The effect of power distribution on buyers’ strategies to deal with suppliers’ delivery lateness in manufacturing companies: A multiple case study

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The effect of power distribution on buyers’

strategies to deal with suppliers’ delivery

lateness in manufacturing companies: A

multiple case study

Master thesis, MscBA, specialization Supply Chain Management University of Groningen

Faculty of Economics and Business MSc. Supply Chain Management

Name: Marco Laarman Student number: s2185628 Research theme: Supplier Reliability E-mail: marco_laarman@hotmail.com

Supervisor: Dr. N.D. van Foreest

2nd Assessor: Dr. M. van der Laan

June 21, 2013

Abstract:

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Content

1. Introduction ...4

2. Research framework ...6

2.1 Sources of lateness ...6

2.2 Strategies to deal with delivery lateness ...7

2.2.1 Coping with lateness internally...7

2.2.2 Reducing lateness externally ...8

2.3 Power in buyer-supplier relationships ...9

2.3.1 Portfolio theory ...9 2.3.2 Power distribution ...9 2.4 Conceptual model ... 10 3. Methodology ... 11 3.1 Research design ... 11 3.2 Data collection ... 11

3.3 Measures and instruments ... 12

3.4 Data analysis ... 13 4. Case descriptions ... 14 4.1 Company X... 14 4.2 Company Y... 14 5. Results ... 16 5.1 Results Company X ... 16

5.1.1 Supplier X1 (suppliers’ power)... 16

5.1.2 Supplier X2 (balanced power) ... 16

5.1.3 Supplier X3 (buyers’ power) ... 17

5.2 Results Company Y ... 18

5.2.1 Supplier Y1 (suppliers’ power)... 18

5.2.2 Supplier Y2 (balanced power) ... 18

5.2.3 Supplier Y3 (buyers’ power) ... 19

5.3 Overview results ... 19

6. Discussion and Conclusion ... 20

6.1 Conclusion ... 21

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6.3 Limitations... 22

7. References ... 23

Appendix A: Questionnaires ... 27

Interview Supply chain manager ... 27

Interview Buyer raw & pack ... 29

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1. Introduction

Firms’ success depends on the ability to match supply with demand (Liu, et al., 2010). Disruptions in supply or demand can be an obstacle to be a successful firm. Lateness of deliveries from suppliers is a sort of supply disruption. If a company is able to deal with delivery lateness of suppliers, the ability of a firm to match supply with demand increases (Liu, et al., 2010).

Simangunsong et al. (2012) mention two strategies to deal with lateness of deliveries from suppliers. The first strategy is coping with lateness internally in the focal company. The focal company anticipates internally on variation in delivery lateness from the supplier. An example of anticipating internally on delivery lateness from suppliers is holding inventory. By having higher safety stocks, the focal company is less sensitive for delivery lateness of suppliers. The second strategy is to reduce lateness by co-operation with suppliers. To co-operate more with suppliers, variations in delivery date from suppliers reduce. An example of more co-operations between buyer and supplier could be a shared information system. By sharing information, both buyer and supplier can anticipate on delivery lateness of suppliers. For example, if a supplier knows, a delivery will have delay, this information can be announced in an early stage. Then the buyer can anticipate in an early stage on the lateness of the delivery. The strategy of choice to deal with delivery lateness of suppliers is dependent on the power distribution in the supply chain. For example, it is difficult for a buyer with less power to force a supplier with much power to reduce the lateness in the deliveries (Cox, et al., 2001). Another example is Toyota. Toyota used their power to force suppliers to deliver Just In Time (JIT) (Cox, 1999). Cox (2004) separates the power distribution in the supply chain in buyers’ power, balanced power and suppliers’ power. Since this research studies the influence of the power distribution in the supply chain on the strategy to deal with delivery lateness of suppliers, this study uses the separation of Cox (2004) to research the power distributions. To compare different delivery lateness strategies, this study researches different power distributions. Several studies agree the power distribution between buyer and supplier influence the cooperation between these two companies (Cox, et al., 2001; Van Donk & Van der Vaart, 2005; Zhao, et al., 2008), but limited empirical research on power in the buyer-supplier relationship is executed (Caniëls & Gelderman, 2007). This study combines the delivery lateness strategies of manufacturing companies and the power distribution between buyers and suppliers.

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In this research, lateness of deliveries is defined as the difference between actual delivery time and the agreed delivery time (Soepenberg, et al., 2012). This means a delivery from a supplier to a buyer can be too late and too early. For example, a delivery, which is delivered one day before the agreed delivery time, results in superfluous inventory for one day. A delivery, which is delivered one day after the agreed delivery time, can result in operational problems of the buyer.

Existing literature elaborates on the power distribution in supply chains (Cox, 1999) (He, et al., 2013) and on strategies how to deal with delivery lateness in supply chains (Simangunsong, et al., 2012). To the best of my knowledge, none of the existing literature elaborates on the effect of power in the supply chain on the delivery lateness strategies. The effect of the power distribution on the delivery lateness strategy will be investigated by doing a multiple case study at manufacturing companies. This case study answers the following research question: “What is the influence of power on the strategy to deal with delivery lateness of suppliers in manufacturing companies?” First, at each case three suppliers will be selected which deliver or delivered late in the past. These three suppliers need to have different power distributions in the relationship with the manufacturing company. Than the influence of the power on the strategy to deal with delivery lateness will be investigated by having interviews with different people in the manufacturing company. These interviews focus on the strategy how the manufacturing company dealt with delivery lateness of the suppliers.

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2. Research framework

This section provides the theoretical background of the research. This research framework set the boundaries of this research. First, this section discusses the sources of lateness. After the sources of lateness, two different strategies are discussed how a company can deal with delivery lateness of suppliers. The last section of the research framework discusses the influence of power in a buyer-supplier relationship and discusses which factors determine the power distribution in a buyer-supplier relationship.

2.1 Sources of lateness

In a global supply chain, a trend of increasing complexity is recognized, which results in increased potential for delivery delays and quality problems (Simangunsong, et al., 2012). General reasons why suppliers deliver late are natural disasters, terrorism, fires or strikes (Tomlin, 2009). Since these disruptions are quite exceptional, these kinds of uncertainties happen sporadic. A distinction can made between the exceptional and structural supply disruptions (Whipple & Roh, 2010). Exceptional supply disruptions and structural supply disruptions needs to be approached differently.

Whipple & Roh (2010) separates the structural supply disruptions in man-made unintentional and man-made intentional disruptions (figure 1). Man-made disruptions are disruptions caused by humans. An intentional man-made disruption happens if a supplier has the intention to deliver late because, for example, the supplier has another buyer who pays more for the suppliers’ products. An unintentional man-made disruption could be caused by, for example, a lack of information. This study focuses on both the intentional and unintentional man-made, structural supply disruptions.

Figure 1: origin of disruptions (Whipple & Roh, 2010)

Furthermore, there are several reasons why suppliers deliver late. One of the reasons is the opportunistic behaviour of a monopolistic supplier (Miller, 1992). If a manufacturer has only one strategic, monopolistic supplier, the supply risk could increase because the supplier reasonably does not have high priorities to deliver one single buyer.

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availability of information about, for example order quantities required by the manufacturer, the supplier is not able to deliver on time (Atkinson, et al., 2006).

2.2 Strategies to deal with delivery lateness

Simangunson et al. (2012) distinguish between several sources of supply chain uncertainty and come up with a literature overview of the existing uncertainty-management strategies (figure 2). One of the supply chain uncertainties is the lateness of deliveries from suppliers (figure 2, U9). Simangunson et al. (2012) differentiated between two strategies to deal with supply chain uncertainties, reducing the supply chain uncertainties and coping with supply chain uncertainties. This study differentiates between the two strategies of Simangunson et al. (2012) to deal with delivery lateness. This section elaborates on these two strategies.

Figure 2: Uncertainty strategies (Simangunson et al., 2012)

2.2.1 Coping with lateness internally

Supply chain flexibility is a common approach to cope with uncertainty in supply chains (Gosling, et al., 2010). Two options exist to cope with delivery lateness of suppliers internally (Simangunsong, et al., 2012) (Chen, et al., 2010). The first strategy (C1, table 1) is to order at multiple suppliers (Sawhney, 2006). By ordering at multiple suppliers, the suppliers will be triggered to deliver on time. A risk of ordering at multiple suppliers may be that the quality of supply decrease. A disadvantage of ordering at multiple suppliers is that the ordering costs increases (Lee, 2002). With two/three suppliers, the buyer creates competition between suppliers through quantity allocations and price negotiations to improve overall performance (Anupindi & Akella, 1993). There has to be found a balance in the amount of suppliers, since too many suppliers will affect the firm performance negatively (Lee, 2002). Too many suppliers result in redundant administration process and additional effort in managing suppliers.

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company creates buffers to anticipate on the lateness of suppliers. An advantage of this strategy is that the manufacturing company is less dependent on the timeliness of the suppliers. A disadvantage is the costs of holding inventory.

Coping with lateness internally Code

Ordering at multiple suppliers C1

Holding inventory C2

Table 1: Coping with lateness internally

2.2.2 Reducing lateness externally

Besides coping internally with delivery lateness from suppliers, the reduction of delivery lateness could be an effective way to improve the supply chain performance (Simangunsong, et al., 2012). Simangunsong et al. (2012) distinguishes between four options to reduce the delivery lateness of suppliers: (1) Lean operations, (2) Collaboration, (3) ICT systems and (4) Redesign of the supply chain. Table 2 summarizes and encodes the four different options. The first option (R1, table 2) is to expand the approach of lean thinking towards suppliers (Mason-Jones & Towill, 2000). By making processes lean, the processes becomes simpler, which results in less uncertainty (Hines, et al., 2004). For example, the introduction of Just in Time (JIT) will reduce inventories and care of the timeliness of the deliveries from suppliers. An example is Toyota. Toyota forced their suppliers to JIT. This resulted in lower inventory levels and less waste.

The second way (R2, table 2) of reducing lateness is to collaborate with suppliers. Different options exist to collaborate with suppliers: vertical integration, contractual agreements (Miller, 1992) or by working closely together by making, for example, schedules (Christopher & Peck, 2004). By making together schedules, the buyer and supplier can alert each other on possible supply disruptions in an early stage.

The third way (R3, table 2) of reducing lateness is to make use of ICT systems in the information sharing between buyer and supplier. The movements of materials can be tracked continuously if both the buyer and supplier make use of ICT systems. If the buyer in an early stage is able to see that shipments from suppliers are delayed, the buyer can anticipate on the delivery lateness from the supplier (Sawhney, 2006). The buyer, for example, can try to get materials from another supplier or make some changes in the production planning.

The last way (R4, table 2) of reducing delivery lateness of supplier is the redesign of the chain configuration or the supply chain infrastructure. An example could be to build factories near to the supplier or to outsource logistic activities to get a more reliable supply chain (Lee, 2002). The supply chain should design in such ways that supply uncertainties, such as delivery lateness, reduces.

Different studies agree collaboration with suppliers is always the best option to reduce the lateness of suppliers (Frohlich & Westbrook, 2002; Childerhouse & Towill, 2011). By collaboration with suppliers to reduce the delivery lateness, the manufacturing company does not need to hold additional inventories.

Reducing lateness externally Code

Lean R1

Collaboration with suppliers R2

Integrating ICT systems R3

Redesign of the supply chain configuration R4

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2.3 Power in buyer-supplier relationships

An important aspect in the decisions making of a strategy to deal with the delivery lateness of suppliers is the power distribution between the supplier and the buyer (manufacturer). “Power can be defined as the ability of party A to get party B to undertake an activity that B otherwise not would undertake” (Cox, et al., 2001). If the supplier has the power in the supply chain, it will be probably more difficult to reduce the lateness of the supplier externally.

First, this section discusses the relationship between buyer and supplier with the help of portfolio theory. The Portfolio theory is used because this research focuses on the supply of critical materials, such as raw materials. Without raw materials, many production processes stop. The Portfolio theory is used to exclude suppliers of non-critical materials. Then, a discussion of the power distribution between buyer and supplier is presented.

2.3.1 Portfolio theory

As already mentioned, a globalizing trend can be recognized in the supply chain. This globalizing trend influences the relationship between buyer and supplier. Previous research focused on only one single relationship between a buyer and supplier. These researches did not take the consequences of a single relationship on the overall supply chain into account. A single relationship between buyer and supplier may have significant influence overall supply chain (Olsen & Ellram, 1995). Olsen and Ellram (1997) come up with a portfolio approach to distinguish between supplier relationships. They developed a sequence of steps, which is based on the portfolio approach of Kraljic (1983). The core of the portfolio approach is to pay more attention to strategic suppliers and less to non-critical suppliers. Without the strategic suppliers, the focal company will have many troubles in gaining strategic products. The portfolio approaches the relationship between buyers and supplier from a buyers’ perspective. Kamann (2000) states that one more dimension needs to be taken into account, which is the importance of the buyers from the suppliers’ perspective. If the supply of a certain product is of strategic importance for the focal company, it may be that the supplier has many buyers. The importance for the supplier is less than the importance for the buyer is. In case of the latter, the buyer needs to pay maximal attention to these products.

2.3.2 Power distribution

Power is the heart of any business to business (b2b) relationship (Cox, et al., 2001). Several studies have shown that the power in the supply chain has significant impact on the buyer-supplier relationship (Liu & Wang, 2000; Lee, 2001). In addition, these studies agree that power is an important issue in the procurement relationships between buyer and supplier. Belaya and Hanf (2009) identified different sources of power: coercive, reward, expert, legitimate, referent and informational. The coercive side of power can be seen as the negative side and the non-coercive side of power can be seen as the positive side of power. The coercive side of power is well-known because of its punishing and aggressive nature and its negative impact on the supply chain relationship (Belaya & Hanf, 2009). This study focuses on both the coercive and the non-coercive side of power.

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Cox (2004) distinguishes between four buyer-supplier relationships: Buyer dominance, supplier dominance, independence with low attributes to force the other party and independence with high attributes to force the other party.

2.4 Conceptual model

This section presents the conceptual model of this research (figure 3). This study assumes suppliers deliver too late or too early, which is called the lateness of suppliers. The strategy of a manufacturing company to deal with delivery lateness of suppliers is dependent on this power distribution. In a supply chain, either the supplier or the buyer (manufacturer) can have the power and there can exist a balanced power between the buyer and the supplier. Furthermore, this research distinguishes between two strategies to deal with delivery lateness from suppliers. (1) Coping with lateness internally and (2) reducing lateness externally. This study researches the effect of the power distribution on the buyers’ strategy to deal with delivery lateness of suppliers. First, some sub questions needs to be answered to answer the main research question. The sub questions are:

1. What are the critical products of the manufacturer and who are the suppliers of these products?

2. Which of these suppliers who deliver critical products, deliver late?

3. What is the power distribution between these suppliers and the manufacturer? 4. What is the strategy of the manufacturer to deal with the delivery lateness of these

suppliers?

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3. Methodology

This study focuses on the influence of power on the strategy of a manufacturing company to deal with delivery lateness of suppliers. This section focuses on the structure of the research and makes clear what kind of research will be done, how the data will be collected and how the data will be analysed to come to well-argued and reliable conclusions.

3.1 Research design

This study will be executed by doing a multiple case study at manufacturing companies. By doing a multiple case study, it is possible to do an in-depth study on the strategies of manufacturing companies to deal with delivery lateness of suppliers. Since limited empirical research on power in the buyer-supplier relationship is executed (Caniëls & Gelderman, 2007), a multiple case study will be done. An in-depth, multiple case study is an appropriate method to come to reliable answers on the research question (Karlsson, 2009). This study researches two independent cases. In each case, three suppliers will be investigated. The problem is quite a complex problem, because the power distribution in the supply chain is dependent on many factors and several strategies exist to deal with delivery lateness of suppliers. Since it is a complex problem, a case study is the most suitable method to answer the research question. A single case study will have their limitations in the generalizability of the results, but without doing an in-depth study, the reliability of this study cannot be guaranteed (Karlsson, 2009). To ensure the reliability and validity of this study, two independent cases will be investigated.

In this research, the unit of analysis are the manufacturers because this study focuses on the strategy of the manufacturers to deal with delivery lateness of suppliers, which is influenced by the power distribution in the supply chain.

3.2 Data collection

The data of this multiple case study will be collected from multiple sources. The collection of data exists of four steps. These steps of data collection are described in this section.

The first step is to analyse delivery lateness data of the manufacturing company from suppliers. The goal of this step is to select suppliers with delivery lateness in the actual situation and the past. By selecting suppliers who had delivery lateness in the past, the strategy to deal with delivery lateness of this specific supplier can be analysed. By selecting both suppliers with delivery lateness in the past and delivery lateness in the actual situation, several strategies can be analysed on their fail or success.

The second step is to analyse the importance of the selected suppliers. Suppliers who deliver non-critical items will not be selected because these are less important for the production processes of the manufacturing company. For example, suppliers of office equipment are not relevant because they do not influence the production process. Suppliers of raw materials are important for the production process, so these may be important for this study. The relevant suppliers who deliver late or delivered late in the past will be further investigated. These first two steps are preparations for the following two steps.

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distributions need to be investigated to come to reliable answers. For example, in one situation, the supplier has the power; in one case the buyer has the power, in one situation the power is balanced (Table 3). Then, the results of this research are the most reliable because different situations are investigated.

Power distribution Suppliers’ power Balanced power Buyers' power Company X Supplier X1 Supplier X2 Supplier X3 Company Y Supplier Y1 Supplier Y2 Supplier Y3

Table 3: Supplier selection

The last step in the collection of data is to investigate what can be done or what kind of strategy has been applied to deal with the delivery lateness of suppliers. This research assumes the delivery lateness strategy is dependent on the power distribution between the buyer and the supplier. Previous sections explained which strategies exist to reduce the consequences of late deliveries. In both cases, interviews with purchase managers, supply chain managers, material planners, supply chain planners will be conducted to investigate the applied strategy to deal with delivery lateness of suppliers. The interviews with suppliers in step 3 and 4 will be combined to reduce the effort demanded from the suppliers.

The interviews with employees in both companies will be recorded and outlined. After the outline of the interview, the interviewee has to read the outline and can accept, reject or make some comments on the outline. If it seems that, after an interview, some issues are not very clear to the researcher, an e-mail will be sent to the interviewee to ask some additional questions.

The interviews will be done with semi-structured questionnaires, which can be found in Appendix A. With the help of questionnaires, the collection of information of different subjects will be secured. The questionnaires are semi-structured because than the interviewees can come up with own stories and additional information which can be relevant for the research. With open questions, the researcher can ask more in-depth questions about a certain topic, if it is required. The questions which will be asked go about the actual situation with respect to the lateness of supplier, about the power distribution between the buyer and supplier and the current supplier policy. Beforehand the questionnaires will be send to the interviewee, so he/she can prepare his/her self. Furthermore, before each interview, the interviewer formulated goals for the specific interview. During the interview, the interviewer can ask additional question to ensure all the goals of the interviews are reached.

3.3 Measures and instruments

The power will be measured on a scale from one until seven to compare the power distributions in the six buyer-supplier relationships. If the power is one, the supplier has the power. If the power is seven, the buyer has the power. The power is measured based on different aspects of power, which are described in the literature section (section 2.3.2).

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organization. Employees in different levels of the organization have different views on the delivery lateness of suppliers. Through doing pilot tests with fellow students, the semi-structured questionnaires are tested whether the questions give the required information.

3.4 Data analysis

The collected data exists of numerical and textual data. From both the numerical and the text data, the data will be visualised in a display of data. From this display simple conclusions can be drawn. A display can exists, but not limited to, of flow charts, lists of supply disruptions, conclusions from numerical data, graphs and networks. After all the data is arranged, data from different perspectives can be compared to see if there are any notable things.

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4. Case descriptions

This study researches two companies. This section describes the two companies briefly. To ensure secrecy, the researched companies are called Company X and Company Y. In each case, three suppliers will be investigated. These suppliers of Company X and Company Y are called Supplier X1 – X3 and Y1 – Y3

4.1 Company X

Company X is a manufacturer of paints and coatings for both private and industrial use. This manufacturer is part of a large multinational. The process of the company starts with a certain demand of a customer. The R&D department develops the products, which is demanded by customers. The R&D department determines how the products need to be produced and which raw materials and its specifications are required. In addition, the R&D department also determines which suppliers are able to deliver the raw materials with these specifications. The purchasing departments make agreements with suppliers, under which conditions they have to deliver the raw materials. After the agreements are made with these suppliers, the department of material announce orders at the suppliers. The supplier has to deliver under the conditions that are made with the purchasing department of company X.

Company X produces both on customer order and on stock. In general, large production orders for industrial use are mainly produced on order. Production orders for private use are mainly produced on stock. After the production process of paints and coatings at company X, the products are transported to a central distribution centre or directly to the customer. The products, which are produced on inventory, are stored in the central distribution centre. The most important goods are the packing material. Without packing material, no paints or coatings can be produced. Other important supplies are the raw materials of the paints and coatings.

In general, Company X does not switch to an alternative supplier without a serious reasons, independent on the power distribution. If a certain supplier delivers structural too late, Company X first tries to reduce the lateness of the supplier externally by collaboration with the supplier. Company X builds on long-terms relationships with suppliers

4.2 Company Y

Company Y is a company that paint parts, which are placed on trucks such as roof-spoilers or cab-corners. The purchasing department makes agreements with suppliers under which conditions they need to deliver the materials. These conditions are both logistical and technical conditions. The suppliers are continuously assessed on these conditions.

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To manage supplier, Company Y makes use of an escalation model (figure 4). Company Y measures logistical and technical/qualitative parameters of the supplier. The logistical parameters are delivery reliability, shortages, insufficient communication and EDI deviations. The technical qualitative parameters are technical mistakes, potential delivery or production stops, no trustworthy solution and reoccurring of the problem. If one of these parameters increases in a negative sense, Company Y can decide to escalate the problem to a higher level. If a problem is escalated to a higher level, the supplier has to react within 24 hours how to solve their problems. In addition, there will be a meeting with suppliers to discuss how the problems can be solved. If the problems are solved, the problems will be de-escalated to a lower level. If it seems the problems are not solved after this escalations level, the problems will be escalated to level two. In this escalation level, the focal company and the supplier work more closely together to solve the problems. In the last escalation level, the sourcing manager can make a commercial decision on what to do with this supplier. An example of a commercial decision could be to source at alternative suppliers.

As already mentioned, Company Y uses this escalation model to assess every single supplier. The power distribution between buyer and suppliers do not influence this model. In the last phase of the escalation model, the power distribution between buyer and supplier plays an important role. In the last phase, the sourcing manager has to make a commercial decision about what to do with a certain supplier. Options may be holding inventory, dual sourcing, insourcing, or re-negotiation with supplier. For example, if there are no alternative suppliers, the sourcing manager can decide to stay at the same supplier or to insource the activities of the supplier.

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5. Results

This section provides the results of this research. Since this study is based on two cases in which each three relationships between buyer and supplier are investigated, this results section presents six relationships. In the previous section a description of the two cases are given. In this section, the results of the two cases are presented. In each case, the results of the three relationships are presented separately.

5.1 Results Company X

5.1.1 Supplier X1 (suppliers’ power)

Suppliers’ power Balanced power Buyers’ power

1 2 3 4 5 6 7

The power distribution is determined by two factors. The first factor is that the total expense to this supplier is very low, which means Company X is not a very important customer for this supplier. Supplier X1 does not have any priorities to deliver to Company Y because they do not earn much money on this customer. Probably Supplier X1 earn more money if they deliver other customers. Miller (1992) defines this as the opportunistic behaviour of a monopolistic supplier.

The second factor that determines the power is uniqueness of the raw material. This supplier delivers raw material, which cannot be delivered by other suppliers. The purchasing requested the R&D department to develop a substitutive raw material for the end- product. However, the total spent at this supplier is too low to find substitutes. The R&D department has many other, more important, things to do first before they have time to find a substitute for this product. If the company needs to use this product, they order the products as early as possible. In addition, than they are not sure the raw materials are still on time. In the latter case, the production plan will be changed and the customer needs to wait longer on their products. Company X is very dependent on supplier X1. Company X is not able to influence this supplier, because supplier A does not prefer to deliver Company X. In other words, Company X has to deal internally with the delivery lateness of Supplier X1 by increasing their inventory levels.

5.1.2 Supplier X2 (balanced power)

1 2 3 4 5 6 7

The power between Company X and supplier X2 is balanced, because the time, effort and money required to order at another supplier are high. The switching costs for Company X are high to order at other suppliers. In addition, the risks associated with this supplier are high because if the supplier is not able to deliver on time, the final products of the company can also not be delivered to their customers. Delivering a can without label is not allowed and not an option.

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In the past, Company X used pre-labelled cans to pack the final products. Nowadays, the company uses white cans with separate labels. Since the method of labelling changed, the demand of labels increased strongly because more labels are ordered. The supplier of the labels was not able to deliver on time in such large quantities

After consultation with Supplier B, it seemed the supplier was not able to react timely on the orders from Company X. The supplier was not able to deliver such huge quantities in the same lead-time. The solution to this problem was to use Vendor Managed Inventory (VMI). In VMI, the supplier takes responsibility for the inventory at the point of sale (Skjott-Larsen, et al., 2007). The ICT-systems of both companies are integrated such that the supplier can react in an early stage on the production planning of the company.

5.1.3 Supplier X3 (buyers’ power)

1 2 3 4 5 6 7

Supplier X3 delivers packing material to Company X. The power distribution between Company X and supplier X3 is determined by different factors. Company X is a relatively big customer for supplier X3. Furthermore, there exist three or four potential alternative suppliers, which can deliver the same materials in such huge quantities. On the other hand, packing materials are critical in the production process of Company X. If there are no packing materials available, the production process stops. The latter factor is the reason why the buyer does not have the absolute power in the buyer-supplier relationship.

The strategy of Company X to deal with the delivery lateness was to collaborate with supplier X3. In consultation with each other, both companies are able to react on potential delivery disruption in an early stage. An example is the communication of forecasts from Company X to supplier X3. Company X communicates the forecasts earlier and clearer to Supplier X3. Therefore, Supplier X3 is able to respond earlier on potential supply disruptions and anticipate earlier on higher demands.

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5.2 Results Company Y

5.2.1 Supplier Y1 (suppliers’ power)

1 2 3 4 5 6 7

In the past, an independent supplier Y1 delivered the parts, which now are produced by Company Y, to the European truck assemblers. Supplier Y1 was a very powerful supplier because there was no alternative supplier who was able to deliver in such large quantities. In addition, the costs of insource the activities of the supplier were relatively large. Therefore, the power distribution is quantified as a one.

Because of the suppliers’ absolute power in the buyer-supplier relationship, the suppliers’ deliveries were not on time and many technical problems with the deliveries existed. Besides this, the supplier asked more money for their products because of increasing quantities and no alternative supplier existed. After the phases of the escalation model, the supplier performed not according the norms of Company Y, so the sourcing manager had to make a commercial decision.

The sourcing manager decided to insource the activities of this supplier, which resulted in a subsidiary company. Company Y built a new production facility to deliver the European truck assemblers. The investment of building such a large production facility was large, but the benefits of this solution are huge. The benefits are more flexibility, lower costs, increased quality and less dependency.

5.2.2 Supplier Y2 (balanced power)

1 2 3 4 5 6 7

Supplier Y2 is the supplier of the truck-parts with a primer coat. The power is determined by the amount of alternative suppliers. There are only a few alternative suppliers, which can deliver in such huge quantities. Furthermore, the products delivered by supplier Y2 are critical products for Company Y. Without these products, the production process stops.

Supplier Y2 has many technical and qualitative problems with delivering the parts with the basic coat. Because of the technical and qualitative problems, Supplier Y2 delivers structural too late. Supplier Y2 delivers the orders too late or delivers the order in too small quantities. Since Company Y wants an inventory of three days of raw material, the material planners only can order more frequently with smaller quantities to be sure the production line do not stop because of shortages of raw materials.

The material planners are continuously in consultation with Supplier Y2 to solve potential problems in an early stage. If some potential problems in the delivery of parts are detected, the material planners can take action to solve these problems. By sharing information about production schedules of the supplier and the required quantities of Company Y in an early stage, the supplier is more able to reduce their delivery lateness to Company Y.

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materials (Warren, 1992). Since the activities are not the core business of Company Y, a disadvantage is the costs of executing the activities of the supplier.

5.2.3 Supplier Y3 (buyers’ power)

1 2 3 4 5 6 7

Supplier Y3 is not an explicit supplier because Company Y has many suppliers where buyer has the power in the buyer-supplier relationship. Company Y has many suppliers which are quite small and which are not critical suppliers. Nevertheless, these suppliers also need to deliver on time. If these suppliers do not deliver on time, Company Y applies the steps in the escalation.

In the first two steps, the intention is to collaborate to reduce the lateness of the suppliers. Company Y can do this in various ways. An example is to help the supplier financially to deliver on time. In times of economic crisis, it occurs suppliers are in financial problems. The company does not want this supplier goes bankrupt because of supply risks. Than the company supports the supplier financially to make sure the supplier do not goes bankrupt and company Y ensures themselves the parts of the supplier are still delivered. Another way to help suppliers is to order more frequently. In practice, it is for a supplier easier if a buyer orders more frequently in smaller quantities than vice versa. In case of buyers’ power in the buyer-supplier relationship, Company Y first tries to reduce the delivery lateness of suppliers to collaborate with the supplier. This can be done in various ways, as already explained in this section. 5.3 Overview results Overview results Suppliers' power Balanced power Buyers' power Company X X1: C2 X2: R2 and R3 X3: R2

Company Y Y1: R4 Y2: R4 R2 Y3: R2

R = Reducing lateness externally C = Coping with lateness internally

Table 4: Overview results

Table 4 gives an overview of the results of this study. This table distinguish between reducing lateness externally (R) and Coping with lateness internally (C). The meaning of the codes can be found in the theoretical framework.

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6. Discussion and Conclusion

This section discusses the results presented in the previous section. The results of this study are summarized in table 4. First, this section discusses the results of the study. After the discussion, the main conclusions of this research are drawn. At the end of this section, limitations and suggestions for further research are presented.

Normally, Company X and Company Y first try to reduce the delivery lateness externally because otherwise the company needs to increase, for example, their inventory levels to catch the delivery lateness of their suppliers or the company needs to change the production plans, like supplier X1. The intention of both Company X and Company Y is to reduce the delivery lateness of suppliers externally, independent on the power distribution in the buyer-supplier relationship. In addition, the intention of the suppliers is to reduce their delivery lateness by collaboration with the buying company.

If it seems the reduction of delivery lateness externally is not possible, the power distribution between buyer and supplier starts playing a role. If the buyer has the power in the buyer-supplier relationship, the buyer-supplier has no choice to collaborate with the buying company. For example, supplier X3 is forced by Company X to increase their inventory levels of finished products. Company X ensured themselves of on-time deliveries of supplier X3. If the supplier has the power in the buyer-supplier relationship and the supplier refuse to reduce their delivery lateness, the buyer has to cope with the delivery lateness of the supplier internally by increasing inventory levels or changing production schedules. An example is the relationship between Company X and Supplier X1. In this relationship, Supplier X1 has the absolute power and is able to force Company X. In this relationship, Company X had to increase inventory levels, change of production schedules and/or waiting on the raw materials.

An option of reducing the delivery lateness of suppliers externally is to collaborate more with suppliers. An example is Supplier X2 of Company X. These two companies reduced the delivery lateness of supplier X2 by collaborate more and share information through ICT integration. This is in concurrence with the research of Nyaga and Whipple (2011) in which they proved the relationship between a supplier and a customer becomes increasingly important to achieve a sustainable competitive advantage. The collaboration between a buyer and supplier is becoming more and more important to stay or to become competitive towards customers (Nyaga & Whipple, 2011).

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availability of substitutes. In the six researched relationships, different aspects determine the power distribution between the buyer and the supplier. Since many aspects determine the power distribution in the buyer-supplier relationship, companies may apply several strategies to increase their power in the buyer-supplier relationship. For example, a company can spread risk by having multiple customers in various market segments. Then the company is not depending on only one customer, which increases their power position. Another strategy may be for a supplier to increase the switching costs to another supplier. For example, a supplier delivers a unique product, which is difficult substituted by another product. Than the switching costs will rise which influence the power position of the supplier.

6.1 Conclusion

In most of the cases, both buyers and suppliers are open to collaborate with each other, independent on the power distribution in the buyer-supplier relationship. This study shows that in five of the six relationships both the buyer and supplier are open for collaborations with each other. This is in concurrence with results of other researches, which say that collaboration with other companies is always the best option (Frohlich & Westbrook, 2002; Childerhouse & Towill, 2011). If both companies, the buyer and the supplier, are open to collaborate, than power starts playing a role. The way in which the companies collaborate is depending on the power distribution in the buyer-supplier relationship. If the buyer has the power, the buyer determines how the two companies collaborate. If the supplier has the power, the supplier determines how the two companies collaborate.

In case of absolute supplier power, where the supplier has no priority to deliver the buyer, the buyer has to cope internally with delivery lateness of the supplier. In case of absolute supplier power, the suppliers are not open to collaborate with the buying company.

In case of a supplier, which delivers too late or too early, Company X and Company Y always first should collaborate (R2) with the supplier to reduce the lateness of the supplier. Both the buyer and the supplier may cause the delivery lateness of the supplier. For example, Company X and Supplier X3 are both responsible for the delivery lateness of the supplier. After consultation with each other, only some small changes in the information exchange between the two companies resulted in serious improvement in the reduction of delivery lateness. This relationship showed that only small changes might result in big improvements. The costs of these changes can be neglected.

In case of absolute power of the supplier and this certain supplier is not open to collaborate with the buying company, Company X and Company Y have to cope with the delivery lateness internally by holding inventories or finding, for example, substitutes.

6.2 Further research

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suppliers, which can influences the timeliness of the suppliers. Supplier which are more nearly located to the manufacturing company, are less sensitive for disruption than companies which in another continent.

A second suggestion for further research is the way in which manufacturing companies organized their production facility, influences the strategy to deal with delivery lateness of suppliers. For example, Company X produces both on order and on inventory. Company X uses both a push and a pull system. In general, a push strategy requires more inventories throughout the supply chain than a pull strategy. A pull system is most of the time delivered on time, which means these are more sensitive for delays of deliveries.

6.3 Limitations

This study is executed with the highest possible reliability. Nevertheless, there are some limitations related to this study. The first limitation is the way in which the power distribution is investigated. The power distribution is investigated from only one perspective, the buyers’ perspective. Company X and Company Y supplied information about their strategies towards suppliers. This information is confidential information, which means the researchers are not allowed to interview the suppliers.

The second limitation of this study is the way that the power distribution is measured. Measuring power is a difficult process because researchers have to deal with subjective opinions of employees. Different employees in both companies have different perspectives on the power distribution in the buyer-supplier relationship.

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Appendix A: Questionnaires

Interview Supply chain manager Interview targets

Doel1: Inzicht krijgen in het huidige (productie)proces

Doel2: Selecteren van leveranciers met delivery lateness en verschillende machtsverhoudingen

Doel3: Hoe wordt er omgegaan met delivery lateness of suppliers

Introductie

Aanname: elk productiebedrijf heeft te maken met leveranciers die te laat, dan wel te vroeg, leveren. In theorie wordt dit de ‘lateness of delivery’ genoemd.

Onderscheidt gemaakt tussen twee strategieën om hiermee om te gaan:

1. Intern de variatie in lateness opvangen. Voorbeelden hiervan zijn het houden van extra voorraden of frequenter bestellen

2. Extern de lateness reduceren door bijvoorbeeld meer samen te werken met leveranciers (planning), herinrichting van de supply chain of verticale integratie. De keuze van de strategie is mede afhankelijk van de macht in de supply chain. De macht kan liggen bij de leverancier, bij de koper (Akzo) of de macht is gebalanceerd.

De volgende hoofdvraag wordt beantwoord:

“What is the influence of power on the strategy to deal with delivery lateness of suppliers?” De hoofdvraag wordt beantwoordt door het onderzoeken van drie verschillende leveranciers met verschillende machtsverhoudingen die te laat leveren of in het verleden te laat hebben geleverd.

Interview

Algemeen

1. Kunt u het proces beschrijven vanaf inkoop tot aan aflevering aan klanten? 2. Wat is in dit proces uw functie?

3. Hebben jullie een beleid m.b.t. de leveranciersbetrouwbaarheid? Zo ja, kunt u deze uitleggen?

4. Wat zijn voor Akzo belangrijke vereisten waar een leverancier aan moet voldoen? (kwaliteit, snelheid, betrouwbaarheid etc.)

5. Wanneer levert een leverancier volgens jullie te laat, dan wel te vroeg? Welke eisen stellen jullie aan de tijdigheid van leveranciers?

6. Werken jullie met een bonus-malus systeem?

7. Wat kunnen intern de gevolgen zijn van te late leveringen?

8. Hoe gevoelig zijn jullie voor late leveringen? Hoeveel kan een leverancier te laat zijn, zonder dat dit gevolgen heeft voor het productieproces?

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10. Wat zijn intern de mogelijkheden om lateness van leveranciers op te vangen?

(Bijvoorbeeld: het houden van extra voorraden, planningen wijzigen, bestellen bij een andere leverancier.)

Leveranciers selectie

Selecteren van leveranciers die in de huidige situatie of in het verleden te laat leveren of hebben geleverd. Deze drie leveranciers zullen in de volgende interviews ook centraal staan.

Macht leverancier Gebalanceerd Macht koper

1 2 3 4 5 6 7

Naam leverancier Machtsverhouding (1-7) Belang (Kraljic)

Vragen m.b.t. de geselecteerde leveranciers.

1. Hoe kunt u de machtsverhoudingen verklaren?

2. Kunt u het belang van de geselecteerde leveranciers verklaren? 3. Hoe kan de relatie met deze leveranciers omschreven worden?

4. Wat is gedaan met de ‘lateness’ van deze leveranciers? Welke strategieën zijn toegepast? (Intern omgaan met lateness of de lateness reduceren?)

5. Was de toegepaste strategie een succes? Met andere woorden, zijn de gevolgen van de delivery lateness verminderd?

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Interview Buyer raw & pack

Interview target

Doel1: Selecteren van verschillende leveranciers met verschillende machtsverhoudingen Doel2: Hoe wordt er omgegaan met onbetrouwbare leveranciers.

Doel 3: wat is de invloed op de verschillende leveranciers?

Introductie

Algemene vragen

1. Kunt u het inkoopproces beschrijven? 2. Wat is in dit proces uw functie?

3. Hoe ziet het huidige inkoopbeleid eruit? Waarop worden bijvoorbeeld leveranciers geselecteerd?

4. Hebben jullie een beleid m.b.t. de leveranciersbetrouwbaarheid? Zo ja, kunt u deze uitleggen?

5. Wat zijn voor Akzo belangrijke vereisten waar een leverancier aan moet voldoen? (kwaliteit, snelheid, betrouwbaarheid etc.)

6. Wanneer levert een leverancier volgens jullie te laat, dan wel te vroeg? Welke eisen stellen jullie aan de tijdigheid van leveranciers?

7. Werken jullie met een bonus-malus systeem?

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1 2 3 4 5 6 7

Naam leverancier Machtsverhouding (1-7) Belang (Kraljic)

Vragen m.b.t. de geselecteerde leveranciers.

1. Bent u het eens met de machtsverhoudingen en het belang van de geselecteerde leveranciers?

3. Kunt u het belang van de geselecteerde leveranciers verklaren? 4. Hoe zou u de relatie omschrijven met de geselecteerde leveranciers?

5. Wat is gedaan met de ‘lateness’ van deze leveranciers? Welke strategieën zijn toegepast? (Intern omgaan met lateness of de lateness reduceren?)

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Interview Materiaalvoorziening Interview target

Doel1: hoe wordt intern omgegaan met delivery lateness van suppliers Doel2: Verschil in omgang met de geselecteerde leveranciers.

Introductie

Algemene vragen

1. Kunt u uw functie omschrijven?

2. Wanneer levert een leverancier volgens u te vroeg/te laat? Wat zijn de grenzen 3. Wat zijn de gevolgen als een leverancier te laat/te vroeg levert?

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1 2 3 4 5 6 7

Naam leverancier Machtsverhouding (1-7) Belang (Kraljic)

1. Bent u het eens met de machtsverhoudingen en het belang van de geselecteerde leveranciers?

3. Kunt u het belang van de geselecteerde leveranciers verklaren? 4. Hoe zou u de relatie omschrijven met de geselecteerde leveranciers?

5. Wat is gedaan met de ‘lateness’ van deze leveranciers? Welke strategieën zijn toegepast? (Intern omgaan met lateness of de lateness reduceren?).