MSc Thesis Changes in Supply Base Design Choices of Buying Organizations in the Course of a Supply Chain Disruption

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MSc Thesis

Changes in Supply Base Design Choices of Buying

Organizations in the Course of a Supply Chain

Disruption

MSc. Supply Chain Management

University of Groningen, Faculty of Economics and Business

Author: Ties Ruiter

Student number: 3842592

Email: T.m.w.ruiter@student.rug.nl Word count: 10.989

Date: January 25, 2021

Supervisor: Kirstin Scholten Co-assessor: Kristian Peters

Acknowledgements:

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Abstract:

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1. Introduction

Recently, the COVID-19 pandemic has forced many organizations to reconsider their sourcing strategies as they were limited in their ability to source globally due to the shutdown of the economies of numerous countries. An example that illustrates the problem comes from the automotive industry. Hyundai had to close one of the world’s most productive car factories due to the pandemic that had crippled China’s industrial output, resulting in a lack of parts for the Hyundai plants in South Korea. Hyundai estimates that this five-day shutdown will cost over $500 million (Xu et al., 2020). This example showed that, with the current supply base, Hyundai could not anticipate on this supply chain disruption and unable to secure their supply to stay operational. The supply base of an organization is the total number of suppliers that are actively managed by the buying organization (Choi and Krause, 2006). More broadly, research shows that after COVID-19, forty-seven percent, of the 400 organizations indicated that they need to overhaul their supply base structure to increase future supply chain resilience (Hong & Kochar, 2020). However, many organizations do not have a plan for resilience and recovery. Most companies hope for things to go back to normal on short notice (Hoek, 2020). The above example clearly shows what can happen when the supply base is not structured to anticipate on a disruption like the COVID-19 pandemic. Research by Hong & Kochar (2020) indicated that buying organizations are engaged in business continuity and risk management exercises to secure their supply. However, they also indicated that these activities are centered on reacting to localized events of a specific geography or sector. The COVID-19 pandemic is a global disruption that underlines the need for a new paradigm to develop resilience against these disruptions (Hong & Kochar, 2020). Therefore, there needs to be an understanding of how buying organizations change their supply base design in order to be better able to anticipate on future supply chain disruptions and prevent supply problems during the disruption.

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5 unpredictable and changing world, the opportunity of a supply chain disruption is always possible and, in these situations, “business as usual” is often not an option (Christopher & Peck, 2004; Golan et al., 2020). Every choice made in the design of the supply base brings different challenges and benefits. For example, an organization that manages suppliers worldwide faces different problems than a supply base that only uses local suppliers. Another example of this can be, choosing to use a single sourcing strategy to reduce complexity, transaction costs and increase responsiveness (Choi & Krause, 2006). However, lowering the number of suppliers will result in greater dependency on the supplier (Choi & Krause, 2006). This means that efficient supply chains may not always be resilient against supply chain disruptions (Golan et al., 2020). This can lead to supply problems during a supply chain disruption, as the example of Hyundai showed us.

The supply base structure has already been defined and researched by multiple researchers (Choi & Krause, 2006; Holmen et al., 2007; Ateş et al., 2015). As mentioned earlier, many organizations need to overhaul their supply bases to improve future resilience after the COVID-19 pandemic (Hong & Kochar, 2020). The views on the impact of this pandemic on supply chains are diverse. On the one hand, the pandemic is seen as a one-time event, where supply bases will return to normal design-for efficiency with some elements of resilience when the pandemic is over. On the other hand, the deep demand and supply uncertainty can exist for a longer time and even become the ‘new normal’ (Ivanov & Dolgui, 2020). However, many organizations do not have a plan for improving future resilience and hoping that business returns to normal on short notice. This implies a gap between understanding supply chain risks in literature and that in the industry (Hoek, 2020). Currently, there is no research investigating the changes of multiple supply base structure dimensions after a supply chain disruption. Therefore, it is unknown how buying organizations reconfigure multiple supply base structure dimensions to be better able to anticipate on future supply chain disruptions. This research will dive deeper into these changes buying organizations implement in their supply base structure to prevent supply problems in the course of a disruption and create a supply base design that is better able to anticipate on future supply chain disruptions. This leads to the following research question:

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6 This study makes contributions to the existing supply base management literature. It addresses a topic that has not been researched, and it will present patterns of how buying organization change their supply base design choices and examine the mechanisms behind them. This increases the existing knowledge of how supply base design choices change in the course of a supply chain disruption to stay operational and how buying organization increases their ability to anticipate on future disruptions. Besides the theoretical contributions, this research also forms interesting practical contributions. Managers who manage the supply base in an organization could derive new insights into how to change their supply base structure to be better able to anticipate and experience fewer negative events in future disruptions.

2. Theoretical background

2.1 Supply base structure

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7 structure available in current literature; it is well cited and used in multiple recognized and published papers. In appendix A, an overview of these papers is provided.

2.1.1 Supply base size

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8 is related to different aspects such as cost, uncertainty, and disruption occurrence. (Agrawal & Nahmias 2009; Weber et al., 2000; Sarkar & Mohapatra, 2009).

2.1.2 Supplier heterogeneity

Supplier heterogeneity is defined as: “the degree of different characteristics such as organizational cultures, operational practices, technical capabilities and geographical separation that exist among the suppliers in the supply base” (Choi and Krause, 2006 p.642). Supplier heterogeneity could lead to high coordination costs and high operational costs (Choi and Krause, 2006). Organizations that use a heterogeneous supply base could face difficulties, such as information sharing, due to heterogeneous suppliers with different cultures and work norms (Choi and Krause, 2006). A homogenous supply base where suppliers have the same capabilities might lack the ability to innovate (Choi and Krause, 2006). Gao et al. (2015) find that the technical diversity of suppliers is enhancing the creation of new product design for the buying organization. One of the important decisions in the heterogeneity factor is the supplier’s geographical position (Ateş et al., 2015) because the geographical separation of the supply base can directly impact an organization’s performance (Kalchschmidt et al., 2020). Research by Lorentz et al. (2012) suggests that the geographical dispersion of suppliers negatively affects the supply chain performance through higher cost of warehousing and logistics administration, as well as a decreased service performance. Thus, decisions regarding supplier’s locations must be taken with great care. The geographical separation of suppliers’ links to supplier heterogeneity because global suppliers, in this research defined as suppliers outside Europe, differ from local suppliers, defined as suppliers inside Europe. With local suppliers, it is easier to coordinate activities and share information as suppliers in close geographical proximity share the same culture and work norms (Choi and Krause, 2006). On the other hand, organizations can choose to source globally to obtain lower prices and strategic benefits such as higher quality materials, access to new technologies, and new markets (Lorentz et al., 2016). The research of Bode and Wagner (2015) shows that there is a relation between the geographical separation and the amount of supply chain disruptions. The supply chain disruptions increased, more than linear, when the suppliers’ geographical separation from an organization increased. On the other hand, local suppliers can react better to local market specificities, reduce lead times and inventory costs, and become more reactive to customer needs (Lorentz et al., 2016).

2.1.3 Supplier- supplier interaction

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9 can lead to better prices for the buying organization (Gadde & Hakansson, 1994). When suppliers compete with one another, limited information of suppliers is available (Choi and Krause, 2006). When suppliers cooperate, it is easier for the buying firm to obtain qualitative information such as production capacity and predictable demand. The buying organization can motivate the nature of the relationship between suppliers (Wu et al., 2010). The buying organization must be engaged in the supplier-supplier relationship (Wu et al., 2010). Otherwise, the buying organization can lose control over its supply base, and its bargaining power will diminish over time (Wu et al., 2010). The buying organization can directly influence suppliers’ relationships by contractual incentives and penalties (Wu & Choi, 2005). If, for example, a buying organization experience negative results from competing suppliers in the supply base, it can choose to apply penalties as purchasing leverage to steer supplier-supplier interactions. This will motivate the suppliers to work together and resolve operational problems. (Wu et al., 2010). A buying organization can also choose to create a combination of collaboration and competition, called co-opetition between suppliers (Wu & Choi, 2005). For example, bringing two competing suppliers together to collaborate on the contracts’ broad terms and later separate them to negotiate on the detailed terms. This will pressure the suppliers to collaborate when they still are expected to compete (Wu & Choi, 2005).

2.1.4 Time

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10 2.1.5 Transparency

Transparency is about the information sharing between suppliers and buying firms (Awaysheh & Klassen, 2010). This is defined as “the extent to which the supplier openly shares information about the future that may be useful to the customer relation” (Homburg & Kuester, 2001 IN Ateş et al., 2015 p.207). In this research, the dimension transparency focuses on upstream transparency. As the research of Ateş et al. (2015) indicates, the level of supplier information sharing with the buying firm is important when researching the supply base dimensions. In this research, supplier information sharing is divided into two different categories, tactical (e.g., purchasing, operations scheduling, logistics) or strategic (e.g., long-term corporate objectives, marketing, and customer information) (Hsu et al., 2008). Lamming et al. (2004) argue that it could be possible that organizations can use transparency in a manageable and practical manner in order to transfer sensitive information or knowledge with a goal of mutual benefit (Lamming et al., 2004). To obtain a high level of information exchange between buyer and supplier, the buying organization should invest in periodical meetings with their suppliers to evaluate the business relationship and discuss future developments (Wynstra et al., 2003 IN Ateş et al., 2015).

As describes above, there can be multiple supply bases within one buying organization (Ateş et al., 2015). These supply bases need to be structured to different categories and the overall strategy of the organization (Ateş et al., 2015). Due to the dynamic nature of doing business, structuring the supply base is not a one-time event; internal changes or changes in the environment can let an organization re-consider its supply base structure (Hong & Kochar, 2020). One of these events could be a supply chain disruption. This is outlined in section 2.2.

2.2 Supply chain disruptions and the effect on the supply base structure

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11 characterized by themes such as preparing, avoiding, and resisting. The during-disruption phase is characterized by responding, code, and adapt. The last phase, the post-disruption phase, can be described by themes such as recovery, surviving, and restoring (Ali et al., 2017). These phases will be used in this research to shine light upon how the supply base structure of buying organizations change in the course of a supply chain disruption. An organization can make changes in de different dimensions of its supply base structure to mitigate the risk in the course of a supply chain disruption (Ateş et al., 2015; Choi & Krause, 2006) In a survey, the Chartered Institute of Procurement and Supply found that 58% of the respondents stated that they are moving away from single sourcing, so increasing their supply base size to mitigate the risks from the COVID-19 disruption (Hoek, 2020). This is an example of how organizations can mitigate supply risks by changing the size of the supply base. Another survey from Forde (2020) shows that 60% of the responding procurement managers experience a lack of transparency within the supply chain. However, transparency of what happens in the supply base is critical to risk mitigation of these disruptions (Wilding, 2013). Organizations can also make changes in the heterogeneity of the supply base such as, rescale their economic activity to national and local levels to mitigate the risks and vulnerability of the COVID-19 supply chain disruption (Lawrence, 2020). After the supply chain disruption is over and the operations go back to the original state, the buying organization can choose to reverse the changes they made during the supply base structure; this means these changes were temporary. However, the research of Hong and Kochar (2020) shows that a significant part of the organizations needs to overhaul their supply base to increase future resilience. So, it can also happen that the supply chain disruption worked as an eye-opener for the organization, and the changes become permanent to create more resilience against future supply chain disruption. When a change is made temporary, the organization needs to know when it wants to reverse this change. For example, an organization needs to use a supplier outside its supply base to stay operational during a disruption. This is a temporary change when it is known that after the disruption has been dealt with, this change will be undone and operations return to the original state (Berninghuis & Seifert-Vogt, 1988). In this research, permanent change is defined as a change that becomes part of the daily routine and that there are no intentions to reverse this change in the long term. It is important to look at the different changes made in the supply base structures because there is a gap between understanding supply risks in literature and industry (Hoek, 2020).

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12 by reconfiguring of one or multiple supply base structure dimension(s) to create the desired supply base design. The next section is outlining the methodology. Table 1 displays all the variables, dimensions, characteristics, and definitions used in this research.

Table 1

Definitions of variables and dimensions

Variable Dimensions Characteristics Definition Author(s)

Supply base structure

Supply base structure

- The supply base structure is defined as several characteristics of the supply base these are the number of suppliers, the degree of differentiation of

suppliers, the way in which suppliers relate to one other, the duration of the relationship, and the transparency.

Choi and Krause, 2006; Gadde and Hakansson, 1994; Holmen et al., 2007 IN Ateş et al., 2015 Supply base size Sourcing strategy (single, multiple)

The supply base size refers to the number of current suppliers with enduring business relations.

Ateş et al., 2015; Choi and Krause, 2006 Supplier heterogeneity Differentiation of suppliers (capabilities, culture, geographical)

“The degree of different

characteristics such as organizational cultures, operational practices, technical capabilities, and the geographical separation that exist among the suppliers in the supply base.”

Choi and Krause, 2006 p.642 Supplier-supplier interaction Interaction (competition, collaboration)

The interaction between suppliers, where a distinction is made between competition and collaboration.

Choi and Krause, 2006; Ateş et al., 2015

Time Contract duration (short term <1year, long-term > 1year)

Time refers to the duration of the relationship between organizations.

Ateş et al., 2015

Transparency Supplier

information sharing (tactical,

strategical)

“The extent to which the supplier openly shares information about the future that may be useful to the customer relation.” Homburg & Kuester, 2001 IN Ateş et al., 2015 p.207 Supply chain disruption Supply chain disruption

A supply chain disruption is an unavoidable event that disrupts the usual flow of goods and services in the supply chain.

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3. Methodology

3.1 Research design

This research aims to gain insight into how supply base design choices of buying organizations change after a supply chain disruption. No earlier literature has studied the influence of supply chain disruptions on the supply base design choices, so this phenomenon has not yet been completely understood. Therefore, this research is explorative in nature, and a case study method fits best for this research. (Voss et al., 2016). Case studies have different outstanding strengths and make it possible to study the phenomenon in its natural setting, and it lends itself for exploratory investigations where the phenomenon is not yet fully understood. For this research, it means that the researcher can study the changes in supply base design choices after disruptions in a real business environment without manipulating the environment (Voss et al., 2016). This research uses a multiple case study approach so that a comparison can be made between the cases (Yin, 2009). This increases external validity and helps against observer bias (Voss et al., 2016). The comparison between the cases gives a broader view of how different buying organizations cope with their supply base structure. The unit of analysis in this research is a “supply base.”

3.2 Research setting

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3.3 Case selection

In line with the research question, the cases are concentrated on supply bases. This research focuses on the supply base structures of buying organizations. To gain information about these structures, organizations were sought that actively managed their supply base. As mentioned in the theoretical background, an organization can have multiple supply base structures linked to different purchasing categories. Therefore, it is possible to derive multiple cases within one buying organization. The cases are selected on two dimensions of the supply base structure: supply base size and supplier heterogeneity. These are the two most interesting dimensions regarding the COVID-19 disruption. This is because the pandemic has caused shutdowns of numerous economies, which make it hard to source globally. The pandemic is also causing severe supply chain disruptions, leading to supply problems and the need to source from other suppliers inside or outside the original supply base. The seven cases are used to produce theoretical replication. Theoretical replication means that the cases produce contrary results, but the differences have a predictable reason. For the dimension, supply base size, two situations were examined for the cases, one is a supply base that mostly uses a single source strategy, and the other is a supply base that uses multiple sources. The second dimension is about supplier heterogeneity. One situation is displaying an organization that sources locally. The second is looking at organizations that source globally. In table 2, a systematic overview of the cases and the participating organizations is provided.

Table 2

Participating organizations, cases and correspondent

Organization Case Company background Supply base size Supplier heterogeneity Correspondent + position Length of interview

1 A1 Food industry Single

sourcing Sourcing local Supply chain manager Demand planner 59:10 1:02:53

1 A2 Food industry Single

sourcing

Sourcing global

Supply chain manger Demand planner

59:10 1:02:53

2 B Food industry Multiple

sourcing Sourcing global Sourcing specialist Purchaser 38:31 52:00 3 C Manufacturing industry Single sourcing Sourcing global Strategic purchasing manager Strategic purchaser 49:48 1:14:39 4 D Manufacturing industry Single source Sourcing global Operations manager Strategic purchaser Strategic purchaser 29:35 59:00 57:00 5 E Manufacturing industry Multiple sourcing Sourcing Global Category manager 57:43

6 F Food industry Multiple

sourcing

Sourcing Global

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3.4 Data collection

The primary data for this research were collected by conducting in-depth semi-structured interviews. In total, there were 11 semi-structured interviews conducted. A semi-structured interview was used to keep the interview open and provide the correspondent with enough space to drive the discussion resulting in new information and insights (Puyvelde, 2018). The organizations of table 2 were contacted by e-mail with a general introduction to the subject and the question if they were interested in participating in this research. This introduction can be found in appendix A. In advance of the interview, the correspondent was asked to think of a particular supply base with the corresponding case characteristics, size of the supply base, and supplier heterogeneity. The correspondents for the interview were selected on their knowledge of supply chain management and particularly in the supply base structure. The introduction letter clearly outlines the topic of the research and what is expected from the correspondent. Together with the introduction letter, the interview protocol was sent to the correspondent. This was done to ensure that the correspondent had the knowledge and information to answer the interview questions. The interview protocol can be found in appendix B. The data collection is done by two researchers, one leading the interview and the other observed and ensured all information was obtained. The use of multiple interviewers allows cross-checking results (Matteson & Lincoln, 2008). The interviews were conducted through online meetings because it was not possible to conduct the interviews on location due to the COVID-19 measures. All the interviews were, with approval, voice recorded to increase the data reliability. All correspondents were asked to fill in a consent form where they gave permission to record and use the data. This consent form can be found in appendix C. This was done for the researcher so transcripts could be made of the interviews to ensure all the data were saved and available for later consult. To ensure the quality of the data, the transcripts were sent to the correspondents for confirmation. The shared information is completely anonymous and only used for educational purposes. For data source triangulation, multiple correspondents are interviewed for most of the cases. Data triangulation increases the validity of this research.

3.6 Data analysis

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16 supply chain disruption: pre-disruption, during-disruption, and after-disruption (Sheffi and Rice, 2005 IN Ali et al., 2017). In this phase, all changes (permanent or temporary) are assigned to each of the phases to create a clear and complete image of the evolution of the changes. The second-order codes were deductively extracted using the different supply base structure dimensions (Ateş et al., 2015). These second-order codes are descriptive in nature. After the second-order codes were applied, the within-case analysis started to find the underlying mechanisms of how the supply base structures changed in the course of a supply chain disruption. During the within-case analyses, it became clear, from the interview data, that the dimension supplier-supplier interaction is hardly used by the interviewed organization, so this dimension will therefore not be further described in this research. Table 3 shows an excerpt of the coding process analysis, and this shows how the data is progressed following the above-described steps.

Table 3

Excerpt of the coding process

Quote (first-order code) Disruption

phase Descriptive code (second-order code) Mechanisms Link to supply base structure

“The first reaction was the discussion if companies should

re-shore a part of their supply chain closer to home. It would be way easier to respond in such situations. However, this discussion floated away a bit because Europe itself was hit as well” (C).

During Plan to re-shore part of the supply base

Re-shore part of the supply base

Supplier heterogeneity “I think the goal is to reallocate our supply base and

decrease our exposure to risky countries” (D). After

Relocation of supply base

“I think that the trend of blindly outsourcing to low-wage

countries will reduce, a stop will not happen but certainly a reduction. This, in combination with a risk plan, could start the search for new suppliers. However, it is easy to

determine that you need to source this product from another supply chain but actually making actions and making it happen is an interesting challenge” (C).

After Outsourcing to low-wage countries

“The reason for this tension was the missing of information

sharing from the supplier. This has been a big cultural change for us and our supplier. In the western culture, suppliers tend to acknowledge their problems and try to find a solution together with the buyer. In their culture, they keep it quiet in the hope that you do not notice it. Through the good partnership, there is a change noticeable in the information sharing with us. Our interaction

frequency increased immensely in the last year” (A2).

During

information sharing despite the cultural

differences

Overcome cultural differences

“What has become clear is that risk diversification is

crucial, you want to spread your risks. Especially for strategic items. This was often focused on commercial outcomes and not on the availability of products. What if something happens in country A, then I have a back-up

After

Spreading risk with geographical

dispersion

Geographical dispersion of

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17 supplier in country B. We look differently towards risk

diversification. We will focus more on back-up suppliers”

(A2).

“The production process needs to be special for our

products with our logos and packaging materials. The project to build a process like this is not done in a week. On average, it takes half a year to completely implement these processes” (A1).

After Specific supplier capabilities

Invest in the creation of

supplier capabilities “The length of the contracts will become shorter to create

more flexibility. Focusing more on mutual goals and try to achieve them from both sides. Focus starts with flexibility, then speed, and lastly, the price. Furthermore, cooperating with our suppliers more often to become closer” (D).

After Length of contracting Short-term

contracting Time

“For some packaging materials, we choose to source the

same item from different suppliers in the future”

(A1).

During Expand the supply base in the future

Expanding the supply

base

Supply base size “We want to ensure that we are using a multiple sourcing

strategy in the future” (A2). After

Multiple sourcing strategy “For some products, we could use a multiple sourcing

strategy, but you have to look at the capacity of these suppliers, compare them, and make sure that they both have enough work at the end of the year. So, when something happens with one supplier, we could always contact the other one. In this way, we look at multiple sourcing for after the pandemic to create more security” (C).

After

Multiple sourcing for part of the supply

base

“Yes, when you look at the supply chain, we need to make

sure that our chain has the information it needs to work properly. So, the awareness of the importance of

information sharing with our customers was there already before the pandemic. The pandemic nicely shows that it was necessary to do it and that we did not need to start a day later with this project” (A1).

During Information sharing

Increased tactical information

sharing

Transparency “I think that could be the difference between before and

after the crisis. Before the crisis, we do not regularly share our demand forecast with our supplier” (F).

After Information sharing “But especially the communication of how to create a safe

work environment for their employees was important. How to work with safety glass and implement social distancing”

(B).

During Information sharing

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Figure 1

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4. Findings

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Table 4

All changes over the course of the supply chain disruption

Dimensions Pre-disruption

(original state of the supply base)

During-disruption Post-disruption

Supply base size

• Multiple sourcing (B, D, E & F)

• Single sourcing (A1, A2 & C) • - • Search for additional suppliers (A1, A2 & E) • Search for additional supplier for a part of the supply base (C)

Supplier heterogeneity

• Local sourcing (A1 & F)

• Global sourcing (A2, B, C, D & E) • Using global geographical

dispersion regarding supplier location (B)

• Bound by supplier due to supplier capabilities (A1 & A2)

• Overcame cultural differences (A2) • Use geographical dispersion regarding global supplier location (A2)

• Re-shore part of the supply base to local suppliers (C & D)

• Use local supplier as back-up (E)

• Invest in additional suppliers to create the needed capabilities (A1 & A2)

Time • Long term contracts (A2, D, E &

F)

• Short term contracts (A1& C) • Short-term contracts but focusing

on long term relations (B)

• - • Short term contracts to create flexibility (D)

Transparency • Suppliers are willing to share

tactical information (A1, C, D & F)

• Suppliers are not willing to share tactical information (A2)

• Integrated information-sharing portal (B)

• Increased tactical information sharing (All cases)

• Increased communication frequency (All cases)

• Created an integrated information-sharing system (A1 & A2)

• Increased tactical information sharing (A1 & A2)

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4.1 Changes in the supply base structure

The data showed that multiple cases changed their supply base structure in the course of a supply chain disruption. These changes are outlined in table 4. The changes are divided into the three phases of a supply chain disruption, pre-disruption, during-disruption, and post-disruption, to ensure that the complete evolution of the changes is clear. When looking at the data of the dimension, supply base size, all cases will use a multiple sourcing strategy after the disruption. This means that cases A1 and A2 increase their supply base size to implement a multiple sourcing strategy throughout the whole supply base. Case C also planned to increase their supply base size. However, that is not possible for the complete supply base due to limiting ERP-system capabilities. Therefore, case C is implementing a multiple sourcing strategy for a part of the supply base. The majority of the cases that were already using a multiple sourcing strategy did not change their supply base size except case E. Case E indicated that they would search for additional local suppliers as a back-up in case another supply chain disruption limits the possibility to source globally. For the dimension supplier heterogeneity, the data showed that the cases that were already using geographical dispersion of suppliers, which means sourcing the same product from different locations, are not changing this. The cases are sourcing a part of their products from global suppliers show that they will re-locate part of the supply base to local suppliers. The dimension time showed little change in all cases. Only case C indicated that they would focus more on short-term contracts after the supply chain disruption to create more flexibility to switch from suppliers. The dimension where the cases showed the most changes is transparency. Data shows that all cases increased their communication frequency during the supply chain disruption. Cases A1 & A2 take it a step further by implementing an integrated information-sharing system. Case B already had an integrated information-sharing system before the disruption, and this system is used during the disruption to increase the information sharing about COVID-19 measures. Case C increased the information sharing about risk, and the other cases (A1, A2, D, E, F) increased their tactical information sharing with the suppliers. However, after the disruption, cases C, D, E & F indicated that information sharing is not a permanent change and will diminish over time. Cases A1 and A2 use their integrated information-sharing system as a permanent change.

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22 during a supply chain disruption. The creation of supply security during the disruption is a temporary change of the supply base for all cases. This change is made to stay operational during the disruption. Cases C, D, E, and F will reverse the change of increased operational information sharing after the disruption is over. The underlying reason for this is that these organizations will create supply base responsiveness and supply base risk diversification to be better able to anticipate on future supply chain disruptions. Cases A1 and A2 state that this increase in operational information sharing will be permanent to realize the creation of supply base responsiveness. This will be outlined in detail in the coming sections.

4.2 Creation of supply security

What immediately stands out from the data is that most of the changes in the supply base structure will happen after the disruption. This is also seen in table 4, except for the changes regarding the dimension’s transparency and supplier heterogeneity, there are no other changes implemented during the supply chain disruption. All cases except case B indicated that they had problems changing the supply base structure on short notice. This leads to the first pattern where supply bases are creating supply security during the disruption. The mechanisms used for this change are, increased tactical information sharing, and overcoming cultural differences. This is also outlined in table 5.

Table 5

Mechanisms of the creation of supply security

Creation of: Supply base size

Supplier heterogeneity Time Transparency

Supply security

- Overcame cultural differences (A2)

- Increased tactical information sharing (All cases)

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23 ordered. You may say ‘look for another supplier,’ but the whole market was under pressure. At this point, we wanted to communicate more often, sharing more information so that they can see what we need on the short and middle-term” (A1). However, case A2 first needed to overcome cultural differences to increase their tactical information sharing to secure their supply during the disruption; “The reason for this tension was the missing of information sharing from the supplier. This has been a big cultural change for us and our supplier. In the western culture, suppliers tend to acknowledge their problems and try to find a solution together with the buyer. In their culture, they keep it quiet in the hope that you do not notice it. Through the good partnership, there is a change noticeable in the information sharing with us. Our interaction frequency increased immensely in the last year” (A2). Case B was the only case that could make changes in almost all supply base structure dimensions during the disruption. They already had an integrated information-sharing system in place, so they used this system to increase their tactical information sharing to inform suppliers of COVID-19 measures to prevent supply stops and secure their supply during the disruption; “When it all started, nobody knew what role COVID-19 was about to play. It had a lot of impact on our suppliers. From the first moment, we communicated with our supplier, both national and international, using a newsletter. In this letter, we showed what kind of measurements suppliers could take during this crisis”. For cases A1 and A2, the increase of information sharing will be a permanent change in their supply base structure. The integrated information-sharing system, which is implemented during the disruption, will also be used after the disruption to create supply base responsiveness; “what we will do differently is asking more production data from our suppliers, think of capacity information and how much time they need to scale up their production. It is all about securing our supply, and we spent more resources on investigating this question” (A1). This is contradictory to the other cases (C, D, E, & F), who are all indicating this increase in information sharing will diminish over time because of the time and investments needed to keep the information sharing at a high level; “I do not think that this increase in information sharing will be permanent. Everyone in our purchasing department is already at their maximum capacity. The trade-off will always exist, and unfortunately, you always fall in the daily routine” (C).

4.3 Creation of supply base responsiveness

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24 of the supply chain, short-term contracting, and increased information sharing. This is also outlined in table 6.

Table 6

Mechanisms of the creation of supply base responsiveness

Creation of: Supply base size Supplier heterogeneity

Time Transparency

Supply base responsiveness

Expanding supply base (E)

Re-shore part of the supply base (C & D)

- Increased

tactical information sharing (A1 & A2)

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25 We are structurally sharing status updates about the orders. We know now what is happening in their plant” (A2). This increase in information sharing led to the creation of supply base responsiveness because they are now notified when something goes wrong, and they can anticipate on it. The same principle holds up for case A1, they are using local suppliers but try to increase the responsiveness of the supply base by implementing an increase of information sharing; “What we will do differently is asking more production data from our suppliers, thinking of capacity information and how much time they need to scale up their production when demand is fluctuation. So, when there is more demand from our side, they can grow with us. When they cannot grow with us or want to share this information, we can look for alternatives” (A2).

4.4. Creation of supply base risk diversification

As described in section 4.2, the supply bases could not change their supply base size on short notice. This means that the supply bases were dependent on the existing suppliers and their geographical location. The exposure of this dependency led to the creation of supply base risk diversification. The mechanisms that are used to create risk diversification are, expanding the supply base, geographical dispersion of suppliers, and short-term contracting. This is also outlined in table 7.

Table 7

Mechanism of the creation of supply base risk diversification.

Creation of: Supply base size Supplier heterogeneity Time Transparency Supply base risk diversification Expanding supply base (A1, A2 & C) Geographical dispersion of suppliers (A2) Invest in the creation of supplier capabilities (A1 & A2)

Short-term contracting (D)

-

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26 to reduce the dependency on a single supplier; “One thing that we learned is that we need to be sharp on our strategic products. We need, besides the volume, more alternatives for our strategic products” (A2). To to do this, they need to invest in these suppliers to create the production capabilities needed to produce their brand-specific products. Case C, who is also forced to a single-sourcing strategy due to an ERP-system that does not support multiple sourcing, will change, where possible, to a multiple sourcing strategy by expanding their supply base; “You have to be smart in this situation. On a product level, multiple sourcing is probably not possible. However, for some products, we could use multiple sourcing, but you have to look at the capacity of these suppliers and compare them to make sure that they both have enough work at the end of the year” (C). By expanding the supply base and using multiple sources, the dependency on certain suppliers will decrease, and the risk is spread among these suppliers. Case A2 takes the risk diversification a step further. Case A2 was forced to source from overseas suppliers due to product characteristics. This is why case A2 was dependent on one supplier and depended on this supplier’s geographical location. As mentioned above, they are expanding the supply base after the disruption. The exposure of geographical dependency initiated the change to use the geographical dispersion of suppliers. This means that they will source the same product from a different supplier in other geographical locations; “What has become clear is that risk diversification is crucial. You want to spread your risk, especially for strategic items. In the past, we were often focused on commercial outcomes and not on product availability. What if something happens in country A, then I have a back-up supplier in country B” (A2). Case D already made use of a multiple sourcing strategy. However, after the disruption, they want to create risk diversification by using short-term contracts to create more flexibility to switch between suppliers; “the length of the contracts will become shorter to create more flexibility” (D).

4.5 No changes implemented

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27 analysis of different situations; climate change is an example of that. Climate change has a big impact on our business, and we also use geographical dispersion because we do not want to be dependent on one region, because of political instability. This risk analysis is updated every six months because of the fast-changing world” (B). In some organizations the lack of risk management became clear during the interviews; “In our plant certainly not. I think our organization is not really far with risk management” (C). This lack of risk management is leads to more changes in the supply base structure in the course of a supply chain disruption.

5. Discussion

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28

Figure 2

Results of how supply bases are changing in the course of a supply base disruption

5.1 Creation of supply security

It was found that the inability to change the supply base size during the disruption led to the creation of supply security during the disruption. To create supply security during the disruption, buying organizations changed their supply base regarding supplier heterogeneity and transparency. From the current literature it became clear that procurement managers were experiencing a lack of transparency (Forde, 2020). This research confirms this statement, and it shows that an increase in transparency was needed to overcome this supply chain disruption. Organizations used an increase in tactical information sharing to secure their supply needed from the supplier. This disruption also led to the need to overcome cultural differences in information sharing. Current literature forms different practices about overcoming cultural differences in information sharing. Examples of this are visible connections between sharing knowledge and practical business goals, matching organizational styles, and linking information sharing to the core values of the business (McDermott & O’Dell, 2001). However, this research shows that cultural differences can be overcome when there is a need to survive a supply chain disruption.

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29 P1b. In the context of a supply chain disruption, cultural differences in tactical information

sharing are overcome to survive the supply chain disruption.

5.2 Creation of supply base responsiveness

This research found that current supply bases could not respond quickly to the fast-changing demands caused by a supply chain disruption. This leads to the creation of supply base responsiveness after the disruption. The creation of supply base responsiveness is done through the mechanisms: expanding supply base, re-shore part of the supply base, and increased operational information sharing. Current literature states that a close relationship, open communication, and less differentiation of suppliers is enhancing supplier responsiveness (Choi and Krause, 2006). This is in line with the results of this research because supply bases are sharing more information. Re-shoring part of the supply base to increase the responsiveness is in line with current literature as Lorentz et al. (2012) states that an organization can better react to customer needs with local suppliers. However, Choi and Krause (2006) also stated that the number of suppliers is negatively associated with supplier responsiveness. This research shows that supply bases also expand their supply base with local suppliers to obtain higher responsiveness, which was not possible with (only) the use of global suppliers. So, in the course of a supply chain disruption, which is limiting global sourcing, increasing the supply base with local suppliers can increase supplier responsiveness.

P2a. The inability to anticipate on the fast-changing demand caused by a supply chain disruption, led to the creation of supply base responsiveness by re-shoring part of the supply base, expanding the supply base, and increased tactical information sharing.

P2b. In the course of a supply chain disruption, which is limiting global sourcing, expanding the supply base with local suppliers leads to an increase in supply base responsiveness.

5.3 Creation of supply base risk diversification

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30 chain disruption states that it is always a better strategy to have suppliers from as many locations as possible when taking supply chain disruption in regard (Sarkar and Mahapatra 2009). This is in line with the results of this research, as organizations are expanding their supply base to create risk diversification. Geographical dispersion of suppliers is also applied to overcome dependency on geographical locations during a supply chain disruption. In this disruption, several regions and even entire countries were on lockdown. When a supply base was dependent on these locations, it resulted in longer lead-times and supply stops. Current literature states that with the use of geographical dispersion during a supply chain disruption, not all entities are hit simultaneously or with the same magnitude (Manuj & Mentzer, 2008 IN Habermann et al., 2015). This is entirely in line with the reasoning found in this research to implement geographical dispersion of suppliers. However, current literature also highlights that the use of geographical dispersion can lead to longer lead times, which, in themselves, increase supply chain disruptions (Habermann et al., 2015). This research shows that the urge to overcome the dependency felt during this disruption is worth the risks and costs of using geographical dispersion, just as Sarkar and Mahapatra (2009) concluded in their research.

P3. The exposure of dependency leads to the creation of supply base risk diversification by expanding the supply base, geographical dispersion of suppliers, invest in the creation of supplier capabilities, and short-term contracting.

6. Conclusion

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31 the supply base, expanding the supply base, and increase operational information sharing to implement this change. This change is permanent and results in the ability to anticipate quicker on changing demands in future disruptions. What also has been found within this pattern is that expanding the supply base with local suppliers leads to more supplier responsiveness in the context of a supply chain disruption where global sourcing is limited. The last pattern found is the creation of supply base risk diversification that is created by expanding the supply base, geographical dispersion of suppliers, invest in the creation of supplier capabilities, and short-term contracting. This pattern is created to prevent dependency on suppliers or the geographical location that the current supply bases are exposed to during this disruption. Overall, this research shows that all buying organizations implement permanent changes in their supply base structured to be better able to anticipate on future disruptions and be less dependent on specific suppliers or locations. Buying organizations are less focused on creating the most efficient supply base and are willing to implement changes that reduce (cost) efficiency in order to create more future resilience against supply chain disruptions.

6.1 Managerial implications

This research found answers on how supply chain design choices are changing in the course of a supply chain disruption. This information could be of great value for supply chain-, category- and or strategic purchasing managers. As van Hoek (2020) stated, many organizations do not have a plan for recovery and resilience. This research could be used as a framework of how buying organization create supply security, responsiveness, and risk diversification in their supply bases in the course of a supply chain disruption. This research shows that current supply bases do not have the ability to anticipate on sudden changes in demand and that these supply bases are too dependent on specific suppliers and their locations. Therefore, the researcher recommends implementing supply base responsiveness and risk diversification to be better able to anticipate on future supply chain disruptions.

6.2 Limitations and future research

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8. Appendix

A. Introduction letter

Dear Sir/Madam,

We are two supply chain management master students of the University of Groningen. We are now busy with our final project - a thesis in the area of supply chain disruption management. We are focusing on COVID-19 specifically, as a recent and well-known supply chain disruption that has affected supply chains all over the world. For example, the pandemic caused a complete shutdown of economies in certain countries, leading to severe supply problems. While the negative consequences of COVID cannot be denied, it also provides the opportunity to learn and be better prepared for future events.

Therefore, for our Master thesis we are researching: ● Purchasing Category Structures

Many organizations which were heavily dependent on suppliers from China experienced supply problems in the beginning of 2020. Alternative sources were required. Later in 2020 economies all over the world were in lockdown and buying organizations needed to source from (local) suppliers to stay operational. Hence, disruptions can require re-considerations of category suppliers in terms of amount, geographic location or contract duration. Therefore, Ties is researching how supply base design choices of buying organizations change after a disruption? ● Buyer-supplier relationships

A supply chain disruption, such as the COVID-19 pandemic, can have a lot of influence on buyer-supplier relationships. For instance, it could create conflicts due to dependencies on one another or foster commitment as a result of collaborative practices. Companies need to know how these relationships can evolve in the course of a crisis to be able to effectively manage them in the aftermath of a disruption. Therefore, Julian is researching how buyer-supplier relationships evolve in the course of a supply chain disruption.

Are these topics of interest to you?

We are looking to interview 2-3 category/ purchasing managers within your organization. In case you are interested in participating, we would need about one hour of your (and possibly your colleagues) time between now and mid-December. Due to the current situation concerning the COVID-19 pandemic, this can be done by means of an online video call.

We would like to ensure you that the information you would provide us with will be treated confidentially and anonymously at all times. This means, all data will be anonymized, no individual names or company names will be used, and that the data will be stored in a secured place.

What is in it for you?

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39 events. We will provide you with the managerial insights, the final paper and/or a presentation that answers the questions mentioned above, depending on your interests.

If you have any questions or remarks with respect to the subjects or any other matter, do not hesitate to contact us.

We are looking forward to hear from you. Kind regards,

Ties Ruiter Julian Krops

t.m.w.ruiter@student.rug.nl j.g.krops@student.rug.nl