The impact of power and supply chain integration on sustainability requirements

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The impact of power and supply chain integration on

sustainability requirements

a supplier´s perspective

Master’s Thesis Supply Chain Management

University of Groningen, Faculty of Economics and Business

JANUARY 24

TH

, 2014

ROBERT SIEPELINGA

Student number: 2223600

E-mail: robertsiepelinga@hotmail.com

ABSTRACT

Sustainability nowadays gained substantial attention in literature. Many researchers have investigated the positive effect of sustainability on organizational performance. However, researchers mainly investigated effects of sustainability from the perspective of the buyer, which makes that the perspective of the supplier is still largely unknown. This study investigate the effects of power and supply chain integration on the acceptance of sustainability requirements from the perspective of the supplier, based on data collected by the IMSS. The results reveal that supply chain integration has a positive effect on the acceptance of sustainability requirements of the supplier. Furthermore, in contrary with conventional thoughts that the power of supplier has a negative effects on the supplier acceptance, this study shows that the power of a supplier do not has any effect on their acceptance of sustainability requirements.

Keywords: Sustainable supply chain management, Power distribution, Supply chain integration, Supplier perspective

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Introduction

Research about the buyer-supplier relationship in the supply chain area has gained substantial attention in the last 20 years (Terpend, Tyler, Krause, & Handfield, 2008). However, there is still a lack of empirical research on this relationship from the perspective of the supplier (Jørsfeldt & Wæhrens, 2013; Krueger & Kmeger, 2008; Saccani & Perona, 2007). Because of this, academics and practitioners do not know how suppliers will react when new operational management issues are implemented. This can be noticed in the example of the pig industry in the Netherlands. Because the retail set new regulations, pig-farmers need to meet new sustainability requirements. However, additional costs make that the pig-farmers collaborate and refuse to meet the new requirements. Because of the collaboration, they get more power in the relationship. As a result, the retailers cannot use their power to force their suppliers to meet the requirements. Instead, they have to seduce the sector to increase the sustainable processes. This can lead to an increase of costs and a decrease of the buyer’s commitment (Boerenbusiness, 2013; Brown, Lusch, & Nicholson, 1995). From this example, it seems that the power distribution between the buyer and supplier has an influence on the reaction of the supplier when new operation management issues are implemented. This is proven in literature, where researchers emphasized that power is the heart of all business-to-business relationships (Cox, 2001). Because the new operational management issue ‘sustainability’ is gaining attention in practice and literature (Boston & Classroom, 2012), we need to investigate how suppliers deal with the sustainability requirements set by their buyers to ensure a sustainable supply chain. Furthermore, we need to understand how this decision of the supplier is affected by the power distribution in the relationship. In that way, academics and practitioners will have increased understanding how suppliers will react on sustainability requirements and how a sustainable supply chain can be reached with as little as possible misconceptions between buyer and supplier.

A substantial number of empirical studies in supply chain management show a link between the sustainable supply chain and it’s positive effect on organization performance (Ciliberti, Pontrandolfo, & Scozzi, 2008; Gupta, 1995; Saccani & Perona, 2007; Theyel & Hofmann, 2012). For buyers, this positive effect is proven by many authors (e.g. Gadde & Håkansson, 1993; Jørsfeldt & Wæhrens, 2013; Krause, Handfield, & Tyler, 2007; Terpend et al., 2008). These authors assume that suppliers will accept the sustainability requirements of their buyers because of the positive effect on their performance. However, it is not yet researched how the supplier reacts on these sustainability requirements (Jørsfeldt & Wæhrens, 2013). As can be noticed from the pig-farmer example, power seems to play a vital role how the supplier will react on new requirements like sustainability. Various researchers investigated the role of power in the buyer-supplier relationship and acknowledged that power has a great impact on the organizations performance and decision making process (e.g. Burt, 1983; Pfeffer & Salancik, 1978). The use of power is however often seen as misuse, which results in a decrease of partnership (Heide & Miner, 1992). Power can be defined as the ability of an organization to get another unit to do something that it would not otherwise have done (Dahl, 1957).

Besides the power distribution, using sustainable processes leads to a need of integration between buyer and supplier (Jørsfeldt & Wæhrens, 2013). Like sustainability, literature also shows a positive effect of supply chain integration on organizational performance (Hallstedt, Ny, Robèrt, & Broman, 2010). It is even assumed that organizations should pursue maximum supply chain integration to achieve a maximum outcome (Frohlich & Westbrook, 2001). Supply chain integration reduces transaction costs of producing and distributing goods and services and increases revenue by reducing uncertainties (Maloni & Benton, 2000).

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conclude that it is difficult to set up a sustainable supply chain. A recent research by Jørsfeldt & Wæhrens (2013) on sustainability requirements related to the buyer’s perspective found that there is a lack of research of supply chain management from a supplier’s perspective. They recommend future studies to investigate the relationship from this perspective. This study will follow these recommendations, and investigate how the supplier copes with the sustainability requirements in different power distributions and supply chain integration levels.

This study extends the academic literature by improving the understanding of the effects of power and integration on the sustainability requirements from a supplier’s perspective. As described, this perspective yet received little attention in academic literature. The research question of this research is therefore:

Does the power distribution and supply chain integration effects the acceptance of suppliers to deal with sustainability requirements?

Besides the relevance for academics, the insights provided by this research could be helpful for practitioners as well. By offering an insight in the way suppliers deal with the sustainability, buyers can use this knowledge while negotiating with their supplier. Moreover, this study will provide an understanding of the action of suppliers in different power distributions. This can help suppliers to get an overview what their competitors will do. Finally, the insight of this study will help both supplier and buyer to ensure a sustainable supply chain.

In this paper, a quantitative data analysis is used. Quantitative research is a proper research method to use to come up with some general evidence about new developments(Brandon-Jones & Slack, 2008). We will test hypotheses based on data derived from an international study of manufacturing strategy (IMSS 2014). The IMSS data is tested on internal- and external validity and reliability by using factor analysis and reliability analysis in SPSS. Multi-item constructs were set-up to ensure a more reliable test. To test whether the power distribution and supply chain integration has an effect on how the supplier deal with the sustainability requirements, linear regression is used.

The structure of this article is as follows: The second chapter presents the theoretical background, hypotheses and conceptual model. Chapter three describes the methodology. In chapter four subsequently the results are presented. The last chapter, chapter five, will outline the conclusion and discussion of the study, followed by the limitations and implications for future research.

2. Theoretical background

This section outlines the theoretical foundation of this study by discussing the academic literature. Firstly, sustainable supply chain management will be analyzed to get an overview of the field we work in and the governance mechanisms that are applied to manage a sustainable supply chain. Secondly, the impact of the power distribution and supply chain integration on the buyer-supplier relation will be analyzed. Finally, hypotheses, and the conceptual model will be provided.

2.1 Sustainable supply chain management

In this sub-section we will elaborate the foundation of sustainable supply chain management and the use of governance mechanisms to manage a sustainable supply chain.

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Josiassen, & Cvelbar, 2012). To be sustainable, many organizations already redesigned their products and processes. However, the next step should be to involve the whole supply chain. The focus on a sustainable management and operation is therefore moving from a local perspective towards a supply chain perspective (Linton, Klassen, & Jayaraman, 2007; Seuring, Sarkis, Müller, & Rao, 2008). This is called Sustainable Supply Chain Management (SSCM) (Pagell & Wu, 2009). SSCM can be defined as “the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key inter organizational business processes for improving the long-term economic performance of the individual company and its supply chains” (Craig R. Carter & Rogers, 2008, p. 9).

Governance mechanisms can be used to manage the SSCM. Governance mechanisms are mechanisms used by organizations to manage their relationship with their buyer/supplier aiming to improve their performance (Giménez & Sierra, 2013). In this paper, we focus on how suppliers deal with the sustainability requirements set by their buyers. We thus focus on the buyer’s purchasing requirements. As Pagell & Wu (2009) argue, the best two practices to ensure sustainable purchasing are ‘collaboration’ and ‘certification’. Therefore, we use these two practices as governance mechanisms for SSCM from the perspective of the supplier. Collaborated relationships among supply chain actors are based on information sharing to increase efficiency and synergistic (Ramanathan, 2014). These relationships are identified as a vital strategy to gain maximum profits (Bleeke & David, 1993), and are commonly informal (Fletcher et al. (2009). Certification is one of the few areas where the pillar ‘social’ is addressed (Pagell & Wu, 2009). For example concerning child labor and working conditions. Risk of not using proper working conditions are for example reputational damages and costly legal obligations (Carter & Jennings, 2004). The most commonly used certifications for sustainability are ISO 14000 and OHSAS 18000. ISO 14000 is more and more used in industries (Lagodimos, Chountalas, & Chatzi, 2007). It is “the family of management standards created by the ISO to guide managers in the development of best practices of environmentally conscious policies and practices” (Gavronski, Ferrer, & Paiva, 2008, p. 89). Benefits of ISO 14000 include the reduction of raw material, reduction of energy consumption, improved process efficiency, reduction of water usage and the utilization of recoverable resources (Gavronski et al., 2008). Besides ISO 14000, the Occupational Health and Safety Assessment Series (OHSAS) 18000 is commonly used as certification for safety management processes at a firm level (Granerud & Rocha, 2011). OHSAS 18000 is “a response to urgent customer demand for a recognizable occupational health and safety management system standard against which their management systems can be assessed and verified” (British Standard Institution, 1999). It helps to minimize risk and gain assurance to employees. It is written by a number of world’s leading national standard of bodies, certification bodies and specialist consultancies (OHSAS 18001 Occupational Health and Safety Zone, 2007).

From the foregoing, we can conclude that, from a supplier’s perspective, the governance mechanisms collaboration and certification can be used to manage a SSCM. We use these two governance mechanisms to measure the sustainability requirements. Because differences in power distributions and supply chain integration levels affect how organizations deal with sustainability requirements (Shou, Feng, Zheng, Wang, & Yeboah, 2013), the next sub-section elaborate the effects of these two governance mechanisms on buyer-supplier relationships.

2.2 Buyer-supplier relations

As mentioned, the buyer-supplier relationships are often affected by supply chain integration and the power distribution. In this sub-section, we elaborate the influence of these two governance mechanisms in the buyer-supplier relationship.

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Sherman, Souder, & Jenssen, 2000; van der Vaart & van Donk, 2008). Supply chain integration can be defined as “the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organizational processes, in order to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer.” (Flynn, Huo, & Zhao, 2010, p. 58). The rationale behind supply chain integration is to effectively deliver products to the market (Frohlich & Westbrook, 2001) by removing boundaries like materials, cash, resources and information, forming a win-win situation (Naylor, Mohamed, & Berry, 1999). By developing a high level of supply chain integration, manufacturers are able to eliminate non-value added activities and strengthen their delivery reliability and product quality (Rosenzweig, Roth, & Dean Jr, 2003). Achieving supply chain integration, however, is a complex task. Strategies of organizations have to be adjusted based on the flow from actors to the final customers and encompass an array of external as well as internal organizational changes (Kim, 2009). This leads to a synchronization of the core competencies and capabilities of all organizations concerned (Stank, Keller, & Daugherty, 2001). Although the complex task organizations have to achieve supply chain integration, it will help actors for implementing new supply chain practices (Kim, 2009) and the developing of new products and processes (Eisenhardt & Tabrize, 1995).

The second variable that affects the buyer-supplier relationship is the power distribution between buyer and supplier (Cox, 2001; Shou et al., 2013). When power is used incorrectly by one of the actors of the relationship, unproductive partnership can occur (McDonald, 1999), with exploitation rather than cooperation as result (Heide & Miner, 1992). This can be noticed in the example of Wal-Mart, described by Fishman (2003). Because for small manufacturers Wal-Mart is their biggest customer, they were forced to go along with the low price Wall-Mart is offering. The small suppliers went bankrupt because of the low prices Wal-Mart pays for their purchased products. Therefore, the argument of Cox (2001) that power can be seen as the heart of all business-to-business relationships seems to be valid. Many researchers studied the relationship between power and supply chain managements (e.g. Johnston, McCutcheon, Stuart, & Kerwood, 2004; McCarter & Northcraft, 2007; Zhao, Huo, Flynn, & Yeung, 2008) and found that the power of an organization is related to the resources an organization has (the Resource Based View) (Shou et al., 2013) and the complexity of the supply market (Kraljic, 1983). In this paper, we focus on the complexity of the market. As mentioned in the introduction, power is defined as the ability of one individual or group to get another unit to do something that it would not have done otherwise (Dahl, 1957). In order to gain more power, suppliers try to collaborate. A good example is that of Japanese buyers, who work together to create hierarchies of dominance with their suppliers. The Japanese buyers are afraid to be put under pressure to lower their prices as big companies like Wal-Mart, General Motors and Ford require by dominating the relationship with their suppliers (Mottner & Smith, 2009). By collaborating, the buyers are jointly of importance for the supplier and they can retain leverage over the supplier relationship (Crook & Combs, 2007). Cox (2001) argues that, based on the power distribution, four different relationships can be distinguished: Buyer’s dominance, Supplier’s dominance, interdependency and independency.

To summarize, the buyer-supplier relationship is affected by the power distribution and supply chain integration. Supply chain integration effects the relationship positively and provides the opportunity for implementing new practices and products. Power on the other hand has a negative effect on the buyer supplier relationship, where a misuse of power can decrease cooperation and productivity.

2.3 Hypotheses Development

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(Pagell & Wu, 2009). Where we are looking from the supplier’s perspective on the buyers sustainability requirements, these governance mechanisms are used in this paper to measure sustainability requirements. Because buyer-supplier relationships can affect governance mechanisms (Lumineau & Henderson, 2012), we conclude that there can be an effect between the power and integration on the two governance mechanisms. This sub-section starts with the hypotheses related to certification. Subsequently the hypotheses concerning collaboration are discussed. Finally, the conceptual models are provided (Figure 2.1).

Certifications are introduced to increase employee satisfaction (OHSAS 18001) and reduce costs by reducing wastes (ISO 14000). Some literature about the effect of the power distribution on certification of the perspective of the buyer is already known (Renard, 2005). Here we find that the power distribution of the buyer will not influence the decision the buyer will meet certification requirements. Furthermore, Renard (2005) assumes that from the supplier’s perspective there will be no effect either. Because no specific literature is known about the effect of power distribution at certification from the perspective of the supplier, we follow the assumption of Renard (2005). This lead to the following hypothesis:

H1: The power distribution has no influence on certification

Supply chain integration is the degree of integration with the partner in order to achieve effective and efficient flows of products and services (Flynn et al., 2010). It helps developing new products and processes (Eisenhardt & Tabrize, 1995), which are needed in the sustainable supply chain to ensure more sustainable processes and products (Prakash, 2002). Furthermore, there is a growing body of literature that identifies the positive relationship between supply chain integration and sustainable supply chain (e.g. Brindley & Oxborrow, 2013). Therefore, we can conclude that there is a positive effect between supply chain integration and the sustainability requirement. Specifically for certification, the definition of supply chain integration describes an increase of efficiency and effectiveness when organizations will integrate, which is also the aim of certifications (Gavronski et al., 2008). Because these two variables try to perform the same standards, and literature provide evidence that supply chain integration has a positive effect on sustainability practices, the following hypothesis is set:

H2: Supply chain integration has a positive effect on certification

Power and supply chain integration are two means through which supply chain partners build and manage their relationship. Shou et al, (2013) stated that power and supply chain integration play a crucial role in shaping a buyer-supplier relationship. They are components that exist simultaneously in supply chain relationships (e.g. Brown et al., 1995; Frohlich & Westbrook, 2001; Shou et al., 2013). Literature provide insights about the negative effect of power misuse (Yeung, Selen, Zhang, & Huo, 2009) and the positive effect of supply chain integration in buyer-supplier relationships (Hallstedt et al., 2010). Recently, however, research begins to address the interaction between power and supply chain integration in buyer-supplier relationships (Shou et al., 2013). Because power can be seen as the heart of all business-to-business relationship, and the misuse of power can discourage cooperation between buyer and supplier (He, Ghobadian, & Gallear, 2013; Yeung et al., 2009), the power distribution negatively affect the relationship. Therefore, we conclude that the interaction between power distribution and supply chain integration leads to a decrease of the relationship between buyer and supplier. Because a lower buyer-supplier relationship leads to lower acceptance from the actors concerned (Brown et al., 1995; Pfeffer & Salancik, 1978), we set the following hypotheses:

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H3b: There is a negative effect between the power distribution and supply chain integration on collaboration

It is already been discussed that power has a negative effect on the buyer-supplier relationship (McDonald, 1999). This negative effect is caused by misuse of power, which results in a decrease of commitment of the buyer (Pfeffer & Salancik, 1978). A decrease of commitment has a negative effect on the collaboration between supplier and buyer (Shou et al., 2013). Therefore, we can conclude that power has a negative effect on the collaboration. This will lead to the following hypothesis:

H4: The power distribution has a negative effect on collaboration

We define supply chain integration as the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organizational processes. Looking to this definition of Flynn et al. (2010), we can conclude that collaboration is needed in order to perform a supply chain integration. Furthermore, the positive effect of supply chain integration on sustainability requirements is already proven by literature (e.g. Brindley & Oxborrow, 2013). Because of this positive effect and the need of collaboration in supply chain integration, we set the following hypothesis:

H5: Supply chain integration has a positive effect on the level of collaboration

Figure 2.1. Conceptual models

In the following section, the methodology is provided, which is used to test the hypotheses.

3. Methodology

The purpose of this study is to examine, from the perspective of the supplier, if there are effects between the power distribution and supply chain integration on the sustainability requirements. From the foregoing, we noticed that we can use certification and collaboration as sustainability requirements. This section will elaborate how we test the hypotheses. First the research design will be given. After that, the unit of analysis, followed by the operational definitions and measurements. Finally, the validation of the construct is discussed.

3.1 Research Design

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study. This does not imply that there are no exploratory elements in this paper, where the results can direct future research towards additional hypotheses. Because there is little known about the perspective of the supplier in introducing sustainability requirements, we use a quantitative method to conduct this research (Brandon-Jones & Slack, 2008).

3.2 Sampling Design

For this study, survey data from the 2014 round of the International Manufacturing Strategy Survey (IMSS) were used to test the hypotheses. The IMSS is “a research network of business schools and assembly manufacturing firms, designing a common database and collecting data for the study of manufacturing management strategies and practices on both a global and national scale. The network was originally set up in 1992 by a group of 20 world-class business schools led by the London Business School (Great Britain) and Chalmers University of Technology (Sweden)” (The International Manufacturing Strategy Survey, 2013). The data gathering took place during 2013 in more than 30 countries. The mail survey research design of Dillman (1978) was followed to collect data from around 700 organizations. Unfortunately, during the process of this paper, not all of the data were available. Therefore, we only used the data collected from 49 Dutch organizations. From these 49 organizations, the respondents that had more than 30% missing values were already deleted.

Because no specific branch is mentioned in literature about the impact of the independent variables, we focused on all ISIC Divisions that are used in the IMSS survey. Moreover, when we used a subset of the data, there were not enough respondents per category to give a reliable analysis (see Table 3.1). Using all categories provides more reliable, and somehow generalizable, outcomes for manufacturing companies that are located in the Netherlands. The IMSS makes use of ISIC numbers 28 – 35. We can only use six of these ISIC numbers because the respondents were located in these ISIC Divisions (see Table 3.1).

Table 3.1: Industry classification

ISIC

number Descriptive Frequency Percentage

28 Manufacture of fabricated metal products, except machinery and equipment 22 43,1 30 Manufacture of office, accounting and computing machinery 5 9,8 31 Manufacture of electrical machinery and apparatus not elsewhere classified 13 25,5 32 Manufacture of radio, television and communication equipment and apparatus 4 7,8 34 Manufacture of motor vehicles, trailers and semi-trailers 2 3,9

35 Manufacture of other transport equipment 3 0,1

Total 51 100

3.3 Unit of analysis

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Figure 3.1. Unit of analysis

3.4 Operational definitions and measurement

The sufficiency with which a specific domain of content is sampled is represented by the content

validity. Content validity is judgmental and subjective. However, as Nunnaly (1978) argue, content

validity is often based on two standards, namely the instrument should contain a representative set of measures and sensible methods of scale construction should be used. In this paper, we operationalize four variables. All measures for the different constructs have been drawn from established measures or published research on similar subjects, which covered the representative set of measured. The method of scale is covered by using a 5-points Likert scale. Because these questions are based on a 5-Points Likert scale, the measures are concrete. Therefore, chances of measuring wrong interpretations are small, which increases the construct validity (Baarda & De Goede, 2006).

In Appendix A all corresponding survey questions can be found. Appendix B subsequently provide which question belongs to which item. For this paper, only the current state of the action program is used, because we want to test the effect on the sustainability requirements on one moment in time. The following operational definitions are used:

Power is measured based on the complexity of the market the supplier is located in (Grant, 1991).

The market complexity exist of the market entry, market concentration, the market span, the bargaining power of the buyers and the rivalry of the competitors (Cox, 2001; Grant, 1991; Pérez-Luño & Cambra, 2013). When the complexity of a market is high, the supplier has more power in that market (Cox, 2001; Kraljic, 1983). Although these items are commonly mentioned as items that affect the power of an organization (Cox, 2001; Grant, 1991; Kraljic, 1983), they are not commonly used in literature to measure the power of an organization. However, because of the effect of these items on the power distribution (Cox, 2001; Kraljic, 1983), we use these items in this paper to measure the power of the supplier.

Supply chain Integration is measured based on items that manufacturers commonly employ to

integrate their operations with suppliers and customers. These items are system coupling, international sourcing strategy and joint decision making. These items remove boundaries between organizations (Naylor et al., 1999). The more these items are applied, the more systems and processes are integrated, which increase the supply chain integration. Literature and practitioners often discussed these items as valid to measure the external integration (Ellinger, Daugherty, & Keller, 2000; Gimenez, Ventura, & Fabra, 2005; Narasimhan & Kim, 2002).

Collaboration is measured based on information sharing and developing of collaborative

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Certification is operationalized based on social certification (OHSAS 18000) and Environmental

certification (ISO 14000). The environmental certifications helps to increase the position and safety of the employees (Granerud & Rocha, 2011). The environmental certification help to reduce waste (Gavronski et al., 2008). These types of certifications are commonly discussed in literature as valid instruments for measuring certifications for sustainable processes and a sustainable supply chain (Gavronski et al., 2008; Granerud & Rocha, 2011; Kitazawa & Sarkis, 2000; Lagodimos et al., 2007; Longo, Mura, & Bonoli, 2005; Porter & Kramer, 2002; Vinodkumar & Bhasi, 2011).

The interaction effect between power and supply chain integration on the sustainability

requirements has been calculated as the product from power and supply chain integration, as suggested by Barron & Kenny (1986)

3.5 Validation of constructs

In order to extract multi-item constructs from the items, an exploratory factor analysis is conducted to test the data on validity and reliability (Flynn, Schroeder, & Sakakibara, 1995; J. Kim & Mueller, 1979). For adequate data, a minimum Kaiser-Meyer-Olkin (KOM) score of 0.50 is considered necessary to reliably use factor analysis. Scores over 0.80 are considered very well. The examination of the KMO value (0.694) indicates satisfactory adequacy for a factor analysis. To form factors, the principal component method with Varimax rotation is used (Soares, Bruns, & Scarminio, 2008).

4. Results

In this section, the results of the factor analysis and subsequently the tests of our hypothesis are provided.

4.1 Factor analysis

The results of the Factor analysis are given in Table 4.1. In total four factors emerged with eigenvalues greater than 1, accounting for 70.777% of variance. The factor loadings greater than 0,4 were seen as significant and were used in the factor analysis as argued by Nunnaly (1978). Only the item “system coupling with the key customers” has a cross loading that is larger than 0.4 (0.431) on another component. Considering that system coupling is closer related to the integration between buyer and supplier than the collaboration factor, we decided not to remove the item. In total, five items were removed from the initial item list because of their low factor loading value. Two of these items relate to power and three to integration (see Appendix B, first column). The Cronbach Alpha should be at least 70% for a satisfied consistency. A Cronbach Alpha over 80% is considered as good (Flynn et al., 1995; Nunnaly, 1978). Most Cronbach Alpha levels were satisfied with values above 0.70. The Cronbach Alpha of the variable power is 0.514, which imply that it is not reliable to use multi-item scales. Although the low Cronbach Alpha, we will use the multi-construct of power in this paper with the notification of a low Cronbach Alpha of the variable power. The use of a low Cronbach Alpha is supported by Sijtsnam (2009), who argue that Cronbach Alpha is a tool to measure the internal validity, but is not decisive in rejecting or accepting the multi-item construct. Therefore, we felt save to conclude that our measures are reliable.

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Table 4.1: Results of Components Analysis

Items

Factor

1 2 3 4

F1: Power: α= .514 (How do you perceive the following characteristics?)

Market span .662

Market concentration .781

Market entry .616

F2: Certification: α = .751 (Indicate the effort put into implementing the following action programs)

Environmental certification .849

Social certification .823

F3: Integration: α = .728 (Indicate the effort put into implementing the following action programs)

System coupling with key suppliers .816

Developing an international sourcing strategy .781

System coupling with key customers .431 .634

F4: Collaboration: α = .857 (Indicate the effort put into implementing the following action programs in the last three years)

Sharing information with key suppliers .835

Developing collaborative approaches with key

suppliers .814

Sharing information with key customers .741

Developing collaborative approaches with key

customers .852

Eigenvalue 4.506 1.582 1.346 1.059

Percentage of variance explained 37.552 50.733 61.949 70.777

KMO: .694

4.2 Testing Hypothesis

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Table 4.2: Univariate Statistics and Pearson Correlations among the variables

Variable Mean SD 1 2 3 4

1. Power 3.118 .788 ….

2. Integration 2.298 .841 .030 ….

3. Collaboration 2.804 .815 -.068 .640** …. 4. Certification 2.531 1.266 -.021 .407** .368* …. * Correlation is significant at the .05 level (2-tailed)

** Correlation is significant at the .01 level (2-tailed)

Table 4.3 and Table 4.4 present the results of the regression analysis. In the tables, the standardized regression coefficients are reported. Table 4.3 gives the analysis of hypothesis 1, 2 and 3a. Table 4.4 subsequently gives the analysis of hypothesis 3b, 4 and 5. The steps mentioned in the tables represents the different analyses. Step one represent the analysis between power and the sustainability requirement. Step two represent the analysis between integration and the sustainability requirement. Step three represent the interaction effect between integration and power on the sustainability requirement. Following these steps, it allows the quantification of the effect of the interaction term on sustainability requirements (Longoni, Golini, & Cagliano, 2014).

Hypothesis 1 predicted no effect between the power distribution and certification. As can be seen in Table 4.3, step 1, the power has no significant impact on certification (β=-.023; ns). This means that power do not have an effect on how suppliers will react on the certification requirements from their main buyer. This result supports Hypothesis 1.

Hypothesis 2 predicted a positive effect between supply chain integration and certification. As shown in Table 4.3, step 2, the supply chain integration has a significant relationship on certification (β=.407; P<.05). This means that for a variation of one on the Likert scale for supply chain integration, the effect on the acceptance of the supplier to implement certifications is .407 on the Likert scale higher. This result supports Hypothesis 2.

Hypothesis 3a predicted a negative interaction effect between the power distribution and supply chain integration on certification. As can be seen in Table 4.3, step 3, the interaction effect has no interaction effect on certification (β=-1.094; ns). So when power and supply chain integration change simultaneously, the acceptance of the supplier to meet the certification requirements will not change. This result rejects Hypothesis 3a.

Table 4.3: Results of Regression Analyses: Relation between Power and Integration on Certification

Steps Certification Variables 1 2 3 1 Power -.023 .567 2 Integration .407** 1.292* 3 Integration*power -1.094 R-square .001 .165 .211 Adj R-square -.023 .146 .153 F .023 8.721 3.645 Change in R-square .001 .165 .043 Change in F .023 8.721 2.249 Standardized regression coefficients are reported.

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Hypothesis 3b predicted a negative interaction effect between the power distribution and supply chain integration on collaboration. As can be seen in Table 4.4, step 3, the interaction effect has no significant effect on collaboration (β=-.973; ns). So when power and supply chain integration change simultaneously, the collaboration with the main buyer will not increase. This result rejects hypothesis 3b.

Hypothesis 4 predicted a negative effect between the power distribution and collaboration. As shown in Table 4.4, step 1, the power distribution has no significant relationship with the collaboration (β=-.068; ns). This imply that the power of the supplier does not affect the acceptance of the supplier whether they will collaborate with their main buyer. This result rejects Hypothesis 4.

Hypothesis 5 predicted a positive effect between supply chain integration and collaboration. As shown in Table 4.4, step 2, the supply chain integration has a significant relationship with collaboration (β=.640; P<0.001). This means that for every change of one on the Likert scale for supply chain integration, the acceptance for collaboration is .640 on the Likert scale higher. This result support Hypothesis 5.

Table 4.4: Results of Regression Analyses: Relation between Power and Integration on Collaboration

Steps Collaboration Variables 1 2 3 1 Power -.068 -.625 2 Integration .640*** -.128 3 Integration*power .973 R-square .005 .409 .675 Adj R-square -.019 .396 .416 F .200 30.457 11.430 Change in R-square .005 .409 .033 Change in F .200 30.457 2.521

Standardized regression coefficients are reported. Notes: *p<.05; **p<.01; ***p<.001

5. Conclusion and Discussion

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The findings are not totally in line with our expectations. Especially the power distribution deserve specific attention. Firstly, the results of Table 4.3 and Table 4.4 show no significant effect of power on the sustainability requirements. For certification, this was already suggested in literature, but for collaboration, literature suggest a negative effect (e.g. McDonald, 1999). Furthermore, the results of Table 4.3 and Table 4.4 show that the interaction of power and supply chain integration do not have any significant effect on the sustainability requirements, where literature gives arguments that the interaction between power and supply chain integration have a negative effect (Yeung et al., 2009). Both results imply that the power of a supplier do not affect the acceptance of the supplier on sustainability requirements. In addition, when the supplier is integrated with their main buyer, the power of a supplier do not has a significant effect of their acceptance of sustainability requirements. From this result, we can conclude that the Dutch suppliers with more power do not accept sustainability requirements different as suppliers with less power. This result is probably caused by the caution of the supplier because they are afraid that their main buyer will go to their competitor when they refuse to accept the sustainability requirements. In that way, they will not use their power against their buyer to refuse the requirements.

Secondly, although there is no direct or interaction effect of the power distribution on the sustainability requirements, we see two interesting results related to the interaction analysis. On the one hand, we see that the positive effect of supply chain integration on collaboration changed from significant to insignificant (see Table 4.4, step 3). On the other hand, the effect of supply chain integration on certification increases when there is an interaction with power (see Table 4.3, step 3). Although the interaction effect is insignificant, and we cannot provide a valid conclusion, it is surprising that these two results occur. It is, however, unclear why these results appear. Especially that one effect changed from significant to insignificant and the other effect increased. The increased effect of the integration on certifications can probably be explained on the rationale behind certification. Certifications are commonly used to show the public the level of sustainability a company has. Large organizations want that the public think they are sustainable and that they take care for their employees to reduce the change on reputational damage or costly legal obligations (Carter & Jennings, 2004). In that way, the requirements of the integrated main buyers can be used as trigger to implement certification requirements. This explanation is, however, only a suggestion. For the result of collaboration, we cannot find a suggestion why it occur. Future studies can explore in more detail the contrary results of these effects. We can however conclude that power do not have any direct significant relationship on the acceptance from the supplier of sustainability requirements.

These findings confirm that the lack of the perspective of the supplier in new management issues causing problems in practice. Where there is a lack of understanding of the perspective of the supplier, academics and buyers are not sure what suppliers will do when new management issues need to be implemented. These findings, therefore, provide various implications for practitioners and academics. For academics, this paper provide results that the power of a supplier do not have an effect on their acceptance of sustainability requirements. This result support the suggestions of Renard (2005) that power do not has an effect on the implementation of certification requirements, but reject the suggestions of many others, who argue the negative effect of power. Secondly, we noticed that literature already arguing that the supply chain integration has a positive effect on the implementation of new management issues from the buyer’s perspective (Brindley & Oxborrow, 2013). The outcome of this paper contribute to that body of literature, arguing that the supply chain integration has also a positive effect on the acceptance of sustainability requirements of the supplier perspective.

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supplier gained insights that other supplier not always use their power in negotiating with their main buyers about sustainable requirements. Suppliers that set boundaries can have a disadvantage when their competitor do not set boundaries. On the other hand, main buyers can use this knowledge in negotiating with their suppliers. They can threatening their supplier to switch to their competitors when the supplier set boundaries, where their competitors will not do this. This will help the buyer to gain a better negotiating position.

Finally, this research highlights two governance mechanisms of the sustainable supply chain not previously found in sustainable supply chain articles. These governance mechanisms are only applicable for research where the focus is on the supplier’s perspective. This paper therefore adds to the growing body of literature a perspective of the supplier on the effects of power distribution and supply chain integration on the governance mechanisms of a sustainable supply chain.

5.1 Limitations & Future research

This research is subject to several limitations. Firstly, the governance mechanisms used in this research are based on the best practice for a sustainable purchasing. Although the sustainable purchasing is the area we did research in, there is no other literature supporting these governance mechanisms for measuring a sustainable supply chain from the supplier’s perspective. It is recommended for future studies to go deeper into these governance mechanisms in a qualitative research. In a qualitative research, additional information can be found, which can be used to accept or decline these best purchasing practices as governance mechanisms for sustainability requirements.

Secondly, this study has been conducted using only 49 Dutch organizations. This was the result of the overlap between writing this paper and the IMSS data processing. During the progress of this paper, the data processing of the IMSS 2014 survey was not yet completed. Therefore, we were only able to use the data of the 49 Dutch respondents. Because of the limited quantity of respondents, it was not possible to use separate divisions. Therefore, all outcomes are general for the Dutch international manufacturers. The generalizability of this research, however, is uncertain because of the limited amount of respondents used. It is therefore highly recommended that future studies will further investigate whether the conclusions can be generalizable in a broader setting.

Thirdly, the construct power has a low internal validity, which means that the internal consistency was not valid. Although Sijtsnam (2009) argue that the Cronbach Alpha is not of importance to measure the internal consistency, we see this low internal validity as a limitation of this research. Therefore, future studies should add more data to the variable in order to make the internal consistency above 0.70.

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Appendix A: Questions used from questionnaire

Power: How do you perceive the following characteristics of the environment in which your business

unit operates?

Market span Few segments 1 2 3 4 5 Many segments

Market concentration Few competitors 1 2 3 4 5 Many competitors

Market entry Closed to new players 1 2 3 4 5 Open to new players

Bargaining power of suppliers

Very low 1 2 3 4 5 Very high

Competitive rivalry within industry

Very low 1 2 3 4 5 Very high

Supply chain Integration: Indicate the effort put into implementing the following action programs Effort in the last 3

years

Current state of the program

None Very High No

implementation

Full implementation

1 2 3 4 5 System coupling with key customers (e.g. vendor managed inventory, just-in-time, Kanban, continuous replenishment)

1 2 3 4 5

1 2 3 4 5 System coupling with key suppliers (e.g. vendor managed inventory, just-in-time, Kanban, continuous replenishment)

1 2 3 4 5

1 2 3 4 5 Developing an international distribution strategy (e.g., open foreign sales office, develop an international distribution network)

1 2 3 4 5

1 2 3 4 5 Joint decision making with key suppliers (about product design/modifications, process

design/modifications, quality improvement and cost control)

1 2 3 4 5

1 2 3 4 5 Joint decision making with key customers (about product design/modifications, process

design/modifications, quality improvement and cost control)

1 2 3 4 5

1 2 3 4 5 Developing an international sourcing strategy (e.g. supplier scouting at the international level, develop an international purchasing office)

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Collaboration:Indicate the effort put into implementing the following action programs

Effort in the last 3 years

Current state of the program

None Very High No

implementation

Full implementation

1 2 3 4 5 Sharing information with key customers (about sales forecast, production plans, order tracking and tracing, delivery status, stock level)

1 2 3 4 5

1 2 3 4 5 Sharing information with key suppliers (about sales forecast, production plans, order tracking and tracing, delivery status, stock level)

1 2 3 4 5

1 2 3 4 5 Developing collaborative approaches with key customers (e.g. risk/revenue sharing, long-term agreements)

1 2 3 4 5

1 2 3 4 5 Developing collaborative approaches with key suppliers (e.g. risk/revenue sharing, long-term agreements)

1 2 3 4 5

Certification: Indicate the effort put in the last 3 years into implementing, and the current level of

implementation of, action programs related to:

Effort in the last 3 years ago Current state of the program

Not at all To a very large extent Not adopted at all Fully adopted 1 2 3 4 5 _{Environmental certifications (e.g.}

EMAS or ISO 14001)

1 2 3 4 5

1 2 3 4 5 _{Social certifications (e.g. SA8000 or} OHSAS 18000)

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Appendix B: Measurements

Construct Question Item in paper

Power

Market span Market span

Market concentration Market concentration

Market entry Market entry

(Removed) Bargaining power of suppliers Bargaining power suppliers (Removed) Competitive rivalry within industry Competitive rivalry

Supply chain integration

System coupling with key customers (e.g. vendor managed inventory,

just-in-time, Kanban, continuous replenishment) System coupling with key customers System coupling with key suppliers (e.g. vendor managed inventory, just-in-time,

Kanban, continuous replenishment) System coupling with key suppliers Developing an international distribution strategy (e.g., open foreign sales office,

develop an international distribution network)

Developing an international sourcing strategy

(Removed)

Joint decision making with key suppliers (about product design/modifications, process design/modifications, quality improvement and cost control)

Joint decision making with key suppliers

(Removed)

Joint decision making with key customers (about product design/modifications, process design/modifications, quality improvement and cost control)

Joint decision making with key suppliers

(Removed)

Developing an international sourcing strategy (e.g. supplier scouting at the international level, develop an international purchasing office)

Developing an international sourcing strategy(2)

Collaboration

Sharing information with key customers (about sales forecast, production plans, order tracking and tracing, delivery status, stock level)

Sharing information with key customers

Sharing information with key suppliers (about sales forecast, production plans, order tracking and tracing, delivery status, stock level)

Sharing information with key suppliers

Developing collaborative approaches with key customers (e.g. risk/revenue sharing, long-term agreements)

Developing collaborative approaches with key customers

Developing collaborative approaches with key suppliers (e.g. risk/revenue sharing, long-term agreements)

Developing collaborative approaches with key suppliers

Certification

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Appendix C: Test of normality

Skewness Kurtosis

The impact of power and supply chain integration on sustainability requirements