the supply chain increases and thereby visibility in the chain. Case D2
Case D2 concerns the inspection of shipment of organic ingredients. The problem was that sometimes shipments had pesticides in them, causing the ingredients not suitable for the organic product. In that case the ingredients are devaluated to a conventional product resulting in a high financial impact for the buying company. Even though the shipments come with a certificate of analysis of the product that it is pesticide-free, it still happened that the shipments contained pesticides.
In order to proof that the pesticides were not already in the ship, and to reduce the occurrences of pesticides in the shipment, the buying company hired a third party to inspect the shipments for an official inspection. This third party also took samples of the shipment that can be used “in a situation of needing to proof that the pesticides were already in there”.
