Buyer’s Attitude and Contract Management

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Buyer’s Attitude and Contract Management

Behavior

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Master Thesis

Supply Chain Management

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Acknowledgements

I would like to thank everyone that has contributed to the successful completion of this thesis. First of all, I would like to thank my supervisor Dr. Manda Broekhuis for her continuous enthusiasm, passion, dedication and guidance while writing this thesis. Your constructive feedback and advice helped me gain insights on my study, which made this thesis possible. Secondly, I would like to thank Dr. Kirstin Scholten for her valuable advice and feedback provided in the early stages of the project.

Next, I would like to thank all my interviewees for their openness, enthusiasm, time and willingness to participate in this research.

Finally, I would like to thank my family and my friends who supported and encouraged me during this process of writing my thesis. Special thanks go to my husband for his continuous and unwavering support, and my mom and dad, Adi, Mia, Ciprian and Tania for always believing in me.

Thank you all very much! Melania Pantea

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This thesis examines the influence of buyer’s attitudes in the pre-contractual/negotiation phase on his behavior in contract management phase, and in turn, the success or failure of contract management. The empirical setting employs exploratory interviews in the manufacturing industry. My results suggest that positive attitudes formed in the pre-contractual/negotiation phase translate into a benevolent behavior towards the supplier in contract management phase, reflected in the way the buyer monitors, communicates, evaluates and shares information (operational level) as well as its intention to expand collaboration via new business and products (strategic level). In contrast, negative attitudes formed in the pre-contractual/negotiation phase lead to tighter monitoring behavior (operational level) and lower efforts in promoting the supplier (strategic level), resulting in less collaborations and even termination of contracts.

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1. Introduction

Buyers and suppliers close contracts that contain a large and detailed number of clauses which specify the responsibilities of each party: what is allowed and what not and how violations of contract clauses are dealt with (CPIS, 2007). These measures are intended to reduce the perceived risk of opportunistic behavior (Faems et al., 2008, p.1053, Africa Arino, 2004a). A contractual agreement is often closed after a period of information sharing, getting to know each other and negotiation (Bensaou, 1999; CPIS, 2007; Luo, 2002; Parks, 1993; Reid, 2010; van Weele, 2014), and results not only in a physical contract, but also in a psychological contract (Rousseau, 1989, Suazo et al., 2009) that reflects the beliefs and perceptions about the promises of an organization. Although more is known about psychological contracts (Suazo et al., 2009; Thomas et al., 2003, Rousseau, 1989,1995; Zhao et al., 2007) little is known about how parties behave after the closure of the contract (CPIS, 2007), and even less about how attitudes developed in the pre-contractual/negotiation phase influence behaviors in the contract management phase. In the pre-contractual/negotiation phase parties involved developed their individual feelings, beliefs and thoughts regarding the terms and conditions of the reciprocal exchange agreement (Rousseau, 1989, p.123), which may also influence their behavior in the contract management phase. This study aims to gain insights into how buyer’s attitudes formed in the pre-contractual phase towards the contract and supplier influence their behavior during contract management phase on an operational and strategic level.

Contract management is crucial for the success (or failure) of a contract. On an operational level contract management is the “process of ensuring that parties to a legally agreed-to contract fulfill the requirements, expectations, terms and conditions of the contract” (Trent, 2007, p.135 ). More specifically, this phase addresses the overall management of the contract in terms of performance measurements, monitoring, payments, documentation, record keeping, deliveries and notice provision (CPIS, 2007; Taylor Walton, 2009). Strategically, it is the phase in which it is decided the long-term direction that both buyer and supplier want to evolve towards in their relationship, how they can reach this direction, what kind of future (formal and informal) agreements they can enter into, and how to get to these future agreements (Luo, 2002).

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beliefs regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party (Rousseau, 1989, p.123), and occurs as a result of beliefs and perceptions about the promise(s) of an organization (Suazo et al., 2009). Previous research focused on psychological contract in terms of antecedents or causes of psychological contract (Rousseau, 1995, Suazo et al., 2009), the effect of psychological contract violation on trust in a buyer-supplier relationship (Hill et al., 2009), the influence of culture on the perception of the psychological contract (Thomas et al., 2003). However, there is little research on the relationship between attitudes and contract management, and specifically the influence of buyers’ attitudes in the pre-contractual phase and their behavior in contract management phase. Insights into their attitudes are valuable as attitudes in general are at the root of certain types of behaviors (Hill et al., 2009). In this research the focus is on attitudes, and specifically how attitudes influence behavior on both operational and strategic level during contract management. For instance, a buyer can feel and believe (i.e. the attitude toward the contract) that the contract might induce supplier’s self-interest and unethical behavior. As a result the buyer will impose strict monitoring and risk mitigating behaviors in his operational contract management (Trent, 2007). On a strategic level he might consider to discontinue the contract and search for other suppliers. This is just an example, whereas this research tries to explore how buyer’s attitude influences their behavior in contract management phase.

The theoretical contribution of this paper is threefold. First, this research tries to show the relationship between attitudes and behavior in the context of contract and contract management. Second, the research shows how these attitudes influence buyer’s behaviors in contract management phase. Third, it attempts to bring attention to the fact that buyer’s attitudes towards the physical and often legal contracts will affect and influence the way contracts are managed and as a result the success or failure of the contract management may be shaped by these. For practitioners (buyers) these insights provide a dynamic perspective on the buyer-supplier relationships. Specifically, buyer-supplier relationship during the contract management phase can be better understood and effectively improved when both relational (attitudes and behaviors) and contractual issues are taken into consideration.

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exploratory interviews with buyers from the manufacturing industry and will answer the following research question:

How does buyer’s attitude about the contract and supplier in the pre-contractual/negotiation phase influence his behavior in contract management phase on a strategic and operational level?

This thesis is organized as follows: the next section sets out the theoretical background by discussing the concepts of contracts and attitudes, contract management on operational and strategic level, contract management behavior, and the relationship between attitudes and behavior. The third section explains the research method employed to analyze the relationship between buyer’s attitude and their behavior while the fourth section presents the findings of this research. This thesis concludes with a discussion of the findings, managerial implications, limitations and suggestions for further research.

2. Contract, attitude and contract management behaviors

This section sets out the theoretical background on contracts, attitudes, contract management and contract management behavior.

2.1 Contracts and attitudes

Contracts are legally binding agreements, promises or obligations to perform particular actions in the future (Africa Arino, 2004a; Lyons and Mehta, 1997). As partnering firms are exposed to behavioral and environmental uncertainties, contracts serve as safeguards against adverse changes, and provide compensation for these contingencies (Africa Arino, 2004a, 2004b; Parks, 1993). Contracts are used by companies as ways to reduce self-interest and by this the opportunistic behavior that could otherwise undermine the performance and exchange between the firms (Li et al., 2010). As a result, contracts can facilitate collaboration between parties involved by describing the obligations and roles of each party in the relationship, the rules and procedures that need to be followed to attain the goals, objectives and contractual clauses, as well as the arrangements for litigation and enforcement by third parties in case of disputes (Kumar et al., 1998; Li et al., 2010; van Weele, 2014).

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relationship psychological contracts represent assumed reciprocal obligations and responsibilities between parties involved (Hill et al., 2009). This means that although individuals, and not organizations, are the ones that experience emotions and have different cognitions or beliefs towards the contract; we expect that their sentiments will mirror those of the organization that they belong to (Hill et al., 2009, Zaheer et al., 1998).

Psychological contracts have at their base a cognitive component, namely, beliefs and thoughts about a subject e.g.: risky, feel dependent, etc. Attitudes on the other hand encompass the cognitive component as well as an affective component - the emotions and feelings of the individual e.g.: happy, excited, fearful (Festinger, 1962, Ajzen, 2001; Greenwald et al., 1995). In this research the focus is on attitude and its components as we believe they reflect better the complexity of sentiments that can occur in the buyer supplier dynamic. These components may influence the signing parties’ behavior in contract management phase, particularly when (perceived) violations occur (Parks, 1993; Thomas et al., 2003).

In general we tend to assume that people behave in accordance with their attitudes. However, social psychologists have found that attitudes and actual behaviors are not always (perfectly) aligned and people are more likely to behave according to their attitude when attitude is the result of personal experience, a favorable outcome is expected, or you stand to win or lose something due to the issue (Fesinger, 1962, Akerlof and Dickens, 1982). Buyer’s emotional response to perceived violations, either contract or supplier related, can be accompanied by feelings of anger, frustration, a sense of having been cheated, displeasure, disillusionment with the overall relationship (Hill et al., 2009), experience of great levels of stress, tension and internal conflict (Thomas, 2003). These feelings can be overridden, altered or ignored, and considered as “the cost of doing business” when the violation benefits the buyer’s own interest (Hill et al., 2009). In these cases, people may actually alter their attitudes in order to better align them with their behavior.

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(CPIS, 2007; Hill et al., 2009; Suazo et al., 2009). However, when the buyer feels and thinks that the supplier is willing to contribute their expertise to the buyer’s competitive advantage, buyers will feel motivated and adopt actions to improve supplier’s performance and capabilities for both parties’ mutual benefit (Humphreys, Li, & Chan, 2004), and make investments in supplier.

2.2 Contract management

Contract management (CM) starts after the contract has been signed (Monczka et al., 2008) and encompasses on operational level the activities of ordering the products or services, expediting them, evaluation and follow up (FIGURE 1.)

FIGURE 1. Contract Management activities. (van Weele, 2014)

In addition, this phase is concerned with the processes, activities and decisions that reflect implementation of clauses and expectations e.g.: performance monitoring and assessment, payments, establishing and maintaining contract documentation, and notice provision (CPIS, 2007; Reid, 2010). The strategic dimension is concerned with the long-term view of what is the direction that both buyer and supplier want to evolve towards in their relationship, how they can reach this direction (Luo, 2002).

Contract management cannot be “purely strategic or purely operational” but a combination of both is necessary to achieve the desired results (Reid,2010) . This requires that parties interact and collaborate continuously regarding information flow, goods flow, cash flow and relationship. Moreover, for an effective contract management partners’ need, besides the willingness to collaborate, to understand the expectations and responsibilities of all parties involved and proactively work together during CM on both strategic and operational dimension.

2.2.1 Operational Contract Management

As previously mentioned, the operational dimension of contract management is concerned with the implementation of the terms and conditions of the contract (Trent, 2007, p. 25) on a day to day basis. Furthermore, Reid (2010, p. 71) states that “[operational CM] is a prudent and proper effort to ensure that the contract document reflects the agreement of the parties and the file demonstrates compliance with all applicable rules - be they statutes, regulations, or internal company policies and procedures.” In addition to the above mentioned activities, Van

Evaluation Follow up Expediting

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Weele (p. 93, 2014) and the National Audit Office (2008) has identified other activities performed during the operational phase of CM. A summary of these can be seen in Table 1.

Van Weele (2014) National Audit Office (2008)

 Detailed project engineering and planning

 Subcontracting and procurement

 Project execution

 Testing and delivery

 Maintenance and guarantee

 Choosing the right people to drive the organization-wide contract management performance

 Management of the physical contract and timetables agreed upon for deliveries,

 Payments

 Supplier performance monitoring and measurement

 Risk management

 Making sure parties understand their responsibilities, and role in the fulfilment of the agreed upon goals

TABLE 1. Operational CM activities

These activities are confirmed in the works of Bensaou, 1991; Ross and Buffa, 2009; Schun et al., 2014. Obstacles that can affect smooth contract management are related to: contract information which can be spread over the organization in “island of information” with some of the information getting lost, project management which faces the classical problems of how to align resources, measure the project results and performance, and follow-up of the contract management (Jaakkola, 2014). Operational contract management is successful when delivery arrangements are considered to be satisfactory for all parties involved, the expected value and business benefits are achieved, all parties involved understand their contractual obligations and are cooperative and responsive, discussions over unforeseen changes can arise and be resolved, and efficiencies sought by parties are being realized (CPIS, 2007).

2.2.2 Strategic Contract Management

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the management of the contractual relationship” which includes supplier relationship management (Bensaou, 1991; Schun et al., 2014) defined as “an ongoing process of identifying and supporting the relationships that bring the greatest return on investment” (Schun et al., 2014, p. 35). According to this, the suppliers possess certain capabilities (bundles of skills, knowledge, resources) that are valuable to the buyer and not easily imitated by the competitors. This set of capabilities is what the buyer “buys” and is the driver for organizational performance (Pressey et al., 2009). SRM is then a means of building a closer relationship with selected suppliers for the purpose of leveraging supplier’s assets and capabilities as a source of competitive advantage, and a source of opportunities for mutual benefits (Blumberg, 2001). Furthermore, another incentive to develop and maintain such relationships is the position of the supplier in the market: e.g.: supplier dominates an industry, limited number of suppliers the company can rely on, suppliers provide key technology, etc. (Bensaou, 1991; Blumberg, 2001; Schun et. al., 2014; Trent, 2007; van Weele, 2014). Parties that enter a contract and develop a strategic relationship are committed to cooperate with each other for their mutual benefit (Blumberg, 2001), and contractual agreements may commit (financially, resource wise, etc.) the organization to its trading partners to varying degrees of dependency (CPIS, 2007; Turner et al., 2000). From all the above we see that the focus of strategic CM is on relationship management as this aspect influences the long-term viability of the contract, and thus, the success or failure of the contract. CPIS (2007) mentions several factors that can inhibit the development of a successful relationship: frequent and rapid recourse to the formal contracts to overcome problems, supplier’s reluctance to cooperate with the buyer on the proposed plans due to mistrust, company is critically dependent on one supplier leading to distrust in management capability (CPIS 2007, p. 29).

2.3 Contract management behavior

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this pre-contractual/negotiation period. During this time parties develop emotions, feelings, thoughts and beliefs about the other party. Depending on the experience they had, the attitudes formed in this pre-contractual phase can trigger a wide range of behaviors e.g.: punitive, benevolent etc., from the contractual partners. These behaviors can be observed in the activities and actions that they take during the CM phase.

Violations that trigger the formation of emotions and thoughts about the supplier have two causes: reneging - obvious and intentional failure to meet existing obligations, e.g.: a party willfully decides to default on an obligation, and incongruence - lack of communication between parties, complexity or ambiguity of the relationship terms (Hill et al., 2009). When such violations occur employees exhibit different types of behaviors as it can be seen in Table 2. These behaviors impact the way contract management takes place, as well as the relationships between organizations.

Type of behavior Behavioral response to perceived violation Conduct Ethical behavior Exit  Quitting

 Transferring and similar behaviors

Voice  Working to improve the situation by _{discussing and suggesting solutions} Loyalty

 Staying with the organization

 Providing support by waiting

 Hoping for improvement and trusting the organization to do the right thing

Unethical

behavior Neglect

 Recovery is not possible

 Reduce effort

 Chronic lateness, or absenteeism and similar responses

TABLE 2. Behavioral responses to perceived violations (Thomas et al., 2003)

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to a more benevolent behavior, for example a buyer can get involved with the supplier in improvement strategies that in the end will benefit both parties, collaborative communication, supplier site visit to provide guidance on performance improvements, investment in supplier training and development (Joshi, 2009; Schun et al., 2014 ). These strategies together with trust - a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behavior of another (Faems et al., 2008, p. 1056) which has or can develop in the pre-contractual phase, can lead to a proactive way of solving issues when they arise, to exchange information, to be willing to find a feasible resolution to the problem.

2.4 Relationship between attitudes and behavior

Attitudes that have formed in the pre-contractual phase can influence the behavior in the contract management phase. For example if the buyer, in the pre-contractual/negotiation phase, feels, believes or thinks that the supplier is committed to the relationship and to the contract, and furthermore shows this commitment in the pre-contractual phase, after the contract is closed, on an operational level during the CM phase the buyer can behave towards the supplier in a more “benevolent light” and “put the contract in the drawer.” Moreover, in such circumstances the buyer tends to feel free of doubts and vulnerabilities (Jap and Ganesan, 2000). On a strategic level, the two companies can decide to extend their business for longer periods or in other projects. If however, the buyers feels that he is being mistreated by the clauses in the contract (Wynstra et al., 2003) or the supplier he can decide to monitor the contract and the supplier’s performance more closely (operational) or terminate the contract (strategic). Turner et al., (2000) have found that firms will sign contracts and build close relationship with any firm for which it has a critical need for input so maybe despite their attitude towards the a contract that is perceived as not being particularly in their favor, buyers may choose such contracts and relationships when circumstances push them in this direction.

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3. Methodology

A thorough understanding of the influence of buyer’s attitudes (emotions, feelings, thoughts and beliefs) formed in the pre-contractual/negotiation phase on buyer’s contract management behavior is still missing. Previous literature examined the influence of attitude as a predictor for behavior in relation to culture and trust, and found that “people’s actions are systematically related to their attitudes when the nature of the attitudinal predicators and behavioral criteria are taken into consideration” (Stevenson et al., 2014, Ajzen and Fishbein, 1977). These previous studies researched behavior related to culture and trust, but a study of all attitudes’ components has not been previously done with regards to contract and contract management behavior. Therefore, theory development opportunity exists for the influence of buyer’s attitude formed in the pre-contractual/negotiation phase about the contract and supplier on the buyer’s behavior during the contract management phase. To research this topic semi-structured exploratory interviews were conducted as they stimulate the development of new theoretical ideas and “allow gathering rich data from people in various roles and situations” (Myers, 2009). Furthermore, they enable the analysis of the interviewee’s subjective perspective (Uwe Flick, 2004). Besides the exploratory interviews, a questionnaire was distributed to every interviewee to confirm and complement data gathered in the interviews. This additional method was used as it is particularly helpful in gathering information unique to individuals, such as information about beliefs, behaviors, knowledge. 3.1 Research context

The influence of buyer’s attitudes formed in the pre-contractual/negotiation phase on his behavior in CM phase was investigated in the context of manufacturing companies as this environment allows studying more in depth the dynamic between buyers and their suppliers. The selected manufacturing companies operate in the Netherlands and some of them plan to expand their business with their suppliers in the near future. This researched proved interesting to the interviewees as a way of gaining insights into why contracts are managed differently with some suppliers then with others. These insights could be helpful in understanding how to improve buyers’ dealings with suppliers according to one of the interviewees.

3.2 Interviewee selection

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(positive/negative) that was formed in the pre-contractual/negotiation phase in the person that lead the negotiations, and later on signed and managed the contract discussed, was used to investigate if attitudes formed in this phase had an influence on the type of behavior exhibited by the buyer in CM phase. Second, the contract discussed was preferably recently signed (last 8-12 months) with a new supplier to facilitate easy recollection of feelings and thoughts about the contract and supplier during the negotiation phase. The potential interviewee could be a person from the purchasing department or a manager from a department to whom the resources are delivered, and had an active/leading role in the negotiation. Interview details can be found below in Table 3.

No. Company Name Contract Closing Date Interviewee Name & Role Interview Duration Interview Mode 1 Friesland Campina Dairy industry Anonymous 1st July 2014 Procurement Manager 71 min Video conference 2 Friesland Campina Dairy industry Anonymous December 2013 Procurement

Manager 65 min Face-to-face

3 Hooghoudt Alcohol industry

Anonymous

Renewed annually for past 20 years. Last

renewal: 2014

Purchaser 68 min Face-to-face

4 British American Tobacco Niemeyer Tobacco industry Anonymous Previous supplier December 2014

5

British American Tobacco Niemeyer Tobacco industry

Anonymous

June 2014 Purchaser 55 min Face-to-face 6 Royal Hoitsema Lables Printing industry Anonymous March 2014 Manager Purchase

and Production 50 min Face-to-face

7 Kwintgroup Hardware industry

Anonymous March 2013

Business Controller

8 RDW Mobility industry Anonymous Previous supplier August 2013

Purchaser 70 min Face-to-face

TABLE 3. Interviews details 3.3 Data collection

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phone and in person, nine interviews were taken with buyers from healthcare, dairy, hardware, printing, tobacco, alcohol and mobility industry. In each case, the interviews were conducted by one researcher with one or two representatives from the company. Although the research involves gathering a large quantity of rich data via multiple methods and from multiple sources, the use of one researcher is an advantage as this increases the probability of one approach to be used at all interview sites.

The interviews lasted between 50 to 70 minutes, 7 out of 9 took place at the buyer company’s office, one interview was conducted via telephone and one interview took place via video conference. To ensure the quality of the interviews all interviews were recorded (after permission for recording was received from the interviewee) and transcribed in English (with the exception of one interview). The name of the supplier was kept anonymous at the request of the companies. One interview was not included in the analysis as the quality of the audio registration was very poor and listening and transcription of the interview was not possible. A second interview with the supplier was not possible to schedule. Subsequent questions that appeared during the analysis of the interviews were posed to the buyer for clarification. The interviewees were asked to score and indicate their emotions, feelings, thoughts and beliefs that have formed in the pre-contractual/negotiation phase about both the contract and supplier on a 7 point Likert scale. This scale was used because it allows for a good balance between having enough points of discrimination without having too many response options. A score of 1 indicates strongly disagree and a rating of 7 indicates strongly agree. Within this scale a score of 1-2-3 was considered as low, a score of 4 was considered medium and a score of 5-6-7 was considered high. The questionnaire was divided into 2 major themes, emotions and feelings, and thoughts and believes. These two themes were further divided to capture attitudes about the contract and supplier. The highest score that could be assigned was 252, where emotions and feelings about the contract = 70 points, about the supplier = 70 points, thoughts and beliefs about the contract = 56 points, about the supplier = 56 points.

3.4 Operationalization of the main variables

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on the works of Steinel Harinck (2008), Baas et al., (2008) and Hill et al., (2009). This list is presented below in TABLE 4.

Primary Emotions Secondary Emotions Tertiary Emotions love affection liking, hating

joy

cheerfulness joy, delight, enjoyment, gladness, happiness, satisfaction, gratitude, thankfulness, attractiveness zest enthusiasm, zeal, excitement, thrill, interest, contentment pleasure, justice

pride triumph

optimism eagerness, hope

surprise surprise amazement, astonishment

irritability aggravation, agitation, annoyance

anger

exasperation frustration rage

anger, outrage, fury, hostility, being personally, dislike, attached, bitter, hatred, scorn, spite, vengefulness

envy resentment, regretful, jealousy suffering agony, anguish, hurt

sadness

depression, despair, gloom, blueness, unhappy, disappointment, regretful, stress, grief, sorrow, woe, misery, melancholy

disappointment dismay, displeasure, disillusionment with the overall relationship, sense of having been cheated

shame guilt, regret, remorse, alienation, dejection, embarrassment

neglect humiliation, insecurity, insult, isolation loneliness, rejection

sympathy pity, sympathy

fear

horror alarm, shock, fear, fright, horror, panic

nervousness anxiety, suspense, uneasiness, dread apprehension, fear, worry, distress

TABLE 4. Operationalization of emotions and feelings based on Steinel Harinck (2008), Baas et al., (2008) and Hill et al., (2009).

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Thoughts and beliefs that can occur in pre-contractual/negotiation phase  Improves quality  Is fair  Damages reputation  Harms self-confidence  Evokes suing

 Brings companies closer

 Improves the quality of [my] final product

 Trust

 Supplier is risky

 Dependent on the supplier

 The supplier is interesting

 It is challenging

 Promotes different opportunities for the company

 Attractive opportunity

 Good opportunity for advancing the firm

TABLE 5. Operationalization of thoughts and beliefs based on Renkema et al., (2008) and Kingshott, (2008)

The operationalization of behaviors that can occur in contract management phase is presented below in Table 6.

Behavior exhibited in contract management

Operational level Strategic level

 Attempt to negotiate a lower cost structure

 Tends to be secretive about politics in their company

 Tends to sidestep any talk about the weaknesses in their company

 Gives ample notice of any planned price change

 Does a good job notifying advance delivery schedules

 Informs of any changes in billing procedures well ahead of time

 Informs early of any plans to change their products

 Give plenty of notice if their level of after-sales service was to change.

 Risk mitigating behavior (tight monitoring)

 Cross-firm communication as a relational competency that yields strategic advantage for the collaborating firms

 Risk mitigating behavior (terminate contract)

 Show an active interest in helping their suppliers become more competitive

 Show an active interest in trying to understand how the supplier’s company works.

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Attitudes are observed and measured in the pre-contractual phase, while behaviors are observed and measured in the CM phase, since it is assumed that attitudes formed in the pre-contractual phase influences behavior in CM phase. Attitudes were measured in both, the semi-structured interview and questionnaire. An example of such a question found in the interview is the following: “During the pre-contractual/negotiation phase, what did you think and how did you feel about the possibility of working with this supplier?” And “When you think back at that period when you’ve closed the contract, what did you think about the terms of the contract and about the contract in general?” In the questionnaire the interviewees were asked to rate on 7 points Likert scale what they thought/believed and how they felt about the contract and supplier. An example of such a statement is the following: “I believed the contractual clauses were fair” (See Annex D).

Furthermore, the relevance of the contracts and the supplier that were discussed in the interviews was measured as control variable. The relevance of the contract was assessed based on the strategic position of the product that was the object of the contract. The supplier’s relevance was assessed based on how easily replaceable the supplier was according to the buyer. A 7 points Likert scale was used to assess this relevance.

3.5 Data Analysis

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Codes Segment 2  Information sharing  Responsibility  Communication  Monitoring  Evaluation  Performance  Safeguards

 The amount of relevant information shared the quality or usefulness of the information, how often there is contact between company representatives to share information and how sensitive the information shared is. This includes visiting the other company and generating insights in their production processes.

Interview: See Annex A, subtopic 1. Question 5

 Having the duty or being accountable to carry out something specified beforehand (Van Weele, 2010)

Interview: See Annex A, subtopic 4

 Communication between both parties regarding the agreement and other relevant causes (van Weele, 2010) Interview: See Annex A, subtopic 5

 An activity that is an integral part of the organization’s current relationship management strategies to control the other party (van der valk & van Iwaarden, 2011)

 Evaluation of the relationship and the contract. Both parties evaluate the performance of their partner and define ways to improve the relationship (van Weele, 2010)

 Assessing the achievements and outputs of other party Interview: See Annex A, subtopic 8

 Protective and escape clauses included in the contract Interview: See Annex A, subtopic 9

TABLE 7. Variables in the pre-contractual and contract management phase

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An email was sent to the company to clarify the issues. A short excerpt of the inquiry is presented next: “In the paragraph below (a quote from the interview) it’s stated that “after a while they thought that they had to put clauses in what we had to sell.” “Can you recall if this was before the agreement was “signed” or after? If after, how long after the “signing of the agreement?” Furthermore, interviewees were asked specific questions about their emotions, feelings, thoughts and beliefs formed in the pre-contractual phase in the semi-structured interview, and additionally in the questionnaire.

After the coding was accomplished the interviews were analyzed in two ways. First, each interview was analyzed separately and the main variables; pre-contractual/negotiation phase and contract management phase were described per interview. By describing them per interview, the researcher gain insights into the underlying mechanisms and relationships that can exist between the variables, and how they might connect with each other. Results of this analysis can be found in the next section. Next, following Miles and Huberman (1994) steps, a pattern code was applied to examine how the descriptive and interpretative codes fit together. First, we looked at the type of emotions, feelings, thoughts and behaviors that occurred in the pre-contractual phase. According to this, 6 out of 8 interviewees reported positive attitudes towards both the contract and the supplier. Next, we looked at the behavior exhibited during the contract management phase on operational and strategic level. Six out of eight interviewees reported changing their behavior towards the supplier in the contract management behavior. To analyze the influence of attitudes on behavior we combined all coding trees into one large coding tree and analyzed in which way attitudes formed in the pre-contractual phase influence behavior during contract management phase. The attitudes formed in pre-contractual/negotiation phase as well as behaviors that occurred during contract management phase are presented per interview in Appendix C.

4. Findings

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emotions, feelings, thoughts and beliefs from the pre-contractual phase and the behaviors in the CM phase.

4.1 Interview 1 – Friesland Campina (1)

The first interview was taken with the Procurement Manager for the metal packaging category at Friesland Campina. In this interview the emotions, feelings, thoughts and beliefs expressed in the pre-contractual/negotiations towards both the supplier and the contract were positive. Pre-contractual/negotiation phase

The interviewee reported feeling “very comfortable” with the supplier and quoted that “I had a lot of confidence in that company”. Regarding the contract, the interviewee stated that although the contract would place the company in a dependent position he felt good about the contract in general and about the terms and conditions of the contract, specifically: “I felt after the final negotiation of the contract, the terms and conditions of the contract… I was very happy about all that.” The thoughts and beliefs follow the same positive view about the contract and supplier. Friesland Campina thought of this specific supplier as being “very important” with “better delivery performance, better quality and cooperation” than other suppliers for the same packaging category. Closing a contract with this supplier would bring savings as well as new opportunities. These attitudes were confirmed by the answers provided to the questionnaire by the Procurement Manager, who was leading this contract negotiation. He answered that he was very satisfied (7/7) and felt secure with the contract that the companies signed (6/7). He believed that the contract clauses were fair (6/7), brought new opportunities for the company (5/7), the company could depend on this supplier (6/7) and trusted the supplier (5/7). A summary of questionnaire scores is presented below in TABLE 7 below:

Pre-contractual/negotiation phase Score achieved Emotions/feelings

 about the contract 27/56

 about the supplier 21/56

Thoughts/beliefs

 about the contract 33/70

 about the supplier 38/70

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Contract Management phase

On an operational level Friesland Campina cooperates with this supplier “on specifications and logistics” of the packaging product, shares information regarding deliveries, payments and forecasts according to the contract’s clauses and furthermore, made “small investments on the machine equipment to clean the products.” When quality issues occurred, following contract specifications, the company started a tighter monitoring and follow-up procedure, and requested root cause analysis of the problem from the supplier: “I am monitoring them together with the quality department […]If there is an issue than we give the issue a reference number. Also for the follow up its important, so we are forwarding also the reference number to the supplier if there is an issue […] we need to have a clear root cause analysis and a follow up, so I invited them to have a visit, a general meeting. They made a presentation with the root cause analysis and the change in procedure they propose to avoid it would happen again.” On a strategic level, Friesland Campina decided to develop further its relationship with this supplier by proceeding with a strategic partnership, making a long term commitment (5-year-contract) and guaranteeing a specific volume for the supplier, who in turn invested in a new production line of Friesland Campina: “we share the situation where we are today and where we would like to go [….] they adjusted their company’s strategy to Friesland Campina, and we adjusted our sourcing strategy to this supplier.” In addition, the two companies decided to share strategic decisions with one another and “discuss pending projects and the forecast for the next year. So we have some alignment meetings and some evaluation meetings.”

Reflection:

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professionalism of the supplier and the “very high level in terms of response time and information they share” persuaded Friesland Campina to extend their business with the supplier and proceed with a strategic partnership which is mutually beneficial and profitable for both parties. The positive attitude from the pre-contractual phase seems to extend in the CM phase. Furthermore, the behavior exhibited towards the supplier in the CM phase appears to be benevolent towards the supplier. The statements made by the interviewee and the results of the interview analysis suggest that there may be an influence of attitudes form the pre-contractual phase on behavior exhibited in the contract management phase.

4.2 Interview 2 - Friesland Campina (2)

This interview was taken in Amersfoort at Friesland Campina’s (FC) office with a procurement manager who talked about a facility maintenance supplier for Friesland Campina Germany. In this interview the emotions, feelings, thoughts and beliefs expressed by the buyer in the pre-contractual phase were negative towards the contract and supplier.

Pre-contract/negotiation phase

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and lead ultimately to the signing of the contract. The interviewee stated that this contract and the supplier were very important to the company because they wanted to have only one supplier for all the outsourced activities and services at the location in Germany, and this supplier was considered to be one capable to fulfill Friesland Campina’s requirements. These statements were confirmed by the answers to the questionnaire where the interviewee stated that he believed that the “contract clauses were fair (7/7), the contract was important for the company (6/7. Furthermore, he stated that he liked this supplier (6/7) and was thrilled at the opportunity to collaborate with this supplier (6/7). A summary of the overall score of the questionnaire can be found in the Table 8, below:

 about the contract  about the supplier

31/56 33/56 Thoughts/believes

38/70 36/70

TABLE 9. Friesland Campina (2) – Summary of questionnaire scores Contract management phase

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satisfaction of the internal customer and it’s not correct 2 months [they are penalized] also.” With the exception mentioned above, the behavior in the contract management phase followed the standard contract management behavior exhibited in all contracts. FC maintains a strict, professional way of doing business and does not show a preferential or benevolent behavior towards their suppliers when issues occur: “if we see something the first month, we sit down and ask what is happening here, what is going wrong. So we don’t have the same situation and argument after the first month. So after two months, you already had this argument and we solved it in a matter. So you can’t use the argument twice.” FC has a clear and structural communication model that they use in their interactions with this supplier. Evaluates the supplier twice per year when they meet with the entire board. This occasion is also marked as special event where the two companies plant together trees to fulfil their social responsibility “we go outside into Germany and we are going to plant some trees” but also to bring a more personal touch in their interactions. On a strategic level the buyer developed a good relationship with the supplier and tries to “find out how they can improve supplier’s way of working for Friesland Campina for a long term” by finding opportunities for common projects, meeting twice per year to discuss improvements and closing a long-term (10 years) contract with this supplier.

Reflection

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position in the market was important to FC. The positive attitude from the pre-contractual phase continued in the CM phase and led to a

4.3 Interview 3- Hooghoudt

This interview was taken at Hooghoudt with the Purchasing Manager and focused on a contract for alcohol supply. Hooghoudt has a long collaboration with this supplier (over 20 years), and the Purchasing manager has been working with this supplier for the last 8 years. This interview was chosen because the company and the interviewee fit the criteria regarding industry, the attitudes formed in the “getting to know each other” phase, as well as role in negotiation and CM. Furthermore the interviewee had a very good recollection of his feelings and emotions at the start of the relationship as the relationship started on a negative note. In this interview the emotions, feelings, thoughts and beliefs expressed towards both the supplier were negative at the beginning of the relationship between the purchaser in charge of CM and the supplier.

Pre-contractual/negotiation phase

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truck with alcohol] back and they have the obligation to supply within 48 hours.” The interviewee’s feelings and thoughts regarding the contract and supplier are confirmed by the responses to the survey where he stated that believes “the contract is important for the company (7/7), clauses are fair” (7/7), the contract is important for the company (7/7). With regards to the supplier the interviewee believed that “will be one of the best suppliers we have (6/7)”, “trusted” (6/7), liked (7/7), was pleased (6/7) and was very satisfied (6/7) with the contract, and felt secured (6/7) about the supplier. The interviewee believes that the supplier “showed an active interest in helping us become more competitive” (5/7), spends time learning how to help us lower costs in distributing our products (4/5). A complete overview of the scores can be found in the TABLE 10 below:

38/70 41/70 TABLE 10. Hooghoudt - Summary of questionnaire scores Contract management phase

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share strategic information regarding their market position and what they would like to achieve: “We inform them what our market position is, what our targets are, how much we are going to invest in what kind of a product and how much is that going to involve them. We are that open. They are also rather open.” Furthermore, the two companies collaborate to develop new products “Marketing wise we’ve tried to go to a different kind of alcohol which was not available at their end. They’ve made it. Lab wise […] just for tasting. And that worked rather well.”

Reflection

This interview shows that the initial negative emotions and thoughts about the supplier and the contract changed into positive in the pre-contractual phase and continued in contract management phase, despite the initial issues regarding the product recall from the market. This can be attributed in part to the emotions and thoughts that have formed during that “knowing each other” time period, but also because the supplier acknowledged the mistake and took steps to repair it in order to save the relationship. One interesting finding of this interview was that the purchaser, who was actively involved in solving the recall problem and later on took over yearly contract negotiation and management, wanted to reevaluate the supplier despite the fact that this supplier had already a long term relationship with Hoodghoudt. The results of the evaluation were positive, as were the emotions, believes and behaviors about the contract and supplier. This can suggest an influence of the emotions and thoughts formed in the early days of contact on the way the Purchasing manager manages this particular contract.

4.4 Interview 4 – British American Tobacco Niemeyer (1)

This interview was taken with the Purchasing manager from BAT Niemeyer at the factory office in Groningen. In this interview the emotions, feelings, thoughts and beliefs expressed in the pre-contractual/negotiations towards both the supplier and the contract were positive. Pre-contractual/negotiation phase

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this German supplier, thus the initial opposition to the detailed contract specifications. The interviewee reported that “The Company was very pleased to sign a contract with this supplier and me too. I said that already that I was really happy that I finished now this because it was a tough discussion.” With regards to the supplier the interviewee reported that during this pre-contractual phase he believed that the supplier “was very open” and”a strategic supplier for us”. The company has previous experience with this supplier and knows that the supplier is “very well performing one.” These beliefs about the supplier are confirmed by the answers on the questionnaire where the interviewee stated that he believes that “contract clauses are fair “(5/7), the contract “is important to our company” (6/7) and brings good opportunities for our company (6/7). Regarding the supplier, the interviewee believed that “the supplier will be one of our best suppliers (7/7), can depend on the SC (7/7), trusts (6/7), and likes (6/7).” His feelings were aligned with his thoughts, and thus he felt “pleased (6/7), satisfied (6/7), and secured (6/7” about the contract they closed. Furthermore, the interviewee stated that he felt “thrilled at the opportunity to collaborate with this supplier” (6/7), and was not “worried (2/7), fearful (2/7) or stressed (2/7) “about this supplier a list of overall scores can be found in TABLE 11 below:

38/70 41/70 TABLE 11 BAT (1) - Summary of questionnaire scores Contract management phase

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or delivery issues occurred the interviewee, who was also part of the negotiation team, listens to both companies stories and “try to solve the problem together with the supplier”. Performance monitoring is done regularly on a monthly base according to the contract, but discussions about performance are less often (quarterly or at half year). Evaluation of the relationship is done during the review meetings. At this time the supplier is evaluated based on the BEST protocol (Business Enabling Service Tool), and BAT provides feedback about the scoring and improvement opportunities. The interviewee reported that the supplier “spends time learning how to help us lower costs in distributing our products, and helps us gain maximum benefit from their product.”

On a strategic level BAT discusses with this supplier “how they are performing, what are our aims and what we want to do in the near future” during the annual strategic review meeting. Both the interviewee and the company believe that sharing strategic information with this supplier “is needed, when you have a relationship like we have.” BAT has not made any material investments in this supplier, but “invested in the commitment” and invested in training and coaching the supplier’s employees “For my supplier we have done it. I already coach the supplier, and that is a big supplier, [I have coached] even to the top level of the company.”

Reflection

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4.5 Interview 5 – British American Tobacco Niemeyer (2)

In this interview taken with the purchasing manager from BAT Niemeyer focused on a packaging contract that was closed in June 2014 with a new supplier. The emotions, feelings, thoughts and beliefs in the pre-contractual phase towards both the contract and supplier were positive

The interviewee, who was part of the negotiation team and who is now responsible for the management of this contract, reported that during the negotiations there was a “very positive and open atmosphere towards the supplier and towards contract closing process.” He thought that the supplier “was very open and really eager to start business with BAT.” BAT shared in these feelings as “we and the company wanted and were looking forward to working with this supplier.” With regards to the contract the interviewee stated that it was more important for BAT to have this contract than for the supplier because the supplier provides a product crucial for BAT’s innovation recently introduce “as an addition to BAT’s “roll your own” packaging. Thus, BAT was “happy that the contract was closed. I was satisfied with the results. It was a bit of give and take, but a really good phase for the firm and for supplier. A very satisfactory result.” These positive emotions and thoughts are confirmed by the questionnaire where the interviewee stated that he believed“ the contract is important for our company (6/7), brings good opportunities for the company (6/7),clauses are fair” (5/7), and he believed that “ he can trust (7/7), and depend (7/7) on this supplier”. Furthermore, during the negotiation phase, the interviewee “was pleased (6/7) and satisfied (6/7) with the contract closed, and was thrilled at the opportunity to collaborate with this supplier (6/7).” A summary of the questionnaire scores can be found in TABLE 12 below:

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Contract management phase

In the contract management phase the behavior exhibited by the buyer towards the supplier followed the standard patterns of behavior they exhibit in other contracts. On operational level BAT communicates on an “as needed base” with this supplier. The interviewee stated that the two companies “agree on pricing, when there is an issue regarding quality you engage with the supplier to resolve the issue”, share information ranging from product specifications to strategic type of information “For this supplier is strategic because it’s longer term. They are suppliers, are supplying part of our packaging which is innovation for this industry.” Evaluation is done periodically via the BEST protocol: “We use BEST (Business Enabling Service Tool) to provide feedback where supplier could improve for example finance, quality etc. The outcome is a report with scoring and improvement elements and actions we ask from supplier. And then they tell us what actions you are going to take to resolve the problem.” Monitoring is performed “from an ordering point of view, whether the supplier is supplying the goods in full.” On a strategic level BAT has strategic review meetings once a year where they discuss “performance of last period and also call the settings on next year, and the years to come” and how to continue with the innovation in such a way to involve this particular supplier: “what can we do more with your product within our packaging because we have different type of packaging where we can use it.” Furthermore, the two companies work together to reduce their manufacturing footprint, and are involved in supplier management plans where the two companies meet to discuss plans for future work together. The interviewee is a firm believer in relationships with suppliers and states that “if you have good relationship with your supplier, not only personally but also business wise, you have to sign contracts, you put it in the drawer and that’s where it stays. And that’s what ideally is what you have in a supplier relationship with your supplier.” As such he works hard at solving issues together with the supplier, when issues arise.

Reflection

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particular product to prevent it from happening in the future.” This proactive, hands on behavior from supplier further increased the BAT’s good opinion about this supplier. The interviewee stated that his “feelings about the supplier have even improved after I saw how they solved the issue that appeared” and they are making plans for future projects where the two companies can work together. The interviewee stated that although he trusts the supplier, when quality issues occur, “we put more resource time and effort to closely monitor their product on our lines for a certain amount of time” but this is routine practice as stipulated in the contract. Although BAT does not show a specific benevolent behavior towards the supplier, but follows the contract rules, the interviewee also stated that he believes in “putting the contract in the drawer and that’s where it stays.” This behavior can suggest that the attitudes that have formed in the pre-contractual/negotiation phase may have had an influence on the behavior exhibited in the contract management phase.

4.6 Interview 6 – Royal Hoitsema Labels

This interview was taken with the Purchase and Production Manager from Royal Hoitsema Labels. In this interview the emotions, feelings, thoughts and beliefs expressed in the pre-contractual/negotiations towards both the supplier and the contract were positive.

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and price of the service provided made him a “very important supplier.” These statements are confirmed by the answered to the questionnaire where the interviewee marked that he believed that the contract clauses were fair (7/7), the contract was important for RHL (6/7) and brought good opportunities for the company (6/7). He felt that signing an agreement with this supplier was not a risky act (7/7), he trusted (6/7), liked (6/7), felt secured (6/7) and satisfied (7/7) with the agreement made. Regarding the supplier, RHL thought that the supplier had RHL best interests in mind (6/7), is trustworthy (6/7), and thus RHL is thrilled at the opportunity to collaborate with this supplier (5/7) and not worried (7/7) or fearful about opportunistic behavior from the supplier (7/7). These positive emotions, feelings, thoughts and beliefs about the supplier continued during the contract management phase. A summary of the questionnaire scores can be found in TABLE 13 below:

41/70 43/70

TABLE 13. Royal Hoitsema Labels - Summary of questionnaire scores Contract management phase

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to them and make an agreement I am 100% sure that they do what they said.” This positive thoughts and beliefs about the supplier in the CM phase are confirmed by the answers to the survey questions where the interview stated that the supplier spends times learning how to help RHL lower costs (6/7), makes an effort to keep themselves abreast of the customer’s needs (6/7), show active interest in helping RHL become more competitive (6/7), informs RHL of changes in their service schedules (6/7) or products (6/7). As a result of these positive observations and thoughts about the supplier, on a strategic level, RHL has decided to expand this supplier’s business: “next year he will get more of the pie because I will reduce the hours of the other suppliers next year, so he gets more”, but the “pay per hour he will get is to be something lower because he gets more hours.”

Reflection

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4.7 Interview 7 - Kwintgroup

This interview was taken at Kwintgroup with the Purchaser and Business Controller in charge of a contract with a metal supplier from Italy. In this interview the emotions, feelings, thoughts and beliefs expressed in the pre-contractual phase towards both the supplier and contract were positive.

Pre-contract/negotiation phase

The negotiation phase was market by positive feelings and thoughts towards both the supplier and the agreement they intended to make. The interviewees reported that “from the beginning the feeling was very good and positive, and agreements were made, verbal agreements, so it all looked very healthy.” Furthermore, the two companies felt that “there was a connection between the management” and both parties “thought that they could start collaboration.” According to the agreement Kwint would become the official dealer for the products imported from the Italian supplier. They thought that the product from this supplier will have a good quality and expected “to get a product that we could sell”. With regards to the agreement both parties thought that it was fair and mutually beneficial. The interviewee stated that “at the beginning the feeling was very good and positive, and agreements were made, verbal agreements, so it all looked very healthy.”

This sentiment is supported by the answers to the survey questions where the interviewee stated that they thought that “the contract was important to our company (5/7), “could bring good opportunities to the company (4/7). A summary of the overall scores of questionnaire can be found below in TABLE 14 below:

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Contract Management phase

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supplier. We hired sales employees to solely focus on their product group […] and acquired a huge stock of their products.” Following the incident Kwint decided to reduce their effort in promoting the Italian supplier and forgo sales targets previously established between the two companies. The company decided not to end the relationship with this supplier due to the large investment made in supplier, and because changing to a different supplier would affect the quality of the products they have to deliver on the Dutch market. The interviewees state that: “the product is still good” and that he trust the supplier “in a way that when you place an order it will get there yes, that kind of trust. But trust in the way that you want to start a relationship and make agreements with one another, no.”

Reflection

This interview is market by a transition from positive attitude about the supplier and the contract in the pre-contractual phase to negative emotions and thoughts during the contract management phase as a consequence of supplier’s actions. This change seems to affect the behavior exhibited by the buyer in CM phase. As such, the buyer is monitoring the deliveries more closely, has limited his efforts into promoting supplier’s products, and continues the relationship without a contract that would tie him more closely to the supplier because “They are not reliable for making new contracts. I would not make a new contract with them, but it is ok how we are working right now because we are getting demands for products from this supplier.” The reason for this behavior can be explained by the fact that buyer feels that he is dependent on the supplier, they can still make a profit as the products are very good, the buyer does not consider the supplier as risky, but that “+80% of the time is good on a regular base” and are decided to continue with the relationship with this supplier. In this interview we see a transition from initial positive attitude to tight monitoring behavior in CM. We cannot observe a direct influence of the buyers attitudes on their behavior, thus this can suggest that in this interview’s case there is no influence of attitude from the pre-contractual phase on behavior in CM phase.

4.8 Interview 8 - RDW

This last interview was taken with the purchasing manager from RDW at the company’s office, and focused on a contract for equipment for a call center.

Buyer’s Attitude and Contract Management