The Role of
Supplier Development Programs
in Supply Chain Resilience
Master’s thesis
By
Angela Schuurman
S3536696
a.schuurman.1@student.rug.nl
January 2020
Word count: 11,108
University of Groningen
Faculty of Business and Economics
MSc Supply Chain Management
Supervised by:
Prof. Dr. D.P. van Donk
H. Dittfeld
2
ABSTRACT
Collaboration is discussed to be one of the key elements in supply chain resilience (SCRES), as
organizations need to work together effectively to respond to disruptions. Although the importance of collaboration is also acknowledged in supplier development (SD), it is unknown how SCRES could be improved by means of SD. Therefore, this study aims to answer the following question: How does the
level of involvement in supplier development programs affect supply chain resilience? In finding the
effects of SD on SCRES, we do not only consider different types of SD, but also the orientation to and
approach of executing such activities.
An exploratory multiple-case study has been conducted. Cases conducting SD have been selected and semi-structured interviews are held. Data has been analysed and coded by means of an abductive approach.
This study shows that the simultaneous use of indirect and direct SD appears to be effective on SCRES. SD is used in a reactive and strategic way, focused on both results and processes. All SCRES elements are affected by SD, and in particular agility, namely through an increase in information sharing and transparency. This is achieved by monitoring (assessment & evaluation), but also through direct SD, by means of a higher level of collaboration. Our findings indicate that collaboration is of great importance in SD, as well as to improve resiliency. We have not only seen that using SD improves a single element of SCRES, but that the elements within SCRES interact, too.
Key words: supply chain resilience, supplier development, collaboration, exploratory multiple-case
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TABLE OF CONTENT
1. INTRODUCTION ... 5
2. THEORY ... 7
2.1 Supply Chain Resilience (SCRES) ... 7
2.1.1 Collaboration. ... 7
2.1.2 Agility. ... 8
2.1.3 Redundancy. ... 9
2.1.4 Flexibility. ... 9
2.2 Supplier Development (SD). ... 9
2.2.1 Level of Involvement in SD Activities. ... 9
2.2.2 Approach and Orientation to SD. ... 11
2.3 Conceptual Model ... 12 3. METHOD ... 14 3.1 Research Design ... 14 3.2 Case Selection ... 14 3.3 Data Collection ... 16 3.4 Data Analysis ... 17 4. FINDINGS ... 20 4.1 Disruptions ... 21 4.2 Collaboration ... 21 4.3 Agility ... 22 4.4 Redundancy ... 23 4.5 Flexibility ... 24 4.6 Supplier Development ... 24 4.6.1 Indirect SD. ... 24 4.6.2 Direct SD. ... 25
4.7 Findings Relationship between SD and SCRES ... 26
4.7.1 Indirect SD on SCRES. ... 27 4.7.2 Direct SD on SCRES. ... 28 5. DISCUSSION ... 29 5.1 Indirect SD on SCRES ... 29 5.2 Direct SD on SCRES ... 30 6. CONCLUSION ... 32 6.1 Managerial Implications ... 33
6.2 Limitations and Future Research ... 33
4
APPENDIX A: INTERVIEW PROTOCOL ... 38
1. Introduction ... 38
2. General Information ... 38
3. Supply Chain Resilience... 38
4. In-depth questions ... 39
APPENDIX B: OPERATIONALIZATION SCHEME ... 42
APPENDIX C: DETAILS OF THE CASES... 44
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1. INTRODUCTION
Globalization and more complex supply chains make it increasingly challenging for organizations to know exactly what happens where in the supply chain. The Rana Plaza collapse in April 2013 for example, caused problems for multiple supply chains (Yardley, 2013). How supply chains respond and act upon different types of disruptions, is called supply chain resilience (SCRES) (Jain, Kumar, Soni, & Chandra, 2017). Primark was one of the firms having a factory established in the Rana Plaza. Besides starting to work with different brands and NGO’s, Primark also tried to work on this situation by providing trainings to specific factories and local partners to improve their processes and systems (“Support provided by Primark,” 2018), which is an example of supplier development (SD). SD is not only used as a reaction to a supply chain disruption, as seen in this example: trainings and other programs could be used as a tool to increase supplier’s performance and/or capabilities actively, prior to disruption (Wagner, 2006). Nevertheless, it is not clear if and how different SD programs could enhance the resiliency of a supply chain. This research, therefore, explores the relation between SD and SCRES. One of the objectives of SD is to improve the efficiency of the supply chain (Jin, Hu, Kim, & Zhou, 2019), focussing on higher quality products, delivered in time, by reliable suppliers (Dalvi & Kant, 2015). SD “aims to improve a supplier’s performance or capability and, in turn, meet the buyer’s short-term and long-short-term supply needs” (Krause, 1999; Scannell et al., 2000 IN Chen, Ellis, & Holsapple, 2015, p. 250). The buyer is willing to upgrade the supplier’s capabilities and therefore a long-term cooperation is intended (Modi & Mabert, 2007), and/or the product that is sourced will be improved (Wagner, 2010). Handfield, Krause, Scannell, and Monczka (2000) suggest that SD is typically not used for each supplier, as it depends on the criticality of the product or volume to be sourced. Also, not each organization would need the same approach, hence the different SD programs have been categorized based on the level of involvement, which relates to the level of knowledge interchange. This results in the classification of direct SD (activities where the buyer tries to transfer knowledge by e.g. trainings) and indirect SD (for instance the assessment and evaluation of the supplier, i.e. monitoring) (Wagner, 2010). In any case, collaboration is needed (Arroyo-López, Holmen, & de Boer, 2012).
6 Summarized, research suggests how important collaboration is in SD (Bai & Sarkis, 2016) as well as to become resilient (Sá, Souza Miguel, Brito, & Pereira, 2019). The concepts SD and SCRES are widely discussed separately, but it remains unclear how resiliency could be improved by means of different types of SD programs. Highlighted by Scholten, Stevenson, and van Donk (2020), the impact of a disruption on performance depends for example on the competency of a supply chain. Thus, by finding the effects of SD on SCRES, it allows to see if organizations are able to respond better to disruptions because of particular SD programs. The research question is as follows:
How does the level of involvement in supplier development programs affect supply chain resilience?
An exploratory multiple-case study has been conducted in this research. Six cases are selected and 13 interviews are held with organizations that implemented SD. They have been asked to review their recovery from an event in the past. The focus was mostly on how the buyer and supplier (did) collaborate. This will be linked to potential consequences in terms of resiliency.
Through the conceptualization of both SD and SCRES, this research contributes to existing literature by making explicit how the type of SD program (i.e. level of involvement) could affect different SCRES elements, as well as how the different elements interact (e.g. information sharing influences not only
collaboration, but also relates to agility). Also, the variety of cases allowed us to identify other factors
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2. THEORY
This section focuses on the conceptualization of SCRES, SD programs, and other relevant concepts in this field. Finally, a conceptual framework will be presented.
2.1 Supply Chain Resilience (SCRES)
Fifteen years ago, the concept of resilience started to get form and has been defined as “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed” (Christopher & Peck, 2004, p. 4). This definition already incorporates the capability of returning to a (more) desirable state after disruption, however not yet completely how a supply chain should be prepared to give an appropriate response to a disruption. Ponomarov and Holcomb (2009) argue that a supply chain should be prepared for disruptions, be able to give an efficient and effective response, and eventually be able to recover to their original or even better state. Also, they emphasize that this has become harder because supply chains have become global and more complex.
Nowadays, SCRES knows many definitions. The next definition is most comprehensive, and will be used for this paper: “The adaptive capability of a supply chain to prepare for and/or respond to
disruptions, to make a timely and cost effective recovery, and therefore progress to a post-disruption state of operations – ideally, a better state than prior to the disruption” (Tukamuhabwa, Stevenson,
Busby, & Zorzini, 2015, p. 5599).
In literature, there are many elements of SCRES discussed to be important, sometimes called “strategies”, otherwise “capabilities”. For example, Jüttner and Maklan (2011) suggest four SCRES capabilities: flexibility, velocity, visibility, and collaboration. Christopher and Peck (2004) on the other hand, propose velocity and visibility to be part of agility. The most widely discussed strategies in literature are: collaboration, redundancy, flexibility, and agility, according to Tukamuhabwa et al. (2015). This research will use the following as fundamental elements to further explore SCRES:
collaboration, agility, redundancy, and flexibility.
2.1.1 Collaboration.
In supply chain collaborations, long-term relationships are formed and organizations can achieve more together than working separately (Soosay, Hyland, & Ferrer, 2008).
Sharing information is part of collaborations in the supply chain. It concerns the degree of information
8 sharing sensitive risk information (Faisal, Banwet, & Shankar, 2006). This information sharing, e.g. about levels of inventory or demand, should be done in real-time so that members can respond quickly (Hohenstein et al., 2015). When supply chain members can access the required information, uncertainty in the chain can be reduced (Christopher & Peck, 2004).
Another dimension of collaboration is decision synchronisation. This refers to making decisions together in planning and operations (Simatupang & Sridharan, 2005) to optimise supply chain benefits (Cao, Vonderembse, Zhang, & Ragu-Nathan, 2010). Organizations aligning their planning helps them to use their resources in the best way (Cao et al., 2010). This planning can, for instance, concern product assortments and forecasting (Simatupang & Sridharan, 2005). Operational decisions, on the other hand, deal with for example delivery processes, from shipping schedules until delivery at the end customer (Simatupang & Sridharan, 2005). Scholten and Schilder (2015) found that decision synchronisation in particular improves velocity and flexibility in responding to disruptions, for example through shared transportation.
Incentive alignment is the last dimension proposed by Simatupang and Sridharan (2005), which is
concerned with to what extent members share benefits, costs, and risks. A system is needed that motivates and is beneficial to all members, and also recognizes the proportional investment done by a member and the associated risk (Cao et al., 2010).
2.1.2 Agility.
Supply chains are considered to be agile when they are able to respond quickly to unexpected changes in demand or supply (Christopher & Peck, 2004). Organizations can create agility by creating collaborative relationships and ensure information flow throughout the chain (Lee, 2004). The latter is about the visibility of the supply chain. While visibility has been shortly discussed under collaboration, Christopher and Peck (2004) suggest that this is an important element of agility as well. Transparent supply chains could help to indicate potential risks and for instance identifying vulnerable suppliers so countermeasures can be developed (Tukamuhabwa et al., 2015).
Velocity, another critical element of agility (Christopher & Peck, 2004), is about how fast a supply chain
responds to such changes (Scholten & Schilder, 2015).
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2.1.3 Redundancy.
Redundancy involves having capacity to respond to the disruption (Rice & Caniato, 2003). This can be done for example by buffers of inventory (Purvis, Spall, Naim, & Spiegler, 2016) or establishing relationships with multiple suppliers (Zsidisin & Wagner, 2010). It should be noted that a more complex network (e.g. too many suppliers) does not naturally lead to higher resilience (Kim, Chen, & Linderman, 2015). In case organizations pursue a redundancy strategy, this extra inventory or supplier should not be located at the same spot, otherwise it is also likely to be harmed in case of an event (Tukamuhabwa et al., 2015).
2.1.4 Flexibility.
According to Lee (2004), flexibility is a part of adaptability and involves how one can react to changing situations in the supply chain. While Kamalahmadi and Parast (2016) suggest that flexibility can be created with for instance the supply base or capacity, there is an important remark to make here. As discussed before, redundancy concerns capacity (which may or may not be used). It means that extra capacity is available if needed. In flexibility, one looks at how to rearrange the capacity that is available, meaning it could lead to some trade-offs in production or serving particular customers (Christopher & Peck, 2004). Thus, flexibility is more concerned with the responsiveness to changing needs (Ketchen Jr. & Hult, 2007).
2.2 Supplier Development (SD)
According to Govindan, Kannan, and Haq (2010) the first use of SD was by Leenders (1966): “to describe efforts by manufacturers to increase the number of viable suppliers and improve suppliers’ performance” (Govindan et al., 2010, p. 45). In today’s conceptualization of SD, it is included that supplier’s capabilities and performance are improved, whereby also the needs of the buyer are met (Arroyo-López, et al., 2012; Chen et al., 2015). Thus, there is an intention to create a collaborative relationship between buyer and supplier so that the supplier’s performance and/or capabilities can be improved (Bai & Sarkis, 2016).
2.2.1 Level of Involvement in SD Activities.
10 2015; Wagner, 2010) ; on-site assistance (Modi & Mabert, 2007) to provide support whenever needed, e.g. to fix production problems (Bai & Sarkis, 2016) ; and joint projects, with a high interaction from both sides and the creation of joint knowledge (Arroyo-López et al., 2012). This type of SD includes collectively working on a problem, or new product development (Chen et al., 2015). Krause et al. (2000) suggest that these types of activities play an important role in improving performance. Wagner's (2010) results suggest that it is improving the supplier’s capabilities, and more time is needed for direct SD activities to improve performance. Arroyo-López et al. (2012) suggest that OKTA are good for both performance and capabilities.
Indirect SD concerns the assessment and evaluation of suppliers (Wagner, 2010). This suggests that suppliers’ performance will be monitored on certain KPIs, for instance, on-time delivery for delivery performance (Wagner, 2010). From now on this will be referred to as: monitoring (A&E). Furthermore, indirect SD includes the use of incentives, where the achievement or performance of a supplier is recognized through an award (Chen et al., 2015). These awards are effective to increase the supplier’s willingness, but not ability, to improve (Arroyo-López et al., 2012). In competitive pressure, the last form of indirect SD, two or more suppliers are used to create competition among them, in the advantage of the buyer (Chen et al., 2015). According to Arroyo-López et al. (2012), the latter two measures are effective to control performance. For this category of SD activities, the buyer does not necessarily try to actively improve performance, but is thus more at the controlling side, hence the lower level of involvement.
Findings of Wagner (2010) show that the combination of direct SD and indirect SD is not that effective. In indirect SD, specific goals are set, while for direct SD, goals are more difficult to set and measure. In combining the two, it might be harder for the supplier to see the overall goals, leading to a lower motivation and contribution (Wagner, 2010). Research also indicates that buyers will benefit from direct SD after first conducting indirect SD (by means of assessment, incentives) (Arroyo-López et al., 2012; Krause et al., 2000).
Table 1 provides an overview of the SD activities, categorized by their level of involvement and degree
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Direct SD
High involvement, High OKTA Improvement of performance and capabilities
Indirect SD Low involvement, Low OKTA
Control performance Trainings
On-site assistance Joint projects
Monitoring (Assessment & Evaluation) Incentives
Competitive pressure Table 1: Types of SD activities
2.2.2 Approach and Orientation to SD.
Literature indicates that SD can be implemented in several ways, and that the approach to and orientation of the SD program can make a difference in the outcome. For example, SD can be implemented as a reaction to bad performance (approach), and SD can also be implemented to immediately reduce errors at the supplier (orientation). A short discussion follows with these important concepts in SD.
A reactive approach is used when a buying firm implements SD in case of a supplier’s bad performance (Wagner, 2006). The buyer is motivated to respond immediately to a problem that arises through an evaluation system, and eliminates the shortfalls of this single supplier (Krause, Handfield, & Scannell, 1998). A response is required from the buyer, as bad performance of one supplier can impact the production processes from other members in the supply chain, causing disruptions.
On the other hand, an organization might also want to prevent such problems and aiming to improve performance for the long term: the strategic approach (Wagner, 2006). Here, the buyer identifies its critical products and suppliers in need of SD, with the intention to set up a supply base that will create a sustainable competitive advantage (Krause et al., 1998). I.e., the focus is here to continuously improve multiple suppliers and aim for optimization. This is summarized in Table 2. Results from Krause et al. (1998) suggest that some organizations use both approaches, but one can be more dominant than the other. For example, the buyer might first eliminate all the problems (reactive approach), and then take a strategic approach by doing SD investments where competitive advantage can be created, and future problems may be prevented.
Strategic approach Reactive approach
Motivation - Sustainable competitive advantage - Continuous improvement, optimization
- Bad performance - Eliminate shortfalls Focus - Supply base
- Long term
12 Once organizations decide to engage in SD, the progress of the development needs to be monitored using specific metrics (e.g. quality percentage) (Handfield et al., 2000). Hartley and Jones (1997) suggest taking a process-oriented SD approach over a result-oriented SD approach. This means, that one can reduce specific problems immediately in the operations of a supplier (result-oriented), while process-orientated SD is more focussing on the supplier’s capabilities for continued improvement (Hartley & Jones, 1997), thus better for performance after SD (Wagner, 2006).
2.3 Conceptual Model
After conceptualizing SCRES, it has become clear that members in the supply chain need to collaborate to be prepared and respond to unexpected events. As collaborating is crucial in SD, it is expected that most of the effects of SD will relate to the collaboration element of SCRES. This can be explained by the intention of SD, which is to improve performance and/or capabilities of the supplier (Modi & Mabert, 2007; Wagner, 2006), and this does not necessarily hold for creating an extra buffer of inventory for example.
The level of involvement in SD is expected to impact SCRES as follows. First, it is expected that direct SD activities will create a higher collaboration level. SD is focused on long term relationships (Modi & Mabert, 2007). Also, joint projects for example, require more interaction and information sharing is likely to increase, which results in a higher visibility too, and allows the supply chain to be more agile (Scholten & Schilder, 2015). Moreover, it is expected that indirect SD will motivate suppliers more (e.g. by incentives) to work on the set KPIs (Arroyo-López et al., 2012).
13 Summarized, investigating the level of involvement of SD impacting SCRES, requires considering other elements as well. The different types of SD are expected to make an impact on the different SCRES elements, but also, that these elements relate to and affect each other. This is displayed in Figure 1.
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3. METHOD
This section is used to show how and in which setting the research will be conducted in a reliable and valid way.
3.1 Research Design
The main purpose of this qualitative study is to explore the relationship between SD and SCRES, and specifically how the level of involvement in SD affects the different SCRES elements. The unit of analysis in this research is the relationship between buyer and supplier.
In order to investigate the relationship between SD and SCRES, a multiple-case study is suitable. Conducting a multiple-case study gives us the opportunity to study the mechanism in collaboration between organizations in different ways and allows for answering questions such as how are they
related? (Karlsson, 2016). For example, if indeed direct SD programs would give a higher level of
information sharing and the level of collaboration increases, we would be able to see if this relates to a higher transparency, influencing agility, too. Thus, using different cases, we can generalize such effects (i.e. how a particular SD program affects a SCRES element), but also, we will be able to identify other factors that might influence the relationship between SD and SCRES, which allows us to build theory (Blumberg, Cooper, & Schindler, 2014).
3.2 Case Selection
Six cases have been selected that are engaged in different SD programs (direct and/or indirect SD). For successful data collection, we verified that the organizations experienced a disruption in the past, and that they were able to share with us how they responded to it, and how SD has been used. Moreover, we have chosen a variety of settings, e.g. automotive and processing of nutrition, as there were no restrictions in sector. Having different settings, we will be able to generalize the effects of an SD program on a SCRES element, but we are also able to see the differences among sectors and we can find what other influencers play a role in the effects of SD on SCRES.
Table 3 provides details of the case selection. The sector, degree of SD (indirect and/or direct), type of
SD program, position of the interviewee and corresponding number, and the length of the interview has been provided. Also, the column “contextual highlights” has been added to provide more details about the setting of the case. These details have been highlighted by the interviewees and could be useful in analysing different effects of SD on SCRES. For example, we could find explanations of why single sourcing is used while the organization is not as agile or redundant as others.
15 Case Sector Degree
of SD
Type of SD Contextual highlights Position interviewee
Length of interview (min:sec)
A Packaging
production
Direct Training Hygiene is extremely important Supply Chain Manager Specialities [A1] 47:08
Indirect Monitoring (Assessment & Evaluation) Supply Chain Manager N&C [A2] 45:16
B Nutrition
processing
Direct Joint projects
Fully dependent on suppliers of raw material and weather
Manager Supply Chain Management [B1] 55:11 Category Buyer Procurement [B2] 46:53
C
Personal care, FMCG
Direct Joint projects ;
On-site assistance A stable market and one with
regular promotions
Sourcing Director NL [C1] 48:30
Indirect Monitoring (Assessment & Evaluation) Manager Logistics Planner [C2] 46:35
D Automotive
Direct
Training ; Joint projects ; On-site assistance
Regularly disruptions, high focus on quality
Manager Material Supply Engineering
[D1] 50:21
Indirect Monitoring (Assessment & Evaluation) Supplier Quality Manager [D2] 61:21
Manager Logistics Supply [D3] 59:51
E Automotive
Direct Training ; On-site assistance
Small organization with open communication, is given priority in single sourcing
Manager Innovation & Improvement Operations [E1]
49:37
Indirect Monitoring (Assessment & Evaluation) Director Logistics Operations [E2] 40:48
F Fiber
production
Direct Joint projects ; On-site assistance
High control, one of the few in this field
Senior Supply Chain Planner [F1] 67:11
Supply Chain Planner [F2] 45:16
16 applied here so it can be investigated if cases do indeed behave differently. For example, we are interested in how organizations only involved in direct SD program respond differently to disruptions, compared to organizations that use a combination of indirect and direct SD, and how this might be caused.
3.3 Data Collection
Through semi-structured interviews, the data for this research has been collected. Per organization, two or three experts in Supply Chain Management have been asked to share their expertise on the topic (indicated in Table 3). These managers all have a background related to Supply Chain Management, have been working in the organization for at least a year, and experienced one or multiple disruptions. Preferably, we would be able to interview experts having different positions in the organization, which succeeded for most of the cases. A Supply Chain Manager could provide us with different cases of disruptions and details how the chain recovered. The Buyer was able to identify disruptions at the level of raw materials. Examples about how to deal with logistics providers if there was an increase in demand, were given by managers in Logistics. Lastly, a Quality Manager was specifically relevant to gather information about how SD is implemented in the field, also as a preventive or a reactive tool.
Each interview has been conducted by two interviewers. Prior to the interview, the interviewees have been asked to read and sign the research consent form. They were informed about the aim of the research and how long the interview would take approximately. Also, they have been asked for permission to record the interviews to be able to better analyse the results. The participants were informed that these records will be kept confidential and that they could withdraw at any time, for any reason.
After this introduction of the research, the participants were asked to introduce the organizations and their roles within. Then, they have been asked to describe multiple disruptions the organisation and supply chain have gone through in the past. Different events were mentioned: a successful response to the disruption, and where this could be improved in the future. The interview protocol that was used can be found in Appendix A.
17 interview. During the interview, this list was checked to see if everything is covered. These questions can be found in Appendix A as well.
During the data collection, the interviewers kept in mind that the interviewees would tell how the organization and supply chain dealt with disruptions in the past and how they could better prepare in the future. To also increase reliability and accurateness of the provided information, additional background information about a particular topic was given during the interviews, whenever necessary. This means, if e.g. something was not clear, the characteristic of a semi-structured interview allowed for clarification and elaboration from both sides, but still the events are discussed within their specific context (Karlsson, 2016).
3.4 Data Analysis
Each interview has been transcribed and collected in a database. The transcripts have been sent back to the interviewees for verification. After that, Excel has been used to code the data and finally create a coding tree. The coding has been done by means of an abductive approach. First, each case has been analysed separately. Then, patterns across the different cases were sought (Karlsson, 2016).
During the coding process, an operationalization scheme has been created in order to structure all the provided data (Appendix B). This scheme has been filled in for each organization. First order codes have been created based on similarities in data. Afterwards the codes have been reduced to second order codes, representing a conceptual level (Corbin & Strauss, 2012). These codes are used in the operationalization scheme too. After going through the data several times, we were able to create an overview with the data in a standardized way (Appendix C). This was needed to be able to carry out a cross-case analysis.
To illustrate how the codes have been established, consider the following examples. During the interview, it has been discussed how actively the organization works with the supplier. The following statement has been given:
“Imagine that there is a period where delivery performance is bad, then we organize daily calls with our supplier. We then discuss our daily progress.” [A1]
Specifically, the quote illustrates frequency of communication (first order code), which belongs to the
intensity of relationship (second order code). This belongs to the dimension collaboration.
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"That is also why we have introduced a ‘capacity risk management team’. This team goes directly to suppliers if we see capacity problems. We made software tools to make sure we can monitor and see the room." [D2]
Table 4 shows the coding scheme. The SCRES elements are all represented in a dimension. Also, SD is
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Dimension Second order Code
Disruption
Preventive measure
Scenario / contingency planning Sourcing (selection of suppliers)
Monitoring Bullwhip effect Reactive measure Crisis team Financial support Collaboration Type of relationship Length of relationship Dependency Contract Trust Intensity of relationship Frequency of communication Visits, meetings
Information sharing & Decision synchronisation
Forecasts (e.g. growth) KPI's
Risks, Problems Inventory levels, Orders Incentive
alignment
Incentives & Penalties Investments Agility Response to change in demand/supply Production Alternative sourcing State after disruption
Visibility Transparency (e.g. potential risks)
Velocity Pace of response
Redundancy
Inventory, Safety stocks
Amount expressed in number of days/weeks of demand Location of inventory/buffer
Supply base
Sourcing (number of suppliers) Alternative sourcing
Flexibility
Production
Rearrangement of capacity (e.g. multiple production lines/locations)
Specifications
Employees All-round
Up- and downscaling
Supplier Development
Indirect SD Monitoring, Assessment & Evaluation
Incentives
Direct SD
Trainings Joint projects On-site assistance
Awareness creation Benefits, Mutual goals
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4. FINDINGS
In this chapter, an overview of the gathered data will be given. The most important findings per dimension will be discussed separately, starting with how organizations deal with disruptions in general by means of preventive and/or reactive measures. Then findings regarding each resilience element will be presented. This section continues with the different types of SD that have been used by the six cases. Finally, the potential relationships between the SD programs and the SCRES elements that have been found, will be presented. Here, we do not limit ourselves solely to the effects of one SD program to an SCRES element. Rather, the different types of SD that have been applied by the cases, will be taken into account, but we refer back to it on the level of involvement (i.e. high level, direct SD ; low level, indirect SD). Additionally, we consider the two other important elements in conducting SD within the SD programs, namely approach (reactive and strategic) and orientation (result-oriented and
process-oriented), as presented in the conceptual model (Figure 1). This means that we look at how the different
SD programs have been implemented, and how that affected SCRES.
Before presenting the findings per dimension into detail, a summary of how the six cases score on the SCRES elements and in SD, has been provided in Table 5. This is based on a detailed overview, to be found in Appendix C. One can see that all cases use preventive measures to be prepared for disruptions (e.g. contingency plans), and three of them (case B, C, and D) also use reactive measures (e.g. crisis teams).
The level of collaboration is on the higher side, except for case E and F. This can be explained by the fact that every case intends to establish long term relationships, but case E and F do not visit their suppliers as much as the other four cases. In terms of sourcing, cases A, B, C and D do have some alternatives available, whereas case E and F have limited options here. Also, case E and F can hardly respond to an instant increase in demand. Therefore, their level of agility is lower. It should be noted however, that each case indicated to recover from previous disruptions to a stable state, except for case A, which was able to establish growth.
The level of redundancy differs much among the cases. We have seen that buffers are kept in different locations (e.g. at the plant, at the supplier, or in the supply chain) and that the cases increase their safety stock for the Brexit. Moreover, the cases indicate to be not really flexible. All cases are quite limited in their personnel (up-and downscaling, functioning all-round), however, case A and D indicate to have flexible capacity, hence a slightly higher level of flexibility is achieved.
21 Several quotes have been highlighted in this section. The complete coding scheme including other quotes, can be found in Appendix D.
Table 5: Summary of Cases in terms of SCRES and SD
4.1 Disruptions
All the cases indicate that some type of preventive measure is taken to minimize the effects of a disruption. Each case (except case E) has a contingency plan available. Case D takes this a step further, by having a control plan where the supplier goes through all the processes, indicating how the product could potentially fail. Case C and F ,in particular, indicate that they are increasingly multi-sourcing to minimize risk. Moreover, monitoring the environment plays a big role (e.g. climate, growth, and investments), indicated by case B, C, D, and E. As a reactive measure, case B, C and D set up a crisis team, consisting of different disciplines to get to the cause of the problem.
4.2 Collaboration
22
"The advantage of having no inventories, is that you are depending on one party. You are married to them. The relationship needs to be good." [E2]
This quote suggests that trust is important and is supported by the other cases. Trust is important in creating relationships and to solve problems. Signing a contract is still considered necessary, and these contracts are generally quite detailed.
Usually, there is daily communication with the supplier or customer. Case E suggests that this is preferably limited because nowadays members have access to a shared portal. Visits or meetings are even less frequently (in general, monthly or quarterly), and mostly depend on the criticality of the supplier or if it is necessary to schedule a meeting.
The level of information sharing is medium to high. Forecasts are shared, however, the frequency and length of the forecast differ per organization and sometimes per supplier. Case E suggests that some information is automatically shared via (Web) EDI.
Incentive alignment and decision synchronization is indicated between low and medium. Giving
suppliers penalties or charging consequential costs is done by all cases except case E. Case B suggests that penalties are not that effective as such, and case E highlights the importance of improving processes rather than only claiming costs:
"No, we do not have a fixed penalty system. I think a penalty system makes sense when it is repeatedly... Personally, I am not a huge fan of a penalty system, for a simple reason: it’s a kind of trade-off. “We can deliver later, and it will cost us this much”." [B2]
"We do have penalties if they do not deliver the quality, or if they deliver too late... I am way more interested in what they are going to do about improving the process... they can get a penalty, often we say, do not give us the money but invest it in improving your process. Make a plan." [E2]
4.3 Agility
Case A, B and D indicate to have flexible capacity, to be able to handle peaks in demand. Case D highlights that critical suppliers are expected to react quickly and should also have flexible processes. Being a large organization can make it easier to let that happen, i.e. by a bit of pressure, suggested by case C and D. All cases, except E and F, have alternative sourcing available in order to respond to changes in demand and/or supply. Interestingly, case E suggests that single sourcing was beneficial:
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depending on them, and that we need the components, otherwise we cannot continue production. That has helped us in the past, that especially single sourcing helped us to get priority." [E2]
In terms of transparency, organizations are not allowed to share exact volumes, but cases A, B and D indicated to share indicative volumes. Related to collaboration too, it is preferred to have open communication, so that issues can come up as early as possible, suggested by case C, D and E. Case E confirms the importance of transparency by their experience, where safety stocks could be created after a supplier in trouble shared the problem in time. Also, case A illustrates that change in material needs to be communicated as it might change the end product, and case B needs to be informed when harvest is decreasing. Case F, on the other hand, only wants to be informed when the delivery gets into trouble. The last point related to transparency, is the control of all sub-suppliers, which is hard in large networks. Case D requires certifications for sub-suppliers, so that certain requirements are at least fulfilled. All the cases were able to successfully recover from the disruptions with a fast response. Case B and D, for example, provided examples where the disruption happened multiple times. After handling the first time, they were better prepared for the next time(s). Case A was even able to establish growth: after a supplier was not able to meet the demand, the organization, the supplier, and other involved parties arranged regular follow-up calls for 1 till 1.5 years, to discuss the situation. The supplier was able to create a backup in its production and was able to produce more than the budgeted volumes.
4.4 Redundancy
The level of inventory or safety stock differs from low to high. This depends for instance on demand, the production plan, the criticality of the product, but also the Brexit was mentioned (case D and E). Inventories are held at the production site (case B, C, D, and F) or in a spare-part centre (case D), while risk can be spread by keeping a buffer in the supply chain (case A, C, D, E, and F).
Multi-sourcing is another way to create redundancy. All cases (except case E) are (increasingly)
multi-sourcing, but this is not always possible because of costs, which is indicated by case E.
In case a component cannot be obtained, one might turn to a part that is similar but functions well enough as a temporary solution, and searching for a sustainable solution might lead to changing required specifications in order to find suitable suppliers (case D):
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some opportunities as we have three end assembly factories in Europe and one in Brazil and we do local sourcing for some products. Therefore, we can get some parts from other known suppliers if a disruption occurs at one supplier. " [D3]
4.5 Flexibility
As flexibility is about responding to changing needs, it also relates to capacity utilization. As shortly discussed before, not all cases are able to adjust instantly to 10% more production, for instance (case C and E).
Having different locations producing the same components, increases flexibility. The results from the organizations differ from low to high, but for cases A, B, D, E, and F there are some options to produce extra volume at another plant:
"..if here at the production site something happens with the cans, then we can also transfer to a different location. So within the organization, we have a backup. We cannot do it for every customer, but for a major part we can... That the production lines are not at the same spot, relates to spreading risk. It is also because we did not have the space here. The same counts for printing: if something happens here with the two production lines, we have a backup function. " [A1]
In case an organization needs to switch from material or supplier, it also requires flexibility. This relates to specifications. Only case D indicates that there are options to switch to a supplier making similar products. Case F highlights limited options, for only standard products. All the other cases are not able to quickly change supplier or product.
"However, it is not easy to change suppliers, because even for new production machines at suppliers we want to look into the material again to make sure it is correct. The characteristics are per definition not always the same." [C1]
Lastly, employees are all-round until a certain extent (case A, B, C and D) and flex-workers make it possible to up- and downscale (case A and D).
4.6 Supplier Development
4.6.1 Indirect SD.
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"Because of lot of the supplier development comes from a system warning or escalation from the factory or something like that. We also do it pro-actively, but with a lot of documents. In the documents is for example included: a quality improvement program. For example, one requirement is that in the second year they do business with us, they are only allowed 50% of the amount of quality error forms compared to the first year." [D2]
What we can learn from this particular example, is that there is a combination of a reactive (bad performance is signal for improvement) and strategic approach (reduction of errors in the future), and it shows the motivation to improve the supplier for the long term (strategic).
None of the cases use an incentive system to encourage good performance. As presented before, the contrary has been used, namely penalties. Also, no competitive pressure was used as indirect SD activity.
4.6.2 Direct SD.
The cases indicated that their level of involvement is on the higher side, i.e. direct SD. Case A, D, and E provide trainings to their suppliers to attain a certain level of performance. The next example shows that workshops can help to improve the performance of a supplier:
"The problems were recurring and the supplier could not find what was wrong in their production. Then, we decided to work together with the supplier and gave them a big workshop at our organization. We also invited sub-suppliers and our varnishing supplier for that. At the workshop, we made groups to talk about the previous situation and what has happened that caused the current situation and why the product is not how it is supposed to be." [D2]
The reactive approach is used, caused by bad performance, and organizing a workshop and going through the process, shows process-oriented SD. Trainings are not only done to improve existing suppliers, but also to show expectations:
"Just before the physical delivery we have a moment with the supplier to go through every of their operational process and share our expectations. It is like an operational training. So, that is supplier development for the new suppliers. " [D3]
26 supply base) as well as process-oriented SD (how the products need to be handled). Case B, however, does not conduct any trainings, as the supplier is assumed to be the expert.
Generally combining joint projects with on-site assistance is occurring frequently. In the following examples it becomes clear that for both of the SD programs, the organization is highly involved in the process of the supplier.
Case B, C, D, and F are conducting joint projects. For example, case D and his supplier are co-designing a product. The organization proposes a design of the product, and the supplier suggests small modifications that improves the part. The collaboration is needed, as the supplier has the most knowledge about the product itself. Also, collaborating with a particular supplier implies that the organization is looking for sustainable competitive advantage, which is a characteristic of a strategic approach. Case F mainly conducts joint projects in the development of the product (R&D).
On-site assistance is done by case C, D, E, and F. This is done when the supplier has a recurring error,
and someone from the quality department will be sent to see what is wrong exactly (case D). This implies a result-oriented and reactive approach, as defects need to be removed immediately. Even though it is the process of a supplier, case D also believes it is better to cooperate and solve it, instead of just claiming the costs, if it can cause disruptions for them too. This suggests to be a reactive, but also a process-oriented approach as the organization wants to solve it together.
Moreover, organizations try to show the organization the relevance of e.g. obtaining a certain certificate or changing the process (i.e. awareness creation). Interestingly, Case E indicates that growth can be achieved in another way:
"We are not sending teams to them... Our experience is that teams need to experience it themselves, they need to realise that they need to use a tool to improve quality or improve delivery reliability... We just say, we want to accomplish this, what are you going to do about it?... An expert or manager can tell how you should do it, but if they say they are convinced by another method, they are not intrinsically motivated... Sometimes mistakes need to be made to let a team grow." [E2]
4.7 Findings Relationship between SD and SCRES
Table 6 provides an overview of the found effects between the SD programs and SCRES elements. After
27 First, the table shows that only one possible relationship is found with collaboration, namely with on-site assistance. As collaboration is important in SD, one could have expected to see more relationships in the table. We should note that all the cases in this study have already a higher level of collaboration, because they are especially engaged in direct SD. Therefore, we are not able to identify any groups with e.g. lower and higher collaboration, and to see different effects. Nevertheless, we can see the importance of collaboration and for instance information sharing in other possible relationships. Agility is mostly affected by SD, which could be explained by the higher level of involvement in each other processes and increase in transparency. Also, flexibility is affected, which we could explain by the existence of joint projects and possibly patents, which results that the organization is not able to change quickly for supplier or product. Next, we will discuss the effects into more detail, structured by the level of involvement in SD and SCRES.
Table 6: Affected SCRES elements by SD
4.7.1 Indirect SD on SCRES.
Monitoring (A&E) was the only type of indirect SD that is used by the cases in this study. Four cases
make use of monitoring (A&E) (case A, C, D and E).
First, we have seen that cases doing monitoring (A&E) have a slightly higher level in agility, compared to case B and F, who are not engaged in monitoring (A&E). The first note to make, is that case E is an exception: there is a low level of agility, explained by e.g. no alternative sourcing available, but, the organization is still able to react quickly because of short communication lines. Secondly, in terms of
flexibility, there can be seen that three out of four cases using monitoring (A&E) (case A, D, and E), are
able to produce at another production line or location. This suggests that production is influenced, and thus explains a slightly higher level of flexibility for these cases.
28 strengthened with using monitoring (A&E) in a strategic way, as shown by case D. This implies that monitoring (A&E) is not only focused on the results of the organization, but also on improving processes. This influences agility such that organizations minimize the risk of quality issues, and thus disruptions, at suppliers. Also, if organizations know what happens at the supplier's side, they are able to respond better and faster to any disruption that might still occur. It is, however, still not clear how monitoring (A&E) is related to flexibility.
4.7.2 Direct SD on SCRES.
All cases have used one or several type(s) of direct SD. Firstly, collaboration can be possibly affected by on-site assistance, as two out of four cases engaged in this type of SD tend to have a higher level of collaboration (case C and D). This might be explained by the fact that e.g. case D is really focused on quality, and has set up special teams to maintain a certain level. Thus, on-site assistance requires more collaboration from both supplier and buyer.
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5. DISCUSSION
Findings have shown that indirect and direct SD are used as a strategic as well as a reactive tool, and oriented on results as well as processes. While Wagner (2010) suggests that indirect and direct SD should not be conducted simultaneously, and other studies indicate that direct SD should be done after indirect SD (Arroyo-López et al., 2012; Krause et al., 2000), findings in this study indicate that doing monitoring (A&E) as well as SD with higher involvement works. In fact, all organizations were able to recover to a stable state, and sometimes even established growth.
In the following sub-sections, we will discuss the findings and compare them with literature. First, we will look at how the SD programs have been used and implemented (related to orientation and
approach). Then, we will discuss how the (in)direct SD programs have affected the different SCRES
elements.
5.1 Indirect SD on SCRES
Monitoring (A&E) has been mainly used as a reactive and result-oriented approach. However, the example of case D in section 4.6.1 shows that it can also be used in a process-oriented approach. This is supported by Hartley and Jones (1997), suggesting to use a process-oriented approach instead. One of the main characteristics of agility is the capability of foreseeing risks, namely visibility (Tukamuhabwa et al., 2015). The cases A, C and D have shown that agility could also be positively affected by the use of monitoring (A&E). For example, if components are constantly delivered too late or quality reduces, this can cause issues for the organization. By monitoring such KPIs, an organization would be better able to prepare itself against changes in supply.
Findings indicate that organizations doing monitoring (A&E), were most of the time able to shift their volume to another production line or location. However no direct support can be found in literature that suggests that monitoring (A&E) can enhance flexibility, we do know that flexibility is about rearranging capacity, and that sometimes trade-offs need to be made in production or serving customers (Christopher & Peck, 2004). Thus, one could argue that organizations doing monitoring (A&E) are more aware of any risks leading to changes in supply or demand (agility), where after they could make better choices in rearranging their capacity, so flexibility is influenced indirectly.
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5.2 Direct SD on SCRES
Trainings are used as a reactive tool to immediately eliminate shortfalls, but also as a way to create a strong supply base by giving operational trainings, which implies both a strategic and reactive approach (Krause et al., 1998). Going through the process step by step, shows orientation on the process (Hartley & Jones, 1997), as the intention is to collaborate and improve the process, and not only a temporary solution. Joint projects, e.g. co-design, implies a long term focus, hence a strategic approach (Krause et al., 1998). On-site assistance is used to immediately remove the defects, implying a result-oriented (Hartley & Jones, 1997) and reactive approach (Krause et al., 1998). Nevertheless, we have also seen situations where the orientation is on the process, as case D illustrates to be interested in improving the supplier’s process as it affects them too.
On-site assistance is one of the SD programs that allow for knowledge interchange due to high
involvement (Arroyo-López et al., 2012), which explains why half of the cases doing on-site assistance score higher on collaboration (case C and D). As mentioned in the introduction, Scholten and Schilder (2015) found that organizations with a lower level of collaboration could be just as resilient, if they have long term relationships. This holds for case E and F. This means, that no case is like any other and other resilience elements need to be considered too: for instance, these cases also indicated to go to a stable state after the disruption.
Findings suggest that trainings can make organizations more agile, for example, being able to respond faster. When people are trained, they know how to deal with a certain situation and can act quickly. Trainings could be provided to a critical component supplier (where fast reaction is required, as indicated by case D in section 4.3). If the suppliers react faster, the focal organization can also respond quicker to e.g. an increase in demand. This is supported by Krause et al. (2000) and Arroyo-López et al. (2012), who suggest that trainings have a direct impact on the improvement of performance. This is partly in line with Wagner (2010), suggesting that direct SD would take time before improvement can be seen.
Joint projects tend to lead to a higher level of agility too, as shown by three out of four cases doing this
31 tries to involve suppliers more (e.g. through a sustainability day), collaboration is strengthened, and therefore increases transparency and thus indirectly agility.
For redundancy, a higher level of inventory can be found for cases doing joint projects (case B, C, D and F). These suppliers are less flexible, i.e. they have a lower ability to change product or supplier quickly. Even though there is no supporting literature that explains the direct relationships between joint projects and higher inventories, nor lower flexibility, it could be argued as follows. For redundancy, we see that a lot of multi-sourcing is done, which does not immediately lead to a higher resilience (Kim et al., 2015), but the majority of the cases also keeps the inventory at several places (case C, D and F), which is suggested by literature (Tukamuhabwa et al., 2015). In terms of flexibility, the cases indicated that sometimes a specific supplier is needed for the specifications, or that there was a patent. This could be a reason to keep a buffer (related to redundancy), in case something goes wrong at the supplier, and that the organization is still able to respond well.
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6. CONCLUSION
This section starts with answering the research question by providing general conclusions while indicating how this study contributes to existing literature. Then, the contribution for managers will be provided. We will conclude with the limitations of this study and recommendations for future research. The aim of this research was to answer the following research question: How does the level of
involvement in supplier development programs affect supply chain resilience?
This research focused mainly on the categorized SD programs (direct and indirect). The approach to SD (reactive and strategic) and orientation (result-oriented and process-oriented) have been recognized in the cases in this research too. Organizations prepare themselves for disruptions by creating contingency plans and doing financial checks of suppliers. Also, crisis teams are created at the moment of disruption. As a preventive measure, organizations monitor the environment to foresee any risks.
First, this study shows that indirect and direct SD are used simultaneously in an effective way, which is in contrast with prior research of Wagner (2010). Partly in line with Arroyo-López et al. (2012) and Krause et al. (2000), monitoring (A&E) is used as a tool to measure performance of suppliers, and to see if additional direct SD is needed. While it seems straightforward to use monitoring (A&E) as a reactive tool, we have seen that it is also used in a strategic way, focused on both processes and results. Monitoring (A&E) positively influences agility and flexibility. In particular, visibility is enhanced (risks are foreseen), which links to flexibility, as organizations know better how to adapt their production to changing demand or supply.
Direct SD has particularly effects on agility. Several approaches (reactive and strategic) and orientations (process and results) are used within trainings, joint projects, and on-site assistance. Direct SD is characterized by the transfer of knowledge (Arroyo-López et al., 2012). The cases do indeed show that suppliers and distributors are educated, also to prepare them to handle changes. Moreover, literature suggests that trainings can improve performance (Krause et al., 2000). Our findings indicate that trainings were also used to improve the production process, implying that the level of flexiblity can also be affected. We also found a link between flexibility and redundancy. For example, cases indicate to co-design a product (joint project), which limits the organization to change easily to another product or supplier. Therefore, more inventory might be kept as a buffter to reduce risk.
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6.1 Managerial Implications
Generally, this research could make managers aware of how the organization’s strategic and operational decisions could impact different SCRES elements. First, this study supports prior literature about the benefits of creating long term relationships, even though the level of collaboration is not always high. Probably even more valuable to managers, is that this study not only indicates effects of specific SD programs, but also reveals areas managers should pay attention to. Monitoring (A&E) is proven to be useful, but also combined with direct SD programs. If members in the supply chain would increase information sharing (i.e. more transparency), the visibility of the chain is enhanced, and more agile too. This is probably the most important key take away for managers, as we have found that especially agility can be enhanced by SD, which means that organizations are more likely to return to stable (or better) state. Generally, agility can also be improved by creating more back-up options in material/supplier (alternative sourcing) e.g. by changing specifications. This indirectly affects redundancy (e.g. supply base) and flexibility (changing product/supplier) too. Lastly, some disruptions occurred because of quality issues. Organizations could consider using incentives in order to increase a supplier’s motivation to increase performance.
6.2 Limitations and Future Research
There were several limitations in this study and future research is suggested. Firstly, having cases within different settings allowed us to generalize findings till a certain extent, e.g. the effective use of both indirect and direct SD in an organization, or that organizations are focused on long term relationships, but are also increasingly multi-sourcing to minimize risk. It would have been better if in the first place more cases were found, but also more cases with similar settings, so these findings could be confirmed, and thus reliability would be increased.
On the other hand, the convenience of this variety in cases, and also some exceptional cases, allowed us to identify other influencing factors. For instance, one case indicated lower scores on different SCRES elements. Also, it was an organization being one of the few in the field, and thus limited alternatives were available. Still, this organization is able to recover to a stable state after disruption. It would be interesting to focus on cases like this, and explore other influencing factors too.
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