Please enable JavaScript.

Coggle requires JavaScript to display documents.

Lecture 2: Supplier–Buyer Relationships (Characteristics of Supplier–Buyer…

- - - - A theory that suggests that supernormal returns are primarily a
        function of a firm’s membership in an industry with favorable structural characteristics (e.g., relative bargaining power, barriers to entry, etc.). Consequently, many researchers focused on the industry as the relevant unit of analysis for explaining why individual firms differ in performance. Some firms performed better because they were members of industries with attractive structural features. Porter (1980)
    - - Firms within an industry (or firms within a strategic group) are
        identical in terms of the strategically relevant resources they
        control and the strategies they pursue.
      - Should resources heterogeneity develop in an industry or
        group (perhaps through new entry), this heterogeneity will be
        very short-lived because the resources that firms use to
        implement their strategies are highly mobile, i.e., they can be bought and sold in factor markets.
  - - - A theory that argues that differential firm performance is
        fundamentally due to firm heterogeneity. Firms that are able to
        accumulate resources and capabilities that are valuable, rare, inimitable and non-substitutable will achieve a competitive advantage over competing firms. Thus, extant RBV theory views the firm as the primary unit of analysis, and the search for competitive advantage has focused on those resources that are housed within the firm. Rumelt (1984, 1991); Wernerfelt (1984); Barney (1991)
    - - Firms within an industry (or group) may be heterogeneous with
        respect to the strategic resources they can control.
      - These resources may not be perfectly mobile across firms, and
        thus heterogeneity can be long-lasting.
    - - “Firm resources include all assets, capabilities, organizational
        processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.”
        
        Physical capital resources, e.g., physical technology used in a firm, firm’s plant/equipment, geographic location, access to raw materials.
        
        Human capital resources, e.g., training, experience, judgment, intelligence, relationships, insights of individuals in a firm.
        
        Organizational capital resources, e.g., firm’s formal reporting
        structure, its formal and informal planning, controlling, and coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment.
        Barney (1991)
    - - Competitive Advantage
        “A firm is said to have a competitive advantage when it is
        implementing a value creating strategy not simultaneously being
        implemented by any current or potential competitors.”
        Barney (1991)
      - Sustained Competitive Advantage
        “[…] when it is implementing a value creating strategy not
        simultaneously being implemented by any current or potential
        competitors and when these other firms are unable to duplicate the benefits of this strategy.”
      - Assumptions
        
        Definitions also include potential competitors in an industry.
        
        “Sustained” not about time but possibility of competitive duplication.
        
        "Sustained” ≠ “last forever”, e.g. economic structure may change.
    - - No
        sustained
        competitive
        advantage!
    - - Valuable
      - Rare
      - Imperfect Imitability
      - Non-Substitutability
    - - Yes
        
        Theory does not suggest that information from outside a firm
        cannot generate asymmetrically more valuable expectations, only that it is less likely to do so.
        
        It seems reasonable to expect that SCM will have the kind of attributes (“VRIN”) that can lead it to be a source of competitive advantage for a firm.
        Barney (2012)
      - No
        
        RBV assumes that a factor market is sufficiently “open” or
        “free”, so any organization is able to imitate purchasing/SCM.
        
        Purchased assets are freely tradable.
        
        According to RBV, purchasing (narrowly) or SCM (broadly) cannot be a source of SCA.
        Ramsay (2001)
  - - - nonspecific asset investments
      - minimal information exchange (i.e., prices act as coordinating devices by signaling all relevant information to buyers and
        sellers)
      - separable technological and functional systems within each firm that are characterised by low levels of interdependence (i.e., the two organization have only a sales-to-purchasing
        interface and do not jointly create new products through multifunctional interfaces)
      - low transaction costs and minimal investment in governance mechanisms
    - - Previous Views Fail to Explain Competitive
        Advantage in Supplier–Buyer Relationships
        (Slide 22)
      - Fail to Explain Conditions Under Which Value is
        Created by Incorporating Assets of Acquired Firm
        (Slide 23)
    - - A theory for considering dyads and networks of firms as a key unit of analysis for explaining superior individual firm performance. A firm’s critical resources may span firm boundaries and may be embedded in interfirm resources and routines—that idiosyncratic interfirm linkages may be a source of relational rents and competitive advantage. There are four potential sources of interorganizational competitive advantage: (1) relation-specific assets, (2) knowledge-sharing routines, (3) complementary resources/capabilities, and (4) effective governance.
        Dyer & Singh (1998)
      - Relational Rent
        
        Quasi-rent
        “Returns that exceed a factor’s short run opportunity cost … [and] are an excess over the returns to a factor in its next best use.” The term quasi-rents suggests that the rents are not permanent in nature. Peteraf (1994)
        
        Relational Rent
        “We define a relational rent as a supernormal profit jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint idiosyncratic contributions of the specific alliance partners.” Dyer & Singh (1998)
        
        Determinants of Relational Rents
        
        Relation-Specific Assets
        
        Length of the safeguard to protect against opportunism
        
        Volume of exchange between the alliance partners
        
        Potential for relational rents through relation-specific assets
        
        Knowledge-Sharing Routines
        
        Partner-specific absorptive capacity
        
        Aligned incentives (reciprocity, transparency, no free riding)
        
        Potential for relational rents through knowledge sharing
        
        Complementary Resources/Capabilities
        
        Ability to identify and evaluate potential complementarities
        
        Compatibility in organisational systems, processes, cultures
        
        Relational rents by combining complementary resources
        
        Effective Governance
        
        Ability to employ selfenforcement gov. mechanisms
        
        Ability to employ informal selfenforcement gov. mechanisms
        
        Potential for relational rents through effective governance
        
        Additional Mechanisms that Preserve
        Rents Generated by Alliance Partners
        
        Interorganizational Asset Interconnectedness
        
        Supplier built plant on property adjacent to Nissan plant.
        
        Partner Scarcity
        
        Toyota had difficulties to build relations to U.S. suppliers.
        
        Resource Indivisibility
        
        Brand & distr. network are idiosynchratic & indivisible assets
        
        Institutional Environment
        
        Japanese environment fosters goodwill trust and cooperation.
  - - - Resources that create the relational rents are essentially beyond the control of the individual firm, i.e. cannot be fully explained by RBV!
- - - - Michael E. Porter (1985): A firm’s
        purchasing costs can be minimised by
        instilling competition in the supply base
        and sourcing from multiple suppliers. (Slide 34)
      - W. Edwards Deming (1986): The optimal
        cost situation is determined by the quality
        of the input material and can be achieved
        through close and long-lasting buyer-supplier
        relationships. (Slide 34)
    - - R&D Investments
      - Only a Few Suppliers Are Treated as
        Partners or Even Strategic Partners
      - Daimler Differentiates Between
        Four Types of Supplier Relationships (Slide 38)
      - Experience Curve Effects with
        U.S. vs. Japanese Approaches
    - - Equity theory as theoretical basis (See slide 40)
        
        Attempts to explain relational satisfaction in terms of perceptions of fair/ unfair distributions of resources within interpersonal relationships
        
        An individual will consider that she is treated fairly if she perceives the ratio of her inputs to her outcomes to be equivalent to those around her
        
        Global measure of (in)equity applied to supplier–buyer context
    - - Focus of
        Attention
      - Transaction
        Dynamics
      - Market
        Characteristics
      - Mode of
        Analysis
    - - Type 1
      - Type 2
      - Type 3
      - Type 4
    - - Time-span of interaction
      - Personal Attitudes and Behaviour
      - Organisational Processes
      - Measurement
    - - Identify or anticipate the sourcing requirement
      - Determine if negotiation or competitive bidding is required
      - Plan for the negotiation
        
        Developing Negotiation
        Ranges for a Purchase Price
      - Conduct the negotiation
      - Execute and follow up on the agreement
  - - - Trust
        Trust refers to the willingness to be vulnerable to the actions of a trustee on the basis of the expectation that the trustee will perform a particular action, irrespective of any monitoring or control mechanisms.
        Colquitt & Rodell (2011), http://dx.doi.org/10.5465/amj.2007.0572
      - Interorganizational Trust
        Interorganizational trust is defined as the expectation held by one firm that another will not exploit its vulnerabilities when faced with the opportunity to do so. It contains three components: reliability, fairness, and goodwill.
        Krishnan et al. (2006), http://dx.doi.org/10.5465/AMJ.2006.22798171
    - - Positive effects
        
        Lower monitoring/transaction costs:
        Dealing with a trusted supplier lowers
        monitoring/transaction costs for the
        buyer and creates high levels of
        transparency and collaboration.
        
        Reduced conflict: Negotiations are less
        costly because agreements are reached
        more expediently as the buyer and
        supplier can more readily find common
        ground, e.g., if a contract is incomplete.
        
        Risk taking within the relationship:
        Trust acts as a mechanism through
        which committed parties expand the
        scale and scope of their exchanges and
        take greater risks within the relationship.
      - Negative effects
        
        “Blind faith”: Optimistic bias about a
        supplier’s future behavior can lead the
        buyer to reduce monitoring and
        safeguarding below a reasonable level.
        
        Lock-in from relationships: Due to
        increased reliance and unnecessary
        obligations, the buyer might stop looking
        for alternative suppliers.
        
        Conflict avoidance: A buyer may prefer
        avoiding tension and conflict with a
        supplier, in spite of raising concerns
        about a declining performance.
        
        Conditions for abuse/betrayal of trust:
        Lowered vigilance creates opportunities
        for supplier misbehavior and makes it
        difficult to detect misbehavior.
      - Empirical evidence (Slide 51)
  - - - Contractual Arrangements
      - Equity Arrangement
      - Strategic Alliances
    - - “Strategic alliance is a purposive relationship between two or more independent firms that involves the exchange, sharing, or
        codevelopment of resources or capabilities to achieve mutually relevant benefits.” Gulati (1995)
        -> However in reality strategic alliances often fails
      - Key Success Factors of Alliances
        (Kale & Singh (2009)) Slide 56
        
        The Alliance outcome
        
        Phase of Alliance Outcome
        
        Key Drivers of Alliance Success
      - Vertical vs.
        Horizontal Alliances
        
        Vertical: Supplier and buyer collaboration
        
        Example of a Vertical Alliance: Integration
        Between a Manufacturer and a Retailer (Slide 58)
        
        Horizontal: Collaborations with organisations and competitors
        
        Example of a Horizontal Alliance:
        Sharing Car Transport Trains (Slide 59)
        
        Example of a Horizontal Alliance:
        Cargo Network (Here: CargoLine) (Slide 60)
    - - Types of Contracts (Slide 61)
        
        Fixed price with escalation/de-scalation
        
        Fixed price with redetermination
        
        Fixed price with incentives
        
        Cost plus incentive fee
        
        Cost sharing
        
        Time and materials contract
        
        Cost plus fixed fee
        
        Firm Fixed Price
      - Desirability of Using Contracts
        Under Different Conditions (slide 62)
        Handfield et al. (2011)
      - Advantages and Disadvantages of
        Long-Term Contracts (Slide 63)
        Handfield et al. (2011)
  - - - Supply chain integration is the combination of efforts to integrate
        supplier and customer information and inputs into internal planning. This includes practices used to internalize and share external inputs within the organization (internal integration).
        Frohlich & Westbrook (2001), Vickery et al. (2003), Rosenzweig et al. (2003), Swink et al. (2007)
      - Supply chain process integration is defined as a set of continuous
        restructuring activities aimed at seamlessly linking relevant business processes and reducing redundant or unnecessary processes within and across firms. Chen et al. (2009)
    - - Yes
        
        Supply chain integration has
        been widely discussed and supported empirically.
        
        Many studies confirm that the higher the level of integration the higher the operational and business performance of a firm.
      - Well
        
        Integration might be more difficult in practice than in theory.
        
        Integration should be differentiated.
        
        Integration is more rhetoric than reality.
    - - Layers of integration
      - Scope of integration
      - Degree of integration
    - - Strategic Integration
      - Customer Integration
      - Product and process integration
      - Supplier Integration
    - - Information Integration:
        Integrating the backward
        flow of data from
        customers to suppliers
        based on information technologies
      - Delivery Integration:
        Integrating the forward
        physical flow of deliveries
        between suppliers,
        manufacturers, and customers