Supplier power and collaboration in
professional service supply chains
Master thesis, MSc, Supply Chain Management University of Groningen, Faculty of Management and Organization March 23, 2016 Erick van de Scheur Student number: 1883712 E-mail: Erick.van.de.scheur@student.rug.nl Supervisor/university H. Broekhuis Rijksuniversiteit Groningen Co-assessor/university C. Sancha Fernandez Rijksuniversiteit Groningen Supervisor/field of study M.E. Pouwe Wolters Kluwer, Deventer Acknowledgement: The process of writing a thesis is by far the most challenging that academics have to face. However, it also is the most satisfying process when finished. I would not be able to deliver a thesis like the one you are holding in your hands at the moment, without the support of others. First I would like to thank all colleagues at Wolters Kluwer for welcoming me in their team and providing me with a sneak peak in the publishing industry. A special thanks goes out to Mirjam, Arthur and Paul for their efforts in providing me with guidance in the specific aspects of the publishing industry. I thank all interviewees for their effort and valuable time. Lastly I want to seize this opportunity to thank my girlfriend, my brothers and my parents for their unconditional support, for providing me with resources at crucial moments and for relentlessly reviewing my draft version on the day of the deadline.Abstract:
1. Introduction
A defining characteristic in every supply network is power imbalance between buyers and suppliers (Bastl et al., 2013). Power is ‘’the ability of one individual or group to control or influence the behavior of another’’ (Hunt and Nevin 1974, p.186). As a result of power imbalance, the most powerful firm in the supply chain is often able to improve their financial performance at the cost of the relatively weaker firm (Gelderman et al., 2008). According to Bastl et al. (2013) the main focus of current academic research in this area is on powerful buying firms (e.g. Benton & Maloni, 2005; Ireland & Webb, 2007). However, this study will focus on power of suppliers. More specifically, how supplier power creates a barrier for improving supply chain collaboration in professional service supply chains. By addressing this issue, this research enriches the current understanding about mechanisms that influence the successful outcome of supply chain collaboration. Enriching this understanding is crucial since collaboration in the supply chain is widely acknowledged in the popular press and academic research as a concept where buyers and suppliers both benefit from lower total cost and increased business performance through aligning processes and incentives, sharing information and synchronizing decisions (Stank and Keller, 2005; Chicksand, 2015). However, the benefits of collaboration are not necessarily equally shared when buyers operate in an environment of relative powerful suppliers. If for example a supplier in a professional service supply chain (PSSC) is in the possession of superior knowledge, an information asymmetry is created between the buyer and supplier that lead to relative dependency of the buyer on the supplier (Cox, 1999). The more powerful supplier can gain at the expense of the buyer and as a result collaborative initiatives could fail. This paper will give insight how powerful suppliers influence supply chain collaboration in the professional service supply chain.
Simatupang and Sridharan (2002, p.19) define collaboration as ‘’two or more independent companies that work jointly to plan and execute supply chain operations with greater success than when acting in isolation’’. Since physical production does not exist, collaborative initiatives of buyers and suppliers in a PSSC need to be focused on letting knowledge flow through the supply chain (Panjaintan and Noorderhaven, 2009). Specific characteristics of PSSC’s are the delivery of knowledge-based services, customized deliveries to customers, high levels of specialization and highly educated professionals are an essential resource in the chain (Fitzsimmons et al. 2014). Examples of professionals acting in a PSSC are lawyers, consultants and architects (Fitzsimmons et al., 2014). According to Von Nordenflycht (2010) PSSC’s differ from other supply chains in terms of these characteristics and therefore demand distinctive theories of managing the PSSC. This paper fulfills this demand by introducing the concept power of supplier and how powerful suppliers create a barrier for collaboration within in PSSC’s as law, juridical services or consultancy. In order to describe the PSSC this paper will use the definition of Ellram et al. (2004, p.25) to define the PSSC: ‘’the management of information, processes, capacity, service performance and funds from the earliest supplier to the ultimate customer’’.
explains how companies can gain power through creating better access to customer information (Finne et al., 2015). Habib et al. (2015) explain what options are for the weaker firm in the buyer supplier relationship in order to reduce power differences. Chicksand (2015) researches if collaboration is most likely to succeed when power is equally distributed over buyers and suppliers in the UK food industry. However, the influence of supplier power on supply chain collaboration has not yet been researched within the professional service supply chain. The setting of this paper is the PSSC and this paper is aimed at giving insight to practitioners in the professional service sector with insight on the role of supplier power on supply chain collaboration. The research question this paper seeks to answer is as follows:
‘’How does supplier power create a barrier for supply chain collaboration within the professional service supply chain?’’
2. Theoretical framework
2.1 Professional service contextThis part will explain specific characteristics of a PSSC and what kind of managerial issues arise in the professional service context. The definition of Ellram et al. (2004, p.25) is used to define the PSSC: ‘’the management of information, processes, capacity, service performance and funds from the earliest supplier to the ultimate customer’’. Ellram et al. (2004) further state that buying a professional service is basically a temporary transfer of the supplier’s capacity to the buyer. This underlines that no goods transfer takes place, only utilization of highly skilled experts that deliver almost unique services to their clients (Fitzsimmons et al. 2014). The knowledge intensity of the service and the presence of a professional workforce are two very important characteristics that have implications for the management of the PSSC (Von
Nordenflycht, 2010). Moreover, the management of information from supplier to the ultimate customer in a PSSC is not as straightforward as for example the management of physical objects in a manufacturing supply chain (Fitzsimmons et al., 2014). In PSSC’s buyers often also need to act as supplier of service production inputs (Sampson and Froehle, 2006). For example a buyer that hires a financial consultant will need to supply the consultant with balance sheets and explanations of certain financial choices. Therefore, next to the knowledge intensity and the professional workforce, the
co-creation of buyers and suppliers is also a characteristic of a PSSC and has important
managerial implications. Managerial issues regarding the specific PSSC characteristics (knowledge intensity, professional workforce and co-creation) will be discussed below.
Knowledge intensity
Professional workforce
The firms in PSSC’s employ highly educated professionals that are responsible for the delivery of the service (Ferguson, 1996), meaning that these firms are dependent on specific expertise. Some professionals even experience entry barriers to practice a profession (Von Nordenflycht, 2010). For example judges, accountants and lawyers need to be certified to practice their job. A key managerial implication of the professional workforce is cat herding. According to Von Nordenflycht (2010) cat herding is the challenge that firms in PSSC’s face to retain and direct the professional workforce. Because professional service firms rely on attracting, developing and transforming the knowledge of their experts (Løwendahl, et al., 2001), buyers and suppliers in a PSSC need to satisfy the preferences of these experts. A very important preference for professionals is task autonomy (Von Nordenflycht 2010). Task autonomy entails an employee’s freedom in decision-making and working methods (Breaugh, 1985). Task autonomy is typical for a professionalized workforce and of great importance to experts since it acknowledges their status, independency and discretion (Hoogland & Jochemsen, 2000). As buyers and suppliers in a PSSC are dependent on the ability to transform knowledge, highly skilled professionals hold a strong bargaining position (Teece, 2003). Collaboration between buyers and suppliers may affect the task autonomy the professional workforce experiences. When engaging in collaborative activities there might be a need for coordination of decisions and working methods, which could significantly decrease a professional’s feeling of task autonomy (Molleman et al., 2008). Take for example an accountancy firm and buyers of their service that jointly decide to align their processes through working in the same accounting system with standardized methods. On the one hand, working in the same system might result in considerable efficiency gains for both buyer and supplier. On the other hand the professional accountancy firm gave up their professional freedom and might feel they are obliged to work in a certain system and with a standardized method. A result could be that the accountancy firm feels that they do not hold enough task autonomy anymore and therefore terminate the collaboration. In order to deal with the cat-herding problem in the PSSC in comparison with traditional supply chains, buyers should display more task autonomy for their suppliers since they are the experts in their domain (Greenwood and Empson, 2003).
Co-creation
that the consultant did not understand the problem deeply enough because the buyer did not provide enough information to solve the problem. To be able to determine if the buyer or the consultant is responsible for the failure, buyers and suppliers need to collaborate to define clear performance measures (Ellram et al., 2004; Barrat and Oliviera 2001). This is challenging since in the PSSC, the service level agreements are usually vague (Sonmez and Moorhouse, 2010).
2.2 Supply chain collaboration
Simatupang and Sridharan (2002, p.19) define collaboration as ‘’two or more independent companies that work jointly to plan and execute supply chain operations with greater success than when acting in isolation’’. As is stated in this definition, the long-term objective of collaboration is to achieve higher performance than is possible when firms operate individually (Lambert et al., 2000). These statements are underlined by many studies showing that collaboration has a positive impact on performance outcomes such as quality, delivery, flexibility and cost (Rosenzweig et al., 2003; Swink et al., 2007; Flynn et al., 2010). Supply chain collaboration, involving intense relationships with both buyers and suppliers outperforms all other strategies (Frohlich and Westbrook, 2001). The central concepts to these intense relationships are mutual benefits, rewards and risk sharing together with the exchange of information (Barrat, 2004). The next part will explain how firms in PSSC’s can collaborate in order to achieve better supply chain performance and will explain which barriers to supply chain collaboration exist.
Collaboration in PSSC’s
According to Simatupang and Sridharan (2005) firms can collaborate on three dimensions in order to gain a competitive advantage: information sharing, decision synchronization and incentive alignment. Information sharing between buyers and suppliers in the PSSC is needed to ensure a transparent flow of information. In that way all actors can anticipate on changes in the environment. Take the example of the consultant that was asked to provide an advice. If the consultant has access to all information of the buyer, his performance will be better in comparison to a situation where no or little information is shared. From another point of view, if the consultant keeps the buyer updated with the progress and working method of delivering the service, the buyer is able to steer the consultant in the right direction of the problem he is facing. Information sharing between buyer and supplier enhances the efficiency of delivering a service. Throughout the whole supply chain sharing of real time and relevant information as demand changes allows all actors in the supply chain to plan and control efficiently and can ultimately lead to a PSSC that acts as one (Towill, 1997).
Decision synchronization entails joint long-term planning on subjects as which
members share risks and how they divide costs, benefits and rewards (Simatupang and Sridharan, 2005). The long-term goal of collaboration is executing supply chain operations with greater success than when acting in isolation. Without incentive alignment collaboration would not exist because one of the involved parties will not benefit from the collaboration (Ireland and Bruce, 2000). Incentive alignment should be discussed before engaging in collaborative initiatives. A business case can demonstrate the potential benefits, costs and risks of collaboration and is a condition for top management commitment (Horvath, 2001). Barrat (2004) argues that there does exist another dimension of supply chain collaboration, process alignment. Process
alignment refers to the way firms within a supply chain arrange their processes in
order to let the whole supply chain work together in the most efficient way (Simatupang and Sridharan, 2005). In order to align processes, partners in the supply chain should make use of the same systems and protocols to let the whole supply chain perform in the most efficient way. Take for example the delivery of knowledge to a law firm by a professional publisher. If the publisher and the law firm have access to the same system, the publisher can for example provide the law firm with links to other publications that the law firm might want to use. Moreover, the authors in this PSSC that are responsible for delivering information to the publisher can also align the delivery process through working in the same system. In this situation the publisher does not have transform the delivered content of the author into information available on the system, since the authors can directly input their content in the system used by the publisher. This process alignment enhances a more timely and efficient delivery of information to the law firm.
As explained above, PSSC’s are able to benefit from collaborative initiatives. However, not all collaborative initiatives turn out to maximize profitability within the supply chain. According to Dussauge et al. (2000) not only advantages but also risk should be considered when initiating collaboration within the PSSC. In the previous section several risks in PSSC’s were discussed regarding information sharing, task autonomy, opaque quality, performance measures and coordination complexity. In literature another risk is discussed: a lack of organizational commitment to supply chain collaboration (Cachon and Lariviere, 2001; Fawcett et al., 2008; Ireland and Bruce, 2000). Firms have to change working methods in order to support information sharing, joint decision-making and process alignment (Ireland and Bruce, 2000). But without organizational commitment to supply chain collaboration, buyers and suppliers will stay focused on their own activities instead of collaborative processes of the chain (Barrat and Green, 2001). For example, a firm where management is only focused on maximizing short-term profits is not going to invest in long-term collaboration with other actors in the supply chain. This implies that collaborative behavior cannot be expected of all parties within the chain. Moreover, it can even be dangerous, since partners may use collaboration to learn the business secrets of others (Muthusamy and White, 2005). Thus, when engaging in collaborative initiatives with supply chain partners, a firm should take all risks into account since it can be very time and cost consuming when firms for example have different interests and therefore do not fully commit to collaborative initiatives.
2.3 Supplier power
impossible for buyers with less expertise to assess the quality and skill level of the expert supplier (Von Nordenflycht 2010). As a result buyers have to trust that suppliers possess the expertise needed to deliver a high quality service. Another form of supplier power is process power. Process power refers to control over decision-making and working methods (Hardy, 1994). Take for example an accounting firm that supplies the service of controlling annual reports. The firm possesses process power since they are formally authorized to accept or refuse the annual report of their clients. In this situation formal regulations are the source of process power. Another source of process power is supplier reputation (Chicksand, 2015). A supplier that is known to be reliable and that delivers high quality is a desirable business partner for many buyers. As a result the expertise and working methods of a well regarded supplier is trusted and this supplier is for example able to ask extra favors from the buyers. According to Crook and Combs (2007) resource and process power is only created when the resource is valuable to the buyer or if control over resources is concentrated over a limited number of suppliers. Therefore power is always relative in the buyer supplier relationship (Cox et al. 2000). To illustrate this, take the following example of an information technology consultant. The consultant works on two similar projects for different customers. One is a small enterprise with no knowledge in IT and the second is a big corporation that owns an IT department. Since the lack of IT knowledge of the small enterprise, the expertise asymmetry in the first situation will be bigger than in second situation. Therefore the skills of the consultant will be valued more in the first situation and the consultant will hold more relative power over the buyer.
Supplier power as a barrier for collaboration in the professional service context
Several practices exist how power differences create a barrier for buyer and supplier collaboration on the long term (Cox et al., 2003; Sanderson, 2008). In a situation where the more powerful supplier expresses behavior that dictates the relationship by demanding above-normal returns, the buyer will have to agree on the price and quality level (Chicksand, 2015; Cox et al., 2001). If this buyer and supplier decide to engage in long-term collaborative initiatives, the less powerful buyer must accept lower returns in exchange for long-term commitment (Chicksand, 2015). Consequently, collaboration will not be based on mutual benefits, rewards and risk sharing, but on the conditions and preferences of the powerful supplier. Another line of reasoning is the following. By building a collaborative relationship, the powerful supplier shares knowledge, working methods and skills with a specific buyer. However, since a professional service supplier’s competitiveness is mainly based on their knowledge and expertise, they can be troubled with losing those resources to partners in the chain (Kale et al. 2000). Due to the risk of losing resource power, the supplier might want to terminate collaborative initiatives.
power not necessarily choose to use this power to influence buyers. To illustrate this consider the example of the accountancy firm and the buyers who jointly decided to align their processes. In this situation the accountancy firm holds relatively high resource and process power since they possess professional expertise and formal process power to approve annual reports. However, the supplier does not necessarily have to usurp the lion’s share of the gains. Instead the supplier and the buyers engaged in a collaborative initiative to work together in the same accounting system that resulted in considerable efficiency gains for both buyer and supplier. Therefore power does not prevent collaboration in every situation (Cox et al., 2003).
2.4 Conceptual framework.
Based upon the previous literature a conceptual framework can be developed. This framework provides insight in the relationship between the degree of supplier power and the degree of supply chain collaboration within a PSSC.
Figure 2: Conceptual framework of the relationship between supplier power and supply
chain collaboration in PSSC’s.
In order to research how supplier power can create a barrier for collaboration in a professional service supply chain, we first must understand the relationships between the specific characteristics of a professional service supply chain and the concepts supplier power and supply chain collaboration. The conceptual model, shown in figure 2, summarizes the theoretical framework of this research. Characteristics of the PSSC contain the existence of a professional workforce, the flow of knowledge throughout the chain and the complexity of coordinating activities since buyers are often co-producers. It is expected that PSSC characteristics positively influence the relative power the supplier holds over a buyer. A supplier’s access to specific skills and expertise knowledge will result in resource power. Moreover, expert suppliers as surgeons, lawyers or accountants hold formal process power due to their education. Laws regulate that only these professionals may deliver a certain service, thereby providing the suppliers with process power on working methods and decision-making. In order to completely understand the relationship between PSSC characteristics and supplier power this research will answer the following sub question:
3. Research methodology
This paper is focused on answering how supplier power creates a barrier for supply chain collaboration within a professional service supply chain. From the literature it is clear that supply chain collaboration is the most successful when firms are interdependent of each other. However, suppliers in possession of expert knowledge might be scarce in a PSSC. This could generate powerful suppliers and this might influence supply chain collaboration activities. To investigate this phenomenon, I conducted a multiple case study. The qualitative character of this type of research will contribute to the understanding of the relation between supplier power and collaboration in a professional service context.
3.1 Case selection
In total four professional buyer supplier relationships in the Dutch publishing industry are presented. As selection criterion I have chosen the to differentiate between nationally operating and multinational operating publishers which is shown in table 1 below.
Case 1 Case 2 Case 3 Case 4
Multinational vs national
Multinational National Multinational National Table 1: Case selection criterion
Case 1 Case 2 Case 3 Case 4
Target industry of
the PSSC Legal and tax Business Legal Legal
#years working with supplier 1 15 15 14 4 #years working with supplier 2 3 7 - 4 Primary vs secondary income supplier 1
Secondary Primary Secondary Secondary
Primary vs
secondary income supplier 2
Secondary Primary - Secondary
Expertise supplier 1 Health law Economy,
culture, job market, travel Rent law Environmental law, waste law, soil law Expertise supplier 2 Social security, Law social support Business related - Municipal law Education supplier 1 Law and
in Dutch. Two interviews were conducted face-to-face, while the other interviews were conducted by phone. The responses were recorded and confidentiality was promised. The duration of the interviews varied, the shortest interview took 26 minutes, while the longest took 1 hour and 28 minutes. All recorded interviews were transcribed in Microsoft word. In order to enhance the validity of the gathered data, the transcripts were returned to the interviewees. Most interviewees returned the document the same it was sent, however some interviewees returned the document with changes or remarks in order to prevent interpretation mistakes. Table 3 gives an overview of the interviewees including the duration of every separate interview.
Case 1 Case 2 Case 3 Case 4
Supplier Author 1
Author 2 Author 1 Author 2 Author 1 Author 1 Author 2
Buyer Publishing
manager legal Owner/ publisher Senior publisher Owner/ publisher
Interview duration Buyer 01:15 01:13 01:28 00:52 Interview duration supplier 1 00:43 00:46 00:55 00:52 Interview duration supplier 2 00:27 01:02 - 00:26 Table 3: Overview of interviewees The interviews were the primary source of data. As secondary source of data documents and websites were analyzed to better understand the relationship between buyer and supplier. The buyers of case 1 and 3 provided standard contracts and documents containing instructions for the supplier. The standard contract gives insight in expectations about co-creation, responsibilities of the buyer and the supplier, incentives and copyrights. The buyer of case 2 referred to his website as source of secondary data. The website gave insight in the service that suppliers delivered, how it looks like and what sort of information delivery can be expected in the coming year. Concerning case 4 the company website was the base for secondary data. The website contained more information about the service delivered and the target group of the buyer. 3.3 Data organization and analysis It is important to try to reduce data into categories (Glaser and Strauss, 1967; Miles and Huberman, 1994). Therefore, for each interview, the raw data was recorded, coded and grouped in themes. The coding was done in ATLAS.ti 7, words or sentences were linked to a code, followed by appointing different codes to specific themes. The coding was first performed with deductive codes that were developed based on the literature review. The inductive code tree including themes, codes, code descriptions and example quotes is presented in table 4.
Theme Code Code description Quote Professional service supply chain Professional workforce The extend of specific expertise the workforce possesses 'The book about jurisprudence is written for lawyers, in order to this there is a need for professional knowledge about the subject'' (Supplier 2, Case 4) Knowledge intensity The degree of knowledge that needs to be transformed in order to deliver the service 'The information that we transform into a book consists of common law, jurisprudence and comments on jurisprudence. It is important to understand and interpret this information in a way that it can be summarized for the reader'' (Supplier 1, Case 4) Co-creation The degree to which the buyer also needs to act as a supplier in order to create the service 'I need input from the buyer about the target group, the purpose of the book and the main stipulations'' (Supplier 2, Case 1) Supplier power Supplier resource power The ability of the supplier to access resources that are necessary to deliver the service 'Because of my job I am in contact with several agencies, therefore I posses knowledge that is not public yet'' (Supplier 1, Case 1) Supplier process power The degree to which the supplier has control over decision making in the process 'The content is 100% decided by the supplier and the external editors'' (Buyer, Case 3) Supply chain collaboration Information sharing The extend to which information is shared between buyers and suppliers in order to increase overall supply chain efficiency 'Suppliers sometimes share information with me about events that could be interesting for my magazine'' (Buyer, Case 2) Process alignment The way buyers and suppliers arrange their processes in order to work efficiently together 'We are going to a content management system in which suppliers can work in Word, but we will also have access to the same file'' (Buyer, Case 4) Incentive alignment To what extend risks, rewards and costs are shared between buyers and suppliers 'Suppliers receive royalty's based on sales.'' (Buyer, Case 3) Decision synchronization The joint planning on subjects as promotion, which markets to focus on and technologies that are going to be used in the process 'Because the sales of paper books decline, buyers and suppliers have to rethink how to reach the market. Both the buyer and the suppliers are involved in this decision'' (Supplier 1, Case 1) Table 4: Coding tree of the deductive codes To capture the complete nature of the data; codes were refined and extended. Deductive codes were added in order to capture the full richness of the data and to be able to analyze additional patterns. The inductive codes, the code descriptions and the example quotes are presented in table 5.
Risks for the buyer Risks in the process that exist for the buyer 'The buyer carries the full financial risk'' (Buyer, Case 3) Risks for the supplier Risks in the process that exist for the supplier 'If I bring something to the market that is of a very bad quality, my reputation will be hurt'' (Supplier 1, Case 4) Challenges for the future Potential hurdles and valuable opportunities that the buyer and the supplier need to take into account 'Demand for printed books is diminishing while demand for online available information is rising. It is important to change business models accordingly and'' (Buyer, Case 4) General service
information Service specifications
Specific information how the service of the supplier is delivered, what it looks like and what it contains 'I deliver 4 articles per year that are based upon group interviews, the first subject is always about personal experiences of businesspeople, the second subject is often a regional development that affects business in the region, the third article is often about a specific industry and the last article is often based on a double interview between businesspeople with different characteristics or opinions'' (Supplier 1, Case 2) Table 5: Coding tree of the deductive codes The themes based on the deductive created codes are: importance of the supplier to the buyer, existing collaborative relationship, relative power of the buyer over the supplier, managerial issues regarding supply chain collaboration and general service information. The theme ‘importance of the supplier to the buyer’’ is based on quotes that explain to what extend a buyer is dependent on the supplier. For example, quotes about the target group explain that certain suppliers are needed by the buyer to be able to deliver the service to the end consumer. The quotes that are connected to the theme ‘’existing collaborative relationship’’ provide insight in the current buyer-supplier relationship. For example, quotes related to the code ‘’quality of the relationship’’ show the willingness to collaborate of buyers and suppliers. The ‘’relative power of the buyer over the supplier’’ theme describes what relative power buyers possess and what the sources of their power are. ‘’Managerial issues regarding supply chain collaboration’’ explain current experienced barriers for collaboration, risks that buyers and suppliers consider and issues that buyers and suppliers expect to address in the future. The ‘’general service information’’ theme is created to provide the researcher with more background on the specific services.
4. Results
This section presents the analysis of the interviews with buyers and suppliers in the PSSC. First the within case analysis for every case will be presented. This includes the perspective of the supplier and the perspective of the buyer. The within analysis is followed by the presentation of the cross-case analysis according to the replication logic that is explained in the methodology.
4.1 Within case analysis
Case 1
In case 1 the buyer is a multinational firm and the interview was conducted with the publishing manager legal. The suppliers are authors in the field of health law, social security and the law social support. Supplying is the secondary source of income for the suppliers and the background of the suppliers is in law and administration.
The suppliers are in possession of expert knowledge because of their education and practical experience in specific fields of law. In the process of creating and delivering the service, the buyer and supplier have to co-create: ‘’I deliver the content, but I have no knowledge of techniques or layout, so both the buyer and I add something to this service’’ (Supplier 2, Case 1). Yet, throughout the delivery process, the supplier is in the lead and has (much) more say in the content of the writings. The suppliers stated that they do not want to collaborate with the buyer on the content and demand full control in this. Also, due to their specific expertise, the suppliers are assets to the buyer that are hard to replace. This provides suppliers a powerful position (both resource and process power). Suppliers are aware of their position and state for instance:
‘’In principle we as authors are responsible for the reputation of the buyer’’ (Supplier 2, Case1), which is confirmed by the buyer: ‘’their expertise is our expertise’’ (Buyer, Case 1).
However, on other aspects of the service the suppliers do not exercise their relative power over the buyer. Collaborative activities between buyer and supplier involve (a) incentive and process alignment through linking gains to sales and working in the same content management system and (b) information sharing:
‘’The buyer for example shares with me when they are planning to focus on a specific target group and the reasons why’’ (Supplier 2, Case 1).
The buyer and supplier closely co-create in the service delivery process. The buyer is responsible for organizing interviews with business experts that for example are engaged in new business developments, the suppliers attend these interviews and transform them into attractive articles. In the service delivery process of the suppliers, the buyer experiences an opaque quality issue:
‘’The buyer could measure quality through complaints or remarks about the service. However, trust that I deliver high quality is important'' (Supplier 1, Case 2). The buyer does not experience the opaque quality as a problem. The buyer argues that suppliers are hired because they posses expertise that the buyer does not posses. Moreover, the buyer expects that the suppliers are able to deliver a very high quality:
‘’The authors are academics that possess great qualities and are able to ask in depth questions during the interview. I do not involve myself in the content, I hire the suppliers who are able to deliver high quality content.’’ (Buyer, Case 2).
Because the suppliers are considered experts, the buyer willingly provides the supplier with process power over the content. Suppliers are aware of the buyers’ dependency on suppliers for the content, but they also know they are not irreplaceable:
‘’The buyer is dependent on the author for the content, but authors are replaceable’’ (Supplier 1, Case 2).
The interviews that the buyer organizes are a great source of new assignments for the suppliers since during the events the supplier is able to contact potential clients. Since writing articles is their primary source of income the suppliers value the relationship with the buyer. The importance of maintaining a good relationship with the buyer is also shown in the involvement of the suppliers in processes that are not necessarily their responsibility:
‘’A designer of the journal used an illustration on the front page that was also used in another journal. I warned the buyer for this and he was very pleased with my commitment’’ (Supplier 2, Case 2).
Collaborative activities mainly involve information sharing, for example the suppliers inform the buyer about interesting topics for the journal of the buyer. Moreover, the buyer shares information with the supplier about potential assignments for the supplier at other clients. Case 3 The buyer in case 3 is a multinational firm that operates in the legal industry. The buyer and supplier are working together for fourteen years and the buyer is specialized in rent law.
Suppliers are professional experts that work within specialized niches and therefore have access to very specific information. The suppliers are therefore responsible for delivering content to the buyer:
‘’The buyer states that we are the people who need to know the content’’ (Supplier, Case 3).
However, in order to deliver the service the buyer and supplier co-create. The supplier delivers the content and the buyer markets and distributes the service. Because the buyer better knows the market and the technologies used to deliver the service, the buyer provides the supplier with instructions:
‘There is an instruction for the suppliers containing guidelines, format, abbreviations and a writing guide’’ (Buyer, Case 3).
quality service might harm the reputation of the buyer, therefore the buyer prefers to select suppliers with a very good reputation to supply the content:
‘’Some suppliers have a great reputation, customers know this and buy the service purely because they trust in the quality’’ (Buyer, Case 3).
However, not only suppliers with a very good reputation are selected to supply content, but also suppliers that have not yet proven their skills and are still building their reputation. This is not a choice of the buyer, but because the buyer is not able to source from a great amount of suppliers and is dependent on suppliers in the process of delivering the service:
‘’We are 100% dependent on the suppliers for the content, without suppliers we could not deliver our service’’ (Buyer, Case 3).
The motives of suppliers are not always financial, in order to build reputation many suppliers want to share their skills and expertise to the industry they are acting in. Suppliers that already build a reputation are providing the service to maintain their reputation or just because they really like to share information: ‘’I do not want to be arrogant, but we as authors are a sort of evangelists that let the outside world know what is interesting and what information could be linked’’ (Supplier, Case 3). Collaborative activities consist of incentive alignment through linking revenues to sales and information sharing: ‘’Last year we made a switch from a paper journal rent and lease to jurisprudence rent and lease. This was the idea of the suppliers, suppliers really try to help the buyer with ideas’’ (Supplier, Case 3).
Case 4
In case 4 the buyer is operating nationally in the legal industry and the owner was interviewed. Both suppliers that were interviewed are working together with the buyer for four years and supplying to the buyer is their secondary source of income.
The buyer and suppliers in this PSSC mainly co-create in the service delivery process and clearly defined their responsibilities:
‘’The supplier is responsible for the content, we are responsible for the exploitation’’ (Buyer, Case 4).
Suppliers are in possession of expert knowledge and transform theory in to practical knowledge for the target group. The buyer’s strategy is to exploit the expertise of the suppliers by finding gaps in the market:
‘’The trick is to find subjects were there is demand from many people but where information is lacking’’ (Buyer, Case 4).
Because of this strategy the buyer and supplier have to co-create a service that fulfils the demand of many people. Therefore the service is not necessarily customized:
‘’The service is not customized because it is meant for a big group. Of course the information fits the level of knowledge of that group, but the service is not delivered on individual needs’’ (Supplier 1, Case 4). Despite a strategy focused on many people, the service that is co-created by the buyer and the supplier is fulfilling the demand of very specialized niches: 'The service I deliver is in a very specialized niche, all experts in this niche buy my book'' (Supplier 1, Case 4).
Knowledge of the suppliers is very specialized, therefore quality is very hard to measure ‘’Measuring the quality is only possible through sales, otherwise the buyer has to fully trust that I deliver quality’’ (Supplier 2, Case 4).
In order to be able to ensure high quality, the buyer selects suppliers based on reputation.
’It is hard to find a supplier to replace me, since my knowledge is based on experience and specific expertise that not many people possess’’ (Supplier 2, Case 4). The access of the suppliers to valuable resource does not necessarily result in relative power over the buyer. The relationship between buyer and supplier is mutual dependent:
‘’We are dependent on each other, the suppliers are our assets but on the other hand the suppliers are unable to market the service to the amount of people we can’’ (Buyer, Case 4).
Collaborative activities include (a) incentive alignment through joint organization of promotional activities and compensation based on sales, (b) information sharing through sharing ideas about new projects and possible partners and (c) decision synchronization on the structure of the content since the supplier delivers the knowledge but the buyer knows the demands from the market. Moreover, the buyer is planning extending the collaboration with suppliers through (d) aligning processes:
‘’We are going to a content management system in which suppliers can still work in Word, but we will have access to the same file'' (Buyer, Case 4).
Case 1 & Case 3 – Case 2 & 4
The buyers in case 1 and 3 are multinational operating publishers, while the buyers in case 2 and 4 are nationally operating publishers. This selection criterion was applied since it was expected that the suppliers at multinational publishers hold less power relative to suppliers at national publishers. Because the multinational buyer can source from a greater pool of suppliers and that authors supplying to a multinational publisher have a relatively small impact on total sales. In line with the conceptual model, presented in figure 2, supplier power was expected to have a negative influence on supply chain collaboration. Since the suppliers of case 1 and case 3 are expected to hold relatively less power, the buyers and suppliers in these cases are expected engage in more collaborate activities than the suppliers and buyers in case 2 and 4.
5. Discussion
5.1 Discussion of results
The existence of a professional workforce, the knowledge intensity and the co-creation of buyers and suppliers in the process of service delivery are the three PSSC characteristics that were identified in the literature. In line with the conceptual model, presented in figure 2, the results show that suppliers have access to expertise knowledge due to their education. Moreover, knowledge is transformed into informative articles or journals and buyers and suppliers have to co-create in order to deliver the service. In order to extend the understanding of the relationship between PSSC characteristics and supplier power a sub question was developed:
‘’How do PSSC characteristics create relative power for the suppliers?’’
Based on the literature it was expected that specific characteristic of a PSSC result in a power difference between buyer and supplier. The results show that the supplier has access to expertise knowledge that is valuable to the buyer. Therefore they are provided with relative resource power over the buyer. Furthermore, the suppliers’ power to access knowledge and skills result in full process power on the content. It appears that knowledge intensity and the professional workforce create relative power for the suppliers. However, due to the need to co-create in the process of delivering the service, the suppliers also depend on the buyer. The buyer provides access to technologies that are needed in the service delivering process. Moreover the buyer knows the market and can distribute the service to a relative large amount of consumers. Co-creating appears to cause a mutual dependency and therefore might decrease the relative power of the suppliers. This effect of co-creation on relative supplier power is not in line with the conceptual model presented in figure 2.
Collaborative activities between the buyer and the supplier can involve information sharing, alignment of processes, decision synchronization and incentive alignment. It is expected that relative more powerful suppliers will result in less supply chain collaboration. However, supplier power does not inevitably prevent buyers and suppliers from engaging in collaborative activities (Cox et al., 2003). In order to enrich the understanding of the relationship between supplier power and supply chain collaboration the following sub question was developed:
‘’How can buyers and suppliers collaborate when the supplier holds more power?’’ It appears that suppliers and buyers can be engaged in collaborative activities when the supplier holds more power. The results show that all buyers and suppliers collaborate to a certain extends. Buyers and suppliers, despite relative supplier power, share information, align incentives, synchronize decisions and align processes. Based on the results, information sharing seems to be the most common collaborative activity. Buyers and suppliers share information about possible projects that can benefit them both. However, in situations where power tends to be more equally distributed, the buyers and suppliers are sharing more information. The results show that buyers and suppliers are more willing to share information about new assignments or possible improvements to the service when power is more equally distributed. Buyers and suppliers in 3 of the in total 4 cases aligned incentives through linking gains to sales. Delivering the service was the primary source of income for the suppliers in the case where incentives were not aligned. It could be that the suppliers in this case preferred a fixed income in order to reduce uncertainty about the payout. Furthermore, it might be that incentive alignment through linking gains to sales is common in specific industries. The buyers and suppliers that aligned the incentives are acting in the legal industry, while the suppliers and buyers that did not align the incentives are acting in business related industries. Decision synchronization between buyers and suppliers is accomplished by combining the market knowledge of the buyer and the expert knowledge of the supplier in order to decide how to structure the service. However, the results show that decision-synchronizing activities are performed in 1 out of the in total 4 cases. It could be that supplier power affect collaboration through synchronizing decisions. The results show that suppliers with relatively high resource and process power are using their power in order to preserve complete control on the content. It could be argued that powerful suppliers do not want to synchronize decisions, since they do not desire interference of the buyer on the content. Process alignment is another collaborative activity that is only exercised in 1 out of the 4 cases. The results illustrate that buyers and suppliers align process through working in the same content management system. However, not all suppliers are pleased with this collaborative activity. The suppliers have to put time and effort in learning new working methods. Yet, the results show that not all suppliers are motivated to put in time and effort, since their main motivation to deliver the service is to display their knowledge to the target group. The time and effort consuming issue might also be a reason why process alignment exhibits in only 1 out of the 4 cases. Another explanation for the suppliers’ dissatisfaction might be found in the frequency a supplier delivers the service. Suppliers who do not deliver the service very frequently might be required to discover how to work in the content management system all over again.
This paper aims at providing insight on the role of supplier power on supply chain collaboration. In line with the conceptual model, displayed in figure 2, it is expected that characteristics of the PSSC positively influence supplier power. Furthermore, it is expected that supplier power negatively affects supply chain collaboration. The line of reasoning presented in the conceptual model is an attempt to find an explanation for the research question:
‘’How does supplier power create a barrier for supply chain collaboration within the professional service supply chain?’’
6. Conclusion
Many researchers and the popular press perceive engaging in collaborative activities as an effective approach to increase the business performance and long term survival of firms. Yet, collaboration between partners not always succeeds, which can be partly explained by power differences between buyers and suppliers. However, the underlying mechanisms concerning supplier power and supply chain collaboration are not yet understood. Therefore this research presents valuable insights to increase understanding how supplier power creates a barrier for supply chain collaboration in a professional service supply chain.
The findings suggest that the nature of the professional service context creates an environment for supplier power. The presence of suppliers who are in possession of expert knowledge due to education and practical experience, results in a relative power distance between buyers and suppliers. In the process of service creation, the buyer needs the suppliers in order to have access to valuable resources, e.g. expert knowledge and skills. Therefore suppliers hold more power relative to the buyer. However, the degree of supplier power is influenced by several factors. The findings show that the sourcing strategy of the buyer is linked to supplier power. Buyers that source excellent resources (the best suppliers) directly created more supplier power, because the best suppliers are very difficult to replace. Moreover, the results show that the industry a buyer is acting in, also affects supplier power. Specialized industries, as specific fields of law, display entry barriers for suppliers since a certain education is required. Because only a few suppliers are able to access resources in these industries, buyers have to source from a supplier market with relative low competition. Consequently, these market conditions result in relative power for the suppliers. Furthermore, the reputation of the supplier does influence the relative power of the supplier. Many suppliers are motivated to provide a service because they are building their reputation. In the process of service delivery the buyer provides the supplier with a platform to reach the target group. Therefore, the suppliers are dependent on the buyer, which results in a decrease of relative supplier power. However, the suppliers that already enjoy an excellent reputation hold relative high supplier power since they are less dependent on the buyer. In line with the causal model, shown in figure 4, the degree of supplier power has a negative effect on the degree of supply chain collaboration. However, this negative effect can vary in the way it is realized. The findings show that suppliers in a PSSC value the processes in the service delivery that are directly linked to their expertise. Suppliers, in this research the authors, use their power to take and maintain complete control on the content. Consequently, the suppliers use their power to prevent collaborative activities that involve any interference of the buyer regarding the content. However, with exception of the content, the results show that supplier power does not necessarily affect collaboration. The willingness of the supplier to collaborate appears to be a factor that influences the degree of supply chain collaboration. If suppliers are unwilling to collaborate, they might use their power to create a barrier for collaboration. In the results an extreme case of unwillingness is displayed, in this case suppliers were prepared to terminate the relationship with the buyer because of a collaborative activity.
perspective, this research has implications for managers in PSSC’s. This paper shows managers how PSSC characteristics can create a relative power asymmetry in the supply chain. Consequently, managers at buyers gain a better understanding where supplier power is coming from which could result in rethinking the sourcing strategy. Moreover, the managers are provided with a profound insight how supplier power could affect collaborative activities. This insight could provide guidance for practitioners to successfully initiate collaboration in the supply chain.
Suggestions for further research
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8. Appendix
A. Interview guide for the supplier Interview auteurGoedemorgen/middag, mijn naam is Erick van de Scheur en in het kader van het schrijven van mijn scriptie voor de opleiding supply chain management aan de Rijksuniversiteit Groningen zou ik u graag een aantal vragen willen stellen. Mijn onderzoek gaat over de rol die de leverancier speelt in de samenwerking in de keten. Specifieker, hoe wordt de samenwerking tussen de auteur en de uitgever beïnvloed door de rollen die de auteur in de keten kan hebben en welke barrières er zijn om samenwerking in deze professionele keten te bewerkstelligen(laat bijlage 1 zien). Samenwerken omvat het delen van relevante informatie, het afstemmen van processen en het verdelen van de risico’s en opbrengsten tussen verschillende betrokkenen in de keten, met als doel dat processen in de hele keten geoptimaliseerd kunnen worden en dat iedereen in de keten zijn eigen doelen kan realiseren.
B. Interview guide for the buyer
Interview uitgever
Goedemorgen/middag, mijn naam is Erick van de Scheur en in het kader van het schrijven van mijn scriptie voor de opleiding supply chain management aan de Rijksuniversiteit Groningen zou ik u graag een aantal vragen willen stellen. Mijn onderzoek gaat over de rol die de leverancier speelt in de samenwerking in de keten. Specifieker, hoe wordt de samenwerking tussen de auteur en de uitgever beïnvloed door de rollen die de auteur in de keten kan hebben en welke barrières er zijn om samenwerking in deze professionele keten te bewerkstelligen(laat bijlage 1 zien). Samenwerken omvat het delen van relevante informatie, het afstemmen van processen en het verdelen van de risico’s en opbrengsten tussen verschillende betrokkenen in de keten, met als doel dat processen in de hele keten geoptimaliseerd kunnen worden en dat iedereen in de keten zijn eigen doelen kan realiseren.
Bijlage
