Supply Base Complexity Decision-Making: A Multiple Case Study In the Light of Problemistic Search

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Abstract

This research addresses the absent knowledge on the triggers of supply base complexity decisions by studying the influence of problemistic search in that decision-making process. Commonly decisions made in three dimensions define the complexity of a supply base. These include: the number of suppliers in the supply base; the level of differentiation between these suppliers; and the level of inter-relationships among them. We departed from predominant theories in supply chain management research to explore this gap, since those theories implicitly assume that decision-makers are rational and make optimal decisions. While, existing studies on supply management have rather found that managers are often bounded rational and their decisions are mainly problem-driven. Therefore, we drew upon problemistic search as a core concept of the Behavioral Theory of the Firm. For the reason that this theory predicts that because of bounded rationality managers primarily focus on problems and make satisfactory decisions to solve those problems. Accordingly, problemistic search is commonly defined as the search for solutions triggered by organizational problems. To study this gap, multiple case studies were conducted in five manufacturing firms with in total eleven supply managers. The results indicate that problemistic search influencing decisions defining supply base complexity are invoked by both reactive triggers (actual problems) and proactive triggers (potential problems). Furthermore, reactive triggers appeared to be predominantly influencing changes in both the number of suppliers and the level of differentiation, while proactive triggers predominantly influenced changes in the level of inter-relationships. Lastly, the dimensions concerning the number of suppliers and the level of differentiation appeared to be highly related. A change in the one dimension consequently led to a change in the other dimension. These findings have not been described in the literature before.

Keywords: problemistic search; change triggers; supply base complexity; problems; decision-making; bounded rationality.

Supply Base Complexity Decision-Making:

A Multiple Case Study In the Light of

Problemistic Search

Master Thesis

Halil Ibrahim Deniz University of Groningen

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Institutional- and Research Related Information

Student: Halil Ibrahim Deniz

Institutions: University of Groningen & Newcastle University Business School Study: Double Degree MSc Operations Management

Submission date: 12-01-2020 Word count: 14582

Student number: S2973836

Faculty: Economics and Business

Program: MSc Technology and Operations Management Course title: Master’s Thesis TOM-DD Newcastle

Course code: EBM028A30 Supervisor (1st_): _{Dr. ir. N.J. Pulles}

Student number: 190615677

Faculty: Humanities and Social Sciences

Program: MSc Operations and Supply Chain Management (4120F) Course title: Dissertation Dual Award OM

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Acknowledgment

This thesis was conducted as part of the double degree master Operations Management. Having worked on this research from March 2020 on, I received a great deal of support and guidance throughout this process and program.

Therefore, I would first like to express my sincere gratitude to my supervisor Dr. Niels Pulles. He supported me when I had difficulties in defining a topic that would contribute to both my research theme and my personal interest areas. I am grateful for his constructive- and direct feedback, which was sometimes challenging, but it was at the same time motivating me to improve my work. He did not only helped me in improving my thesis, but also contributed to the improvement of my general academic writing skills. In short, I am thankful for having him as my supervisor.

I would also like to sincerely thank my second supervisor Dr. Qionglei Yu. Although, we have not met in person, she was always available and sincere in here guidance. Her feedback really helped me to improve my problem statement, and made me more aware of the importance of having a clear and adequate research methodology in order to derive valid insights.

I would also like to express my appreciation to the interview participants for taking the time and making the effort to contribute to this research. It was a great pleasure to interview them all.

Finally, I would like to thank my family, friends, fellow students and also lecturers for their support and feedback in the thesis writing process and also during the whole master program.

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1. I

NTRODUCTION

Manufacturing firms have to deal with numerous and intertwined supply base issues, such as unreliable delivery and global value creation (Handfield and Nichols, 2004; Brandon-Jones et al., 2014), but also in particular with the contemporary and disruptive impact of the Coronavirus. These challenges and the complexity associated with increasingly globalizing supply bases have increased the necessity of adequately managing this strategic area (Handfield and Nichols, 2004). Together with the ever increasing trend of outsourcing, taking appropriate supply base decisions has become a key strategic issue (Choi and Krause, 2006; Wilhelm et al., 2016). In that sense, decisions made in three dimensions commonly define how complex the management of a supply base will be (Choi and Krause, 2006). These include: the number of suppliers in the supply base; the level of differentiation of these suppliers; and the level of inter-relationships among them. Making appropriate decisions within these Supply Base Complexity (SBC) dimensions is crucial, since the resulting level of complexity influences how well firms can coordinate their Supply Base Management (SBM) activities. This in turn impacts a firm’s ability to obtain superior resources and competitiveness, and thereby its performance (Brandon-Jones et al., 2014). However, although firms evidently differ in the level of SBC, it is not yet well understood why supply managers actually make certain decisions regarding the dimensions of SBC. Knowing and understanding why supply chain decision-makers actually change their strategic behavior in defining SBC is important for understanding the (firm) performance implications of these decisions.

Extant literature has already focused on the impact of SBC on firm performance. They suggested that firms have to find an optimal level of SBC to maximize that performance (Choi and Krause, 2006; Bozarth et al., 2009; Brandon-Jones et al., 2014; Lu and Shang, 2017). Particularly, it was found that SBC decisions impact how well a firm’s supply base performs with regard to transaction costs, supply risk, supplier responsiveness and supplier innovation, which thus in turn influences firm performance (Chakravarty, 2014). However, it is equally important to know and understand why these changes are made, because of this apparent impact of SBC decisions on firm performance. In the rare case in which literature did consider SBC decision-making, it was mainly conceptual rather than empirical, which limits its practical usability (Choi and Krause, 2006).

Accordingly, in light of this gap a review of existing research suggests that the currently available conceptual and rational theories may not adequately describe the managerial behavior observed in SBC decision-making. To better understand this apparent gap, this research draws on the Behavioral Theory of the Firm (BTOF) to explore why decision-makers initiate SBC changes. The BTOF is suitable for the purpose at hand as it focuses on explaining the decision-making processes of bounded rational managers (Augier and March, 2008; Posen et al., 2018). Hereby, we step outside the realm of existing decision-making frameworks in Supply Chain Management (SCM) that have, albeit implicitly, relied on standard economic theories (Ketokivi and Schroeder, 2004; Mantel et al., 2006; Carter et al., 2007). Whereas these theories assume that decision-makers are rational and possess perfect information to make optimal decisions. It is argued by the BTOF and indicated by empirical evidence that these rational paradigms can be relaxed as (supply) managers are often bounded rational (Simon, 1957; Kahneman and Tversky, 1972). Supply managers often rely on heuristics and intuition in decision-making due to for instance prior experience or limitations in information processing capability (Mantel

et al., 2006; Carter et al., 2007). However, this influence of bounded rational decision-making in SBM,

and specifically regarding SBC changes, has received scant attention in research. This gap restricts the usability and usefulness of SBC frameworks in practice. Therefore, considering the increasing dynamism of SBM (Lu and Shang, 2017), and the (implicit) reliance of SCM on rational decision-making theories, a fruitful research opportunity exists.

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attention to all areas within the firm. Managers therefore mainly focus on the areas in which problems are signaled. In relation to that, it is explained that due to bounded rationality, decision-makers are not able to optimally evaluate their performance. To ease the task of performance evaluation, they will create (implicit) aspirations based on for example historical firm performance. When problems relative to these aspirations are found, it is assumed that managers will initiate changes to the organization’s current practices. This is especially for the reason that bounded rational managers learn and act based on prior performance and problems. This problem-driven change process is called “problemistic search” (Cyert and March, 1963). Extant literature in similar settings which focused on problemistic search in organizational decision-making has already addressed gaps similar to the ones we aim to address (Posen et al., 2018). These settings among others include, strategic partnership creation (Baum

et al., 2005), sustainable supply chain decision-making (Kirchoff et al., 2016) and also the closely

related area of supplier selection (Yang et al., 2017). This makes problemistic search therefore also a suitable approach for examining (bounded rational) SBC decision-making. Especially, when we consider that supply base problems, (implicitly) indicating below aspired performance, are likely to be central drivers of SBC changes. Research considering the influence of problemistic search regarding strategic changes in SBC is to our knowledge non-existent in the literature. Accordingly, the following question will be central to enhance knowledge on why supply managers make SBC decisions, and how problemistic search informs these decisions:

How does problemistic search influence the decisions defining supply base complexity?

To address this research question, a multiple case study was conducted in five different manufacturing firms with in total eleven supply managers. Data was collected by conducting semi-structured interviews on cases concerning decisions made in the three SBC dimensions.

We contribute to the BTOF literature as we found that both reactive triggers (actual problems) and proactive triggers (potential problems) invoked problemistic search influencing SBC decisions. This sheds a new light on the BTOF, since it is assumed that a problem triggering problemistic search is unidimensional, while we showed that it is multi-dimensional. We contribute empirically to the SBC literature as we found that reactive triggers lead to problemistic search influencing changes in the number of suppliers and the level of differentiation, while proactive triggers invoked problemistic search influencing changes in the level of inter-relationships. This complements existing conceptual knowledge on SBC decision-making, since beside the problem itself it was found that the type of problem is influential as well in the decision-making process. Lastly, we also contribute to the SBC literature by showing that a change in the number of suppliers often consequently leads to a change in the level of differentiation in the supply base and vice-versa. We hereby add knowledge as existing research rather assumes that these two dimensions are only related in terms of their influence on the level of SBC, without acknowledging the influence on each other. From a managerial point of view, this research enables supply managers to compare and contrast their own perception of SBM with the findings of this paper. Thereby supporting them in more effectively understanding and leveraging supply base decisions to solve or prevent problems.

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2. T

HEORETICAL

B

ACKGROUND

2.1. The behavioral theory of the firm and its current state in supply chain management

The BTOF has been influential in explaining decision-making processes within firms (Posen et al., 2018). In that sense, the BTOF has argued that firm decision-makers are bounded rational

(Cyert and March, 1963). Hence, managers will only pay attention to the organizational areas which are signaled to be problematic or unsatisfactory. In relation to that, it is explained that bounded rationality undermines the ability of decision-makers to optimally evaluate (firm) performance. To overcome this limitation, decision-makers set (implicit) aspirations to reflect and evaluate their desired performance. An aspiration is then defined as “the smallest outcome that would be deemed satisfactory by decision-makers given the current choice situation” (Schneider, 1992, p. 1051). Historical performance or industry peer performance often serve as reference points for setting these aspirations. In which problems relative to these aspirations will make managers aware of the presence of problematic organizational practices that need to be changed. Cyert and March (1963, p. 121) explicitly explained that firms “make decisions by solving a series of problems; each problem is solved as it arises; the organization then waits for another problem to appear”. In that respect, problems are specifically argued to be the central drivers of decision-making (Greve, 2003b; Kacperczyk et al., 2015). As a consequence of these problems, a so-called problemistic search process will be triggered (Audia and Greve, 2006). Problemistic search is commonly defined as the process of identifying problems and making changes to solve these problems (Posen et al., 2018).

Greve (2003a) further suggested that as a consequence of problems indicating below aspired performance, the problemistic search behavior of firms will intensify. This aids to riskier firm decision-making and change. Consequently, decision-makers will be more willing to engage in riskier problemistic search. Especially, when existing knowledge and practices do not effectively solve the problems. This might for instance be the case when riskier problemistic search is required if unique supply base issues require novel solutions, such as selecting non-local suppliers (Baum et al., 2005). These novel solutions or partners might not yet exist in the supply base’s current stock, prompting the buying firm to look beyond existing channels for obtaining resources (Banerjee et al., 2019). Positive performance feedback, so when problems are absent, in contrast tends to make managers risk averse and uncertainty avoidant. Managers in that case prefer to stick to current routines and practices. In other words, the achievement of aspirations discourages the managerial willingness to invoke problemistic search.

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currently absent sustainability practices, especially since they were doing well in terms of firm performance.

2.2. Supply base complexity

Choi and Krause (2006, p. 638) defined a supply base as the “portion of the supply network that is actively managed by the focal company through contracts and the purchase of parts, materials and services”. They for instance argued that when a buying firm has to deal with a high number of differentiated suppliers, decision-makers could struggle to deal with the complexity of the supply base. This can in turn negatively influence firm performance. Hence, making it important for decision-makers to understand and take appropriate SBC decisions. In that sense, they argued that the following three SBC dimensions, determining the structure of a supply base, impact how well a firm performs (Chakravarty, 2014).

First, the number of suppliers in the supply base involves the suppliers that are within the visible reach of the buying firm. Deciding upon a suitable number of suppliers is important, as creating a smaller supply base often results in lower costs since the number of information flows, physical flows, and relationships to be maintained are reduced (Bozarth et al., 2009). However, this reduction can also severely impact operations in case of problems, such as with disruptions. On the other hand, increasing the supply base size reduces the reliance on specific suppliers, as volumes can be more easily moved. However, a large supply base could also lead to (delivery) issues if the focal firm is only a small buyer at the suppliers. Second, the level of differentiation in the supply base concerns the extent to which suppliers differ in terms of organizational cultures, working practices, technical sophistication and/or geographical dispersion (Choi and Krause, 2006). The more differentiated the suppliers are, the more complex SBM becomes, and the more problems might occur in the supply base. For instance, when the focal firm has to coordinate activities with geographically dispersed suppliers that do not share similar working practices or cultures (Handfield and Nichols, 2004). On the other hand, having a more differentiated supply base increases the likelihood of generating novel knowledge or products which can contribute to innovation (Choi and Krause, 2006). Third, the level of inter-relationships involves the presence of working relationships among suppliers in the supply base, often defined as supplier-supplier relationships (Choi et al., 2002). Decision-makers can initiate working relationships between suppliers when they deem it beneficial to for instance coordinate the alignment of specifications in the product development process (Handfield and Nichols, 1999).

Moreover, existing research has mainly argued that an optimal level of SBC is required to maximize firm performance (Choi and Krause, 2006; Bozarth et al., 2009; Brandon-Jones et al., 2014). However, the triggers and rationale behind SBC decision-making have not received sufficient attention yet. This absent knowledge is especially important because of the influence of SBC decisions on firm performance. Rationality based decision-making frameworks in SCM may come short in that respect. Manager often do not rationally make decisions but rather act based on problems and prior performance, and consequently initiate problemistic search (Greve, 2003b). The next section will further explain how problemistic search can conceptually inform decisions defining SBC.

2.3. Conceptual framework

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Hence, it is very likely that a manufacturing firm’s unsatisfactory performance can stem from below aspired supplier performance or issues in the supply base. These supply base problems would conceptually trigger problemistic search for changes in the dimensions of SBC. For the possible reason that problems stimulate managers to change existing (supply base) practices (Greve, 2003b). Whereas, positive performance feedback, so the absence of problems, likely diminishes the willingness of decision-makers to initiate problemistic search. This can be for the reason that existing routines and practices regarding SBC are deemed satisfactory, making managers risk averse and uncertainty avoidant (Greve, 2003a). This conceptualization is illustrated below with a framework including SBC decision-making and the influence of problemistic search (Figure 2.1). The secondary box within this figure clearly shows our research scope. This research scope is based on our objective to identify what triggered the problemistic search process and how this process then influences what SBC decisions are made. The activities regarding the impact of SBC decisions on the level of SBC and firm performance are beyond the scope of our research (Figure 2.1). As aforementioned, those topics have already been studied extensively by other scholars, such as by Lu and Shang (2017) and Brandon-Jones et al. (2014). Nevertheless, the whole SBC change process and its eventual impact is still depicted here to provide a better and complete understanding on how important it is to understand the triggers of SBC changes. Particularly, since these decisions eventually impact firm performance. However, how problemistic search actually influences decisions defining SBC remained up until now an open question. The following methodology section discusses how we addressed this gap.

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3. M

ETHODOLOGY

3.1. Research design

The objective of this research has been to study the influence of problemistic search in SBC decision-making. As our objective is of exploratory nature, we deemed qualitative research in the form of a case study an appropriate method (Yin, 1994). Especially, since a case study enables the collection and analysis of data on the triggers of SBC decisions in a way that provides an holistic and in-depth understanding on the topic itself, and on the influence of problemistic search (Yin, 2009). While it also reveals the deeper meaning of SBC decision-making behavior (Lincoln and Guba, 1985). A multiple case study was conducted by means of semi-structured interviews to derive detailed insights (Karlsson, 2016).

3.2. Context and sampling

The unit of analysis was the SBC decision taken at the individual level. Our unit of analysis enabled studying how problemistic search influences the SBC decisions of bounded rational managers. Manufacturing firms were contacted for this research. For the reason that similar to SBC changes, strategic changes made as a result of problemistic search (e.g. strategic partner selection and investment) are most prevalent in such organizational settings (Chen, 2008; Yang et al., 2017; Deb et

al., 2019). Purposeful sampling was thus used to deliberately select specific interview participants,

settings and cases that fitted the research objective (Maxwell, 2012). Participants thus had to be employees within manufacturing firms, while also having a significant influence on procurement. Whereas, as also stressed in the invitation, cases were discussed with these interviewees that met the following criteria. First, cases that concerned decisions made with regard to the number of suppliers in the supply base, their level of differentiation and/or the level of inter-relationships. Hereby we could validly address our research objective, as this ensured that we covered the core concepts derived from the theoretical background (Arksey and Knight, 1999). Secondly, the changes in the cases were undertaken (relatively) recently to ensure that the participant was able to adequately recall memories, especially as we acknowledged the role of cognitive limitations. Next, Eisenhardt (1989) suggests four to ten cases as the optimal number in case studies, as with more cases researchers would struggle to cope with the complexity and volume of the data. Therefore, we tried to stay within this range, also considering our unit of analysis at the individual-level. However, since we studied decision-making in three dimensions of SBC at the individual level, contingency plans were in place to achieve an adequate state of saturation (Suddaby, 2006). One additional participant was contacted afterwards, because not all participants discussed decisions regarding all three SBC dimensions. Nevertheless, most cases did discuss decisions made in all the dimensions.

3.3. Data collection

Multiple semi-structured interviews were conducted to collect data. Due to the development of the contemporary Coronavirus and the preference of the participants, interviews were on-site, via video chat and by phone call. In total eleven participants from five different manufacturing firms took part in the interviews and their profiles are summarized in Table 3.1. As generalizability can only be made within this research context, using firms from different industrial categories rather contributes to the transferability of the findings to other settings (Kaufmann and Denk, 2011).

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the study to familiarize the participants with the likely unknown topics, such as for instance SBC. Hereby we could derive insights that are both interesting and valid for addressing our research objective. Third, predefined questions were covered with each participant to ensure that the same basic lines of inquiry with regard to the three SBC dimensions were discussed. Specifically, we could explore if and why decision-makers made strategic changes with regard to the number of suppliers in the supply base, their level of differentiation, and the level of inter-relationships. With the objective to eventually explore how problemistic search influenced these changes. The complete interview protocol is provided in Appendix A. How we decided upon the main questions of the interview protocol and how they relate to the core concepts of the theoretical background is explained in Table 3.2. After each question was answered, the response was summarized and validated with the interviewees to ensure that it was interpreted correctly. For instance, to make sure that we interpreted the trigger of a certain SBC decision correctly. Further, to enhance construct validity, participants were also given the possibility to review and revise their responses (Yin, 2009). When deemed relevant for analysis, we requested additional firm documents or information. So, both primary and secondary data was collected, while we also tapped into multiple sources of evidence. The semi-structure of the interviews led to varying interview times between 45-75 minutes. However, participants were informed beforehand that the interviews could take one to two hours to complete. Hereby, sufficient time was reserved to probe additional details and to encourage discussions.

Table 3.1. Profile overview of the cases and their anonymized pseudonyms

Firm Industry _ParticipantPosition Spending Annual

(Million €) Key SBC Change Triggers

Experience in

Procurement Pseudonyms Case

A Cable _{Manufacturing} Purchase Manager _{Raw Materials} 80-90 Actual innovativeness problems & _{potential quality problems} 6 years Cable1

B

Animal Healthcare

Manufacturing Head of Purchase 25-50

Actual material availability problems

& potential quality problems 23 years Healthcare2 Animal

C C

Machinery Manufacturing

Strategic Purchaser 8-10 Actual material availability problems _{& potential price increases} 3 years Machinery3

Purchasing Manager &

Strategic Purchaser 25-30 Actual interchangeability problems 30 years Machinery4

D D D Animal Food Manufacturing Supply Chain Manager 15-20

Actual and potential delivery problems & potential quality

problems 21 years AnimalFood5 Project Manager

Purchasing 12-15 Potential delivery problems 36 years AnimalFood6 Process Manager 1-2 Potential delivery problems 20 years AnimalFood7

E E

Baby Food Manufacturing

Strategic Buyer 30-40 Actual material availability problems _{& actual high transaction costs.} 24 years BabyFood8

Strategic Buyer 50-55 Actual high transaction costs & _{potential delivery problems} 22 years BabyFood9

Strategic Buyer 50-80 Actual interchangeability problems & potential delivery problems and price

increases 21 years BabyFood10 Procurement

Manager 200-250

Actual material availability problems

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Figure 3.1. Summary of the interview protocol

Table 3.2. Explanation of the linkage between the main interview questions and theoretical background

Core Concepts Question Explanation

Number of suppliers

in the supply base

§ Did the size of your supply base

change over time?

Explore if the supply managers made a decision to change the size of the supply base and what that decision was. § Why was that the case, so why did it

increase, decrease, or not change?

Get insights on the underlying motivation. Was the decision driven by problems and consequently problemistic search.

Level of differentiation in the supply base

§ Do you or did you source from

different type of suppliers?

Explore if the supply managers made decisions to change the level of differentiation in the supply base, such as removing suppliers with different working practices. § Why was that the case? Get insights on the underlying motivation. Was the change problem-driven and thus influenced by problemistic

search.

Level of

inter-relationships in the supply base

§ Do you, or did you induce

relationships between suppliers in the supply base?

Explore if the supply managers made a decision to create working relationships among suppliers in the supply base.

§ If so, why was that the case? Get insights on the underlying reasons. Did they wanted to solve problems or did they wanted to prevent something.

Problemistic search in SBC changes

§ If not, did this negative performance

feedback influenced the strategic changes in the supply base with regard to the three dimensions of supply base complexity?

Get (explicit and direct) insights on problems triggering problemistic search in SBC changes.

Opening Section

• Consent

• Familiarization between researcher and interviewee

• Confidentiality assurance • Research motivation &

objective

• Broad kickoff questions

• Explaining background of study and core concepts

Main Section

• General questions on supply base management

• Core questions on supply base complexity decision-making • Explicit questions on problemistic

search (if needed)

Concluding Section

• Feedback from interviewee • Restate applicable rules after

interview (e.g. possibility for reviewing answers)

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3.4. Data analysis

Transcribing the interviews was done as soon as possible after the interview had taken place in order to recall and denote all interactions. Data analysis on problems triggering changes in each dimension

of SBC was performed by using open, axial and selective coding techniques (Corbin and Strauss, 2014). This was done with the qualitative analysis software NVivo 12. Below in

Table 3.3. we have illustrated how we coded the influence of problemistic search on the decisions to

change the number of suppliers in the supply base. In Appendix B the coding trees for all the dimensions can be found. The purpose of these coding techniques was to organize and analyze non-numerical and unstructured data as prevalent in this study on SBC decision-making behavior. This began by scanning of passages, where after the focus narrowed down on sections, sentences, phrases and words to discover differences and patterns with regard to the explained gap on the drivers of SBC decision-making (Omar et al., 2012). This enabled the comparison, the detailed analysis and combination of themes arising from the categories, their properties and raw data. This to address our main objective regarding the influence of problemistic search in SBC decision-making. Furthermore, comprehensive descriptive and explanatory tables plus figures are used to clearly reveal the connection between problemistic search and SBC decisions (Suddaby, 2006). Both within- and cross-case analyses were performed in this research. Within-case analysis was used to explore in detail what the triggers of SBC decisions were in the individual cases (Eisenhardt, 1989). In the within-case analysis we primarily discuss the decisions that were problem-driven to explore how problemistic search influences SBC decisions. For instance, a decision to change nothing is not discussed, as it does not address the influence of problemistic search and thereby our research question. The within-case part was followed up by a cross-case analysis to identify patterns across different cases with regard to the influence of problemistic search on decisions defining SBC. Both of these analyses increase the accuracy and reliability of the findings in relation to our research objective (Eisenhardt, 1989).

Table 3.3. Example of open, axial and selective coding for changes in the number of suppliers in the supply base

Exemplary Quote Open Coding _CodingAxial Selective _Coding Decision

“We decrease and that was based on technology, that there was a lot of differentiation in the nutrients in the weight powders.” – BabyFood10 Actual interchangeability problems Reactive triggers Problemistic search Change in the number of suppliers

“But when I just started at [AnimalFood] there was a purchaser who was dividing a lot of small volumes against a lot of suppliers. That made us according to the suppliers, especially in the meat business a small partner, which gave a lot of delivery issues as they had bigger customers.”– AnimalFood5.

Actual delivery problems

“It is easier to manage and also delivers lower [transaction] costs. Because you negotiate with one supplier, where you in previous times negotiated with five suppliers.”- BabyFood9.

Actual high transaction costs “The existing suppliers cannot offer that, then we had to look for

new suppliers. I think that is the most important reason in our case.” – BabyFood8.

Actual material availability

problems

“All three of them, they are fine, but they are not let’s say really innovating.” – Cable1.

Actual innovativeness

problems

“Because the risk for the on time delivery. What we produced in totally will be every year more and more, and when you have one or two suppliers and it is too much for them, then you need other suppliers.”- AnimalFood6.

Potential delivery

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3.5. Research quality assurance methods

Validity and reliability had to be ensured to a high as reasonably possible level. This was important because of the prevalence of qualitative data on behavior, which is open for various interpretations. The protocols and techniques used to enhance construct validity, internal validity, external validity and reliability, as largely discussed above, are summarized below in Table 3.4.

Table 3.4. Reliability and validity assurance methods

Quality criteria Method of Addressing Criteria

Construct validity

§ Using multiple sources of evidence by means of literature, interviews and firm data

§ Differentiating between rational and bounded rational behavior § Triangulation by using more methods than case studies to collect data § Allowing participants to review and revise their responses

Internal validity § Pattern matching with both within-case and cross-case analysis to

support explanation building

External validity

§ Purposeful sampling of manufacturing firms to make findings (partly) transferable among manufacturing supply bases

§ Theoretical replication to gather different and valuable insights to be able to transfer among different manufacturing supply bases

Reliability § Using a case study protocol

§ Confidentially organizing and storing case study data and analyses in a case study database.

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4. F

INDINGS

This section discusses the main results regarding our research objective on the influence of problemistic search in SBC decision-making. First, in the within-case analysis the key triggers of SBC changes are explained by discussing the cases individually. This in order to explore the broader gap on the actual triggers of SBC decision-making. However, as aforementioned greater attention is given to cases with decisions that were problem-driven as these trigger problemistic search. Furthermore, this part serves as a bridge to the cross-case analysis. In the cross-case analysis our main contribution on the influence of problemistic search on decisions defining SBC is addressed. The aforementioned pseudonyms for the cases and the firms (Table 3.1) are used in this section.

4.1. Within-case analysis.

This part explains what triggered the decisions in the dimensions of SBC in each individual case as summarized in Table 4.1. The analysis begins by discussing the triggers for changing the number of suppliers, then the level of differentiation and ends with the level of inter-relationships if applicable.

Table 4.1. Main within-case findings for making changing in the dimensions of supply base complexity

Case Change Triggers Case Description Decisions

Cable1

Actual innovativeness problems & potential quality problems

The size of the supply base was increased with a geographically and technologically differentiated supplier to solve the innovativeness problems in the supply base. Whereas, a working relationship was created to mitigate potential quality problems.

Increased the number of suppliers and level of differentiation, and created inter-relationships.

AnimalHealthcare2 Actual material availability problems & potential quality problems

Certain critical raw materials for new medicines were only available in China and India, leading to an increase in the differentiation and size of the supply base. Whereas, a working relationship was created to prevent potential quality problems.

Machinery3 Actual material availability problems & potential high price increases

Certain parts for new products were not available in the supply base but for instance in Italy, leading to both an increase in the differentiation and size of the supply base. Whereas, a working relationship was created so that potential problems related to high price increases were prevented.

Machinery4 Actual interchangeability _problems

Quality differences in a part delivered by multiple suppliers caused interchangeability problems. This was solved as the level of differentiation was decreased by removing three suppliers. Inter-relationships could not be discussed as the manager could not remember one.

Decreased the number of suppliers and level of differentiation. Could not remember creating inter-relationships.

AnimalFood5 Actual and potential delivery problems & potential quality problems

The focal firm was previously a small buyer at multiple suppliers, which resulted in regular delivery problems. Therefore, the number of suppliers were decreased and by keeping the similar ones potential delivery problems were mitigated. Whereas, a working relationship was created to prevent potential quality problems.

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Table 4.1. Main within-case findings for making changing in the dimensions of supply base complexity (cont.)

Case Change Triggers Case Description Decisions

AnimalFood6 Potential delivery problems

The demand of the focal firm for certain materials was increasing. However, there was a risk that the supply base could not handle this, which could potentially result in delivery issues. Therefore, more suppliers with similar flexible working practices were added to prevent this risk.

Increased the number of suppliers. Kept a similar level of differentiation. Did not create inter-relationships.

AnimalFood7 Potential delivery problems

The focal firm had new customers in Southern Europe. However, there was a risk that the existing transportation suppliers would have potential delivery problems to serve this area, as this was not their focus. Therefore one new transportation supplier with similar working practices was contracted.

Increased the number of suppliers. Kept a similar level of differentiation.. Did not create inter-relationships.

BabyFood8 Actual material availability problems & actual high transaction costs.

Certain ingredients for producing new products were not available in the supply base, but only at differentiated suppliers. Leading to both an increase in the differentiation and size of the supply base, Whereas, problems related to high transaction costs led to the decision to create working relationships between suppliers.

BabyFood9 Actual high transaction costs & potential delivery problems

Having too many IT suppliers led to high

relationship and negotiation efforts and costs. This triggered the decision to decrease the size of the supply base to one IT supplier, which consequently reduced the level of differentiation. Whereas to prevent potential delivery issues, working relationships were created between suppliers who were going to work together in a new logistics hub.

Decrease the number of suppliers and level of differentiation, and created inter-relationships.

BabyFood10

Actual interchangeability problems & potential delivery problems and high price increases

Having five different suppliers for a single raw material caused interchangeability problems due to ingredients with inconsistent specifications. The two most differentiated suppliers were then removed from the supply base. Whereas, a working relationships was created to prevent potential delivery issues and to mitigate high price increases.

Decreased the number of suppliers and level of differentiation, and created inter-relationships.

BabyFood11 Actual material availability problems & actual delivery problems

The Coronavirus led to a shortage of certain ingredients, which were only available at

differentiated suppliers. The supply base therefore became more differentiated and consequently the size also increased. Whereas, a working

relationship was created to solve the cross-border delivery issues caused by the Coronavirus.

Cable1

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externally, they also needed their suppliers to develop a smaller one. Although the suppliers told that they would do their best, their cooperation and also general innovativeness was perceived as unsatisfying. “I went to my suppliers together with my sales director for this specific business unit and

we asked our suppliers, guys look we have a cable which is smaller can we design a duct which is also smaller? And all of them they said, okay we will give it a try, but none of them was really cooperative. All three of them , they are fine, but they are not let’s say really innovating. […] And there was a supplier knocking on the door for quite some time. They are called Supplier X and are based in in Dubai.” More specifically, this unsatisfactory R&D cooperation triggered the decision to bring in a

new supplier from Dubai who was willing to meet the wishes of the buying firm. While at the same time is was also explained as a decision to increase the differentiation of the supply base. For the reason that from the new geographically distanced supplier, different technological capabilities and knowledge could be obtained. This was also perceived as a solution for the general below aspired innovativeness of the existing suppliers. Thus, these changes were triggered by actual problems. The interviewee then moved on by explaining that the trigger for creating inter-relationships in the supply base had to do with preventing potential quality problems. The case concerned a customer requesting a product improvement. However, since this was concerning a highly specialized product, potential quality problems could happen if the product was not developed adequately. In order to prevent that risk, the manager decided to create a working relationship between the two specialized suppliers who would normally work separately on this product. By making them work together to adequately align product specifications, quality problems were prevented. So this decision appeared to be also problem-driven. However, the distinct characteristic of this trigger was related to it being a potential problem rather than an actual one. “So we decided to do business with two of our suppliers.

One is an expert in epoxy and one is an expert in silicone sheds.”

AnimalHealthcare2

In this case the interviewee explained the trigger for changing the size and differentiation of the supply base to be due to actual material availability problems. In the development of new animal medicines certain new raw materials were needed. However, the problem was that these critical raw materials were not available in the existing supply base nor at external similar suppliers who could have been contracted otherwise. According to the manager, these raw materials were only available in China and India. These availability issues made and forced the manager to increase the level of differentiation in the supply base. Particularly, since next to the geographical locations and cultures, the contracted Asian suppliers also differed in terms of size as they were often bigger than the focal firm. Their turnover was primarily coming from human rather than animal healthcare. Consequently the number of suppliers increased as well. For the reason that the existing suppliers could not be replaced as they had certain raw materials in their portfolio, which were still needed by the focal firm. This change was thus made to solve an actual problem to be able to attain aspired needs.

When continuing our discussion on the trigger for creating inter-relationships, it was explained that is was done to prevent potential quality problems, as it was also the case for Cable1. AnimalHealthcare2 was in the process of developing a new product, for which they wanted a new packaging design. What they did was that instead of having the bottle supplier and the cap supplier work on the packaging separately, they created a working relationship between them. This so that the specifications of the two products would perfectly fit. This would in turn prevent potential quality issues, such as leaking bottles. So, a potential problem was underlying this decision. “The same one supplier is making the bottle and

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Machinery3

Similarly as in the case of AnimalHealthcare2, Machinery3 explained that actual material availability problems triggered an increase in the number and differentiation of the supply base. He started with discussing that they are an innovative company and that their R&D department continuously creates new innovations and improvements. However, the problem was often that certain parts needed for producing those R&D innovations were not available in the existing supply base. “Then the production

or the assembly they develop it, they need for example a certain part, which was not available at the current suppliers. For example, we needed a pump with two inputs and the current supply base was only able to deliver with one input. So, therefore we choose more suppliers. […] There are companies in the north of Italy, who are specialized in producing that, so that is reason why we have quite important suppliers over there. And, well that supplier is quite large and they are completely, I think qua size and qua how they are organized quite different than us.” It appeared that the decision to solve

these availability issues was done with often more organizationally and geographically different suppliers, such as for the pump. This consequently also increased the supply base size. Although the level of SBC increased, their aspired needs were met by this decision. In short, this change was triggered by an actual problem.

The interviewee then discussed that inter-relationships were created in order to prevent potential problems related to price increases. It was explained that they are purchasing certain ‘steel’ parts from a small local supplier who also needs bolts and nuts for those parts. What was done in this case is that a working relationship was induced between this small supplier and an existing big supplier of bolts and nuts. This was done according to the interviewee so that the smaller supplier would be able to purchase under the favorable price conditions of the focal firm. As the small supplier could hereby purchase at a good price on the long-term, the risk of high price increases in the future were prevented. In other words, this decision was made to prevent a potential problem. “Then they will receive a better

price, and at the end it also causes that the total price of assembly will not become too high.”

Machinery4

The manager here explained that actual interchangeability problems were solved by decreasing the number of suppliers in the supply base, and consequently the level of differentiation. It was detailed that for the part ‘hydraulic cylinders’ there were five different suppliers, which led to certain problems.

“That concerns hydraulic cylinders. For that type of product we have at the time five different suppliers.” The problem stressed was that having multiple suppliers for a single part led to

inconsistencies in the quality when it was delivered by a different supplier. To attain the aspired interchangeability from standard hydraulic cylinders, the interviewee explained that he removed suppliers from the supply base and consequently kept the ones with similar working practices. So, these decisions were made to address an actual problem. “To get it on two suppliers, back to two

suppliers. […] To get more of a standard and to get a better price.”

Unfortunately, the manager could not think of inter-relationships he created, therefore the decisions and triggers for changing the level of inter-relationships could not be discussed here.

AnimalFood5

In this case actual delivery problems were underlying the supply base size reduction, while potential delivery problems triggered a decrease in the level of differentiation. The interviewee explained that when he started at the firm the supply base consisted of too many suppliers from whom only small quantities were purchased. The manager stressed that the low share in the turnover of its suppliers made them a less important customer. This resulted in actual delivery problems as suppliers often cancelled orders to meet the demands of bigger customers. “But when I just started at AnimalFood

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delivery issues as they had bigger customers.” This below aspired delivery performance at that time

then triggered the decrease in the number of suppliers. Whereas, to prevent potential future delivery problems that could lead to production stops, the interviewee specifically choose to remove the suppliers with dissimilar working practices as they aspired flexible suppliers that could meet changing and unplanned requests. This was especially important since the focal firm does not have the money nor the inventory capacity to buy and store excessive stock. As a result of these decisions the firm became a more important customer for the remaining suppliers, which eventually solved the delivery problems. In short, the decisions here were triggered by both an actual problem and a potential problem. “Approximately 40% of the suppliers were killed. I changed over to a new multiple suppliers

strategy in which I had at least for most of the products two suppliers for one product. […] As I have not the cash and not the space to have a lot of stocks, I need reliable and flexible suppliers.”

When we moved on to the decision to create inter-relationships in the supply base, the manager discussed a similar trigger as interviewees Cable1 and AnimalHealthcare2. Namely, that it was done to prevent potential quality problems. AnimalFood5 explained that quality regulations on vitamins were constantly changing. Therefore, his ‘gel’ suppliers were connected with his ‘vitamin’ supplier to prevent the potential problem that the vitamin content in the ‘gel’ would be out of quality specifications. This working relationship assured that all the gel suppliers would get vitamins with the correct and adapted quality specifications. It was even explained that a recent change in the regulations on vitamins was easily addressed as a result of this working relationship. So this clearly indicated that this decision was made to prevent a potential problem which they already expected beforehand. “I

have a new issue, a new change where we need to adjust our vitamin levels and then it is very good that you have your own recipe which you can change with all supplier. It gives you more power and regulates the risks of that important route because it is very tight and all regulated in laws.”

AnimalFood6

This manager detailed that potential delivery problems both triggered the decision to increase the supply base and to keep the differentiation at a similar level by selecting similar new suppliers. The manager told that their annually growing business led to an increase in the volumes he aspired from his supply base. However, there was a risk that the capacity of the existing supply base could not cope with their growth, and this could potentially lead to delivery problems. “Because the risk for the on

time delivery. What we produced in totally will be every year more and more, and when you have one or two suppliers and it is too much for them, then you need another suppliers.” Hence, to prevent this

problem the supply base was expanded. While at the same time suppliers were selected based on whether their working practices were as flexible as those of the focal firm. So these decisions were triggered by a potential problem. “Our company is very flexible to our customers and also our

suppliers must go with us in that flow, we do not need a static supplier. But one who can change something, some rules and we can get our products earlier then we expect.”

For the level of relationships it was mentioned that the manager had not created any inter-relationships recently. It is therefore not discussed further here, as this indicates strategic inaction which could not address our objective as we already explained in the research methodology.

AnimalFood7

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supplier was found by asking an existing supplier for a referral. This made it easier to manage the delivery processes as this supplier had similar working practices. This was also important because this made it possible to get a credit limit from them. This was needed as the focal firm was short on cash. Without the credit limit potential delivery issues could occur, since the focal firm could often not pay in advance for the services. Thus, these decisions were made to prevent potential problems. “The one

I chose for the south of Europe is a partner of [our existing] Supplier X, which we are using in Belgium for the external warehousing, so they know them so I know that it is easier to step in with them. Also, with regards to the credit.”

Also, in this case the manager explained that no inter-relationships were created recently, making this strategic inaction irrelevant for addressing our research objective.

BabyFood8

In a similar fashion as in the cases of AnimalHealthcare2 and Machinery3, it was explained here that actual material availability problems triggered the increases made in the level of differentiation and the number of suppliers. The interviewee explained that their product portfolio is growing due to continuous R&D innovations for which they sometimes needed new ingredients. “I think the most

important reason is that we at the end are expanding our finished product portfolio. So, and that means in some cases that we need different ingredients for that.” The problem stressed here was that those

required ingredients were often not available at existing suppliers. While, those ingredients were actually available at suppliers with differentiated working practices and organizational cultures. Those suppliers were particularly differentiated as their main target group was not the baby food industry but rather bigger sectors such as adult healthcare. To solve the availability problem, the interviewee explained that the level of differentiation in the supply base had to be increased which consequently increased the size, since existing suppliers with special materials could not be replaced. In short, here the decisions were triggered by an actual problem. “The existing suppliers cannot offer that, then we

had to look for new suppliers. I think that is the most important reason in our case. Suppliers which focus mainly or predominantly on different type of industries actually, for example the vitamin industry for adults or for sports nutrition. And those suppliers might be partly on a different level in terms of the way they look at the market, the procedures they have in place.”

When we discussed the trigger for creating inter-relationships in the supply base, it appeared that is was done to solve actual problems related to high transaction costs. The interviewee explained that ‘ingredients’ sourced from their suppliers were previously combined into a pre-mix by the focal firm themselves. However, the interviewee explained that directly sourcing all these single ingredients from many different suppliers made the purchasing process too complex and costly to manage. Specifically, transactions costs were high in terms of maintaining relationships, placing multiple orders, doing multiple quality inspections and, handling and storing all the single ingredients. Therefore, a working relationship between all the ingredient suppliers was created. In which two suppliers received the ingredients from the others to make the pre-mix and to deliver it to the focal firm. The high transactions costs were solved as they did not had to purchase directly from so many suppliers anymore. So, in contrast to the previous cases on changes in the level of inter-relationships, this decision to create working relationships was driven by an actual problem rather a potential one. “We said instead of

buying 30 different ingredients, we would like to have two producers who source those ingredients blend it for us and deliver it to us as a semi-product. You would order only one like we call it for example pre-mix, you would only have to do one quality analysis, you would only have to store one product, you would only have to handle one box instead of 30 different ingredient boxes.”

BabyFood9

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in the supply base. The interviewee being responsible for indirect sourcing, explained that previously Information Technology (IT) solutions were sourced from five different suppliers. However, since the interviewee was not only responsible for this product group, it became difficult to manage the relationships with all the different IT suppliers. The interviewee stressed that besides the high relationship costs, the undesirable negotiation costs as a result of many suppliers made the transaction costs levels problematic. To solve this, the size of the supply base was decreased to one IT supplier. While the interviewee did not gave specific attention to the impact of this decision on the differentiation in the supply base, it can be safely argued that by reducing the supply base size to one supplier the level of differentiation naturally decreased. In the end, the interviewee explained that by taking these decisions it became easier and less costly to manage the IT part of the supply base. So, this change was directed towards solving an actual problem. “It is mainly that reason, it is easier to

manage and also delivers lower [transaction] costs. Because you negotiate with one supplier, where you in previous times negotiated with five suppliers.”

The interviewee then continued by explaining that the inter-relationships he created were triggered by potential delivery problems. The focal firm had created a new logistic hub, in which it was decided to create working relationships among suppliers, as they were going to work in the hub. “We developed

a logistic hub in City X, it is obvious that you let suppliers cooperate with each other. So that all comes together at the logistics, the facility side, but also the IT component. So, when you talk about relationships between suppliers, what we always did is to act as the leading company when bringing suppliers together to collaborate.” This appeared to be done in order to foster the collaboration and

the sense of responsibility among those suppliers, with the ultimate goal to prevent the risk of delivery problems that could otherwise occur from this hub. So this decision was triggered by a potential problem. “Better collaboration and less [supply] risk. Because when suppliers discuss with each other

what the project is about, then they could also take responsibility for it together.”

BabyFood10

Interviewee BabyFood10 explained in a similar fashion as Machinery4 that actual interchangeability problems triggered the decision to decrease the number of suppliers and the level of differentiation. ‘Nutrient’ ingredients for their ‘weight powder’ were previously sourced from five different suppliers. However, it appeared that this resulted in nutrients being delivered with different specifications. This was due to suppliers having different working practices and them working under different circumstances. This made the production process more difficult. Technologists had to frequently adjust the quantities of other powders when the ingredients of the weight powder were delivered by different suppliers. This was necessary, because otherwise the nutritional balance of the end-product would be out of specification. “Because if you make a base powder, you add like 5 or 10 materials [powders]

together to create one base powder [end-product].” The resulting interchangeability issues made the

decision-maker decide to decrease the number of suppliers, while he consequently removed the ones with the most deviating nutrients. It was explained that they hereby solved the problem as the remaining three suppliers had more similar working practices and therefore delivered more interchangeable nutrients. In short, an actual problem triggered these decisions. “There was a lot of

differentiation in the nutrients in the weight powders. We had to adjust a lot during productions to fit the weight powder in our base powder, […] it was not do-able by using all the five [suppliers]. The two with the most deviating vitamins and minerals [nutrients], we stopped. They are within the limits, and that is more easy to work with. We took out these costs in the end of the process.”

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between the two. “We needed to change an organic fed blend. They needed to add organic lecithin

and I had two suppliers and I know the one was also producing organic lecithin. So I connected them to each other, said you can buy your organic lecithin from them.” This was done with the intention to

prevent potential price increases that could occur if this lecithin was sourced from outside the supply base, while it was also aimed at preventing potential delivery problems as the supplier was struggling to find the ingredient. Thus, potential problems were underlying this decision. “To mitigate future risk

of high cost prices and supply security, because they were looking at sunflower lecithin organic, they could also not find it, so I called it.”

BabyFood11

In this final case it became apparent that similarly as for AnimalHealthcare2, Machinery3 and

BabyFood8, actual material availability problems triggered the decision to increase the level of

differentiation, which consequently increased the number of suppliers. Additionally, actual delivery issues were also contributing to this decision. It was explained that the current supply base was having issues in delivering the aspired quantities for a ‘dairy’ ingredient. This was particularly due to the Coronavirus causing a supply shortage for that ingredient as it was unexpectedly needed by other parties. However, the problem was mainly that these ingredients were only available at certain diverse suppliers causing availability issues. “Scarcity of the product, so the current base was not able to

deliver the volumes that we needed. So in the market there is not like 100 suppliers from which you can choose.” Accordingly, these actual availability and delivery problems triggered the decision of the

manager to increase the level of differentiation in the supply base. In which then suppliers were chosen with often differentiated working practices and cultures, who were often bigger than the focal firm because of their competitive products. Additionally, since the focal firm still needed their existing suppliers due to their special products, they could not replace them either. This consequently increased the number of suppliers in the supply base as well. These changes were thus made in order to have sufficient access to the aspired ingredients. In short, the decisions were triggered by actual problems.

“It was fairly recent we have Corona crisis, where dairy products are used also for other applications. This was not expected so the higher demand for that specific product was caused by Corona crisis and therefore we had to expand. We see then most of the differences caused by the working practices so the supplier company has a different philosophy on how things work. They are also I have to admit, in the position in the market that they can do that.”

The reason for creating inter-relationships in the supply base was mentioned to be triggered to solve actual delivery problems. The manager explained that they were sourcing an ‘oil blend’ ingredient from a foreign supplier in Europe. What happened was that cross-border delays due to the Coronavirus resulted in delivery issues of that ingredient. According to the manager, the solution for this problem was to keep excessive stock of that ingredient. However, the focal firm did not had the required inventory capacity. “It was also in this Corona crisis right, where you learn a lot of things where there

was this uncertainty about transportation. Now so this supplier comes from abroad in Europe, but there was delays at the borders of the different countries. So therefore we decided that we wanted to have some additional storage capacity.” The manager therefore made the decision to create a working

relationship between the foreign supplier and another existing supplier located in close proximity. The closely located supplier worked together with the foreign one to store the ingredient and to deliver it to the focal firm when needed. Hereby, the aspired quantities could be attained. So this decision was driven by an actual problem, while in almost all cases inter-relationships were created to prevent potential problems. “So that is storage capacity we did not have, but we worked together with a, it is