Comparing cases (Miles & Huberman, 1994) offers us three dominant themes common to all cases. These themes are structural power, interdependence and relationship stability. Power appeared to be a function of the structural position in the MSC (i.e., intermediary). Interdependence manifested itself as a desire for or acceptance of the situation where the MSC partners derive confidence from the group's ability to operate as an entity. Relationship stability within the MSC was affected both positively and negatively by issues that caused tensions between the partners. The details are presented in Table 3.
In the cross-case data analysis, we looked for common patterns to formulate propositions. We organized the propositions in each of the three key themes that emerged from the within-case analysis as shown in Table 3. Following the inductive nature of the research, we incorporated literature at this stage to compare and contrast our findings, essentially using the literature as an additional source of validation as advised by Eisenhardt (1989) and Kaufmann and Denk (2011). We use B, S and SS to refer to the buyer, the supplier to the buyer and the supplier to the supplier, respectively.
Power, Structure and Sustainability
In all three cases in this research, the SS provides essential raw materials for the final product — barley for beer (Case 1), wheat for bread (Case 2) and pigs for pork products (Case 3). These resources can have a strong impact on the final quality and sustainability of the product, particularly in Case 3. Furthermore, increasing pressures, from both consumers and governments, to maintain the safety of products also puts great responsibility on the providers of the basic raw materials. Increased responsibility represents increased power for the supplier's supplier.
In the MSC context, each member had access to different resources and contributed in different ways to the relationship. In this research, we have found that the buyer had power because it had resources (i.e., ability to offer contracts) and also because it was the conduit to the market (i.e., positional power). The supplier might have positional power as long as B and SS do not exchange information, so it remains as the intermediary. Finally, although the supplier's supplier appeared, through its position at the end of the supply chain, to have minimal power, it had access to natural and technical resources, which might have been essential for the success of the supply chain.
Two of the cases were selected because they appear to have a stable structure: “Open MSC” (Beer) and “Closed MSC” (Bread). In the “Open MSC,” the S had taken a bridging role, which provided a source of power; however, this power appeared to be mitigated by the resources of both buyer and supplier's supplier. In the “Closed MSC,” the Supplier had very limited power as there is no bridge position. Finally, in the “Transitional MSC,” which was the only case in a state of flux, it was possible to see a change in the power structure, as the bridge position of the supplier decayed. This shift in power appeared to be produced by structural changes alone. Based on this analysis, we propose that:
- Proposition 1: When the structure of an MSC changes, the resource-based power balance among its members shifts, regardless of the resources possessed by each member.
Traditionally, inter-organizational power has been seen as being derived from resources, where a firm's resources at a given time are those tangible and intangible assets, which are tied semi-permanently to the firm (Wernerfelt, 1984). In this situation, resource-based power is when a firm holds resources that others do not have, which adversely affects their costs and/or revenues. Moreover, the firm will use these resources and encourage a lack of transparency to cement its position. However, all three cases show how the supplier's structural position between the buyer and the second-tier supplier played the central role similar to that described by Hingley (2005b) as “super middleman.” The role of the middleman can be interpreted using the concepts of a “structural hole,” which refers to the “lack of connections between agents or groups that are not directly linked together” (Burt, 1992, 2000; Simmel, 1950) and the “bridge” (Li & Choi, 2009; Tsai & Ghoshal, 1998; Zaheer & Bell, 2005). Both Simmel (1950) and Burt (1992) proposed that the firm that finds itself in a bridge position over a structural hole may find itself having power that comes from its structural position.
The research also uncovered that, in Cases 1 and 3, there was a directed effort by the buyer to connect with the supplier's supplier to influence certain characteristics of the product, such as quality, traceability and sustainability. Sustainability is rapidly becoming a factor that could lead to competitive advantage and, at least in the case of food products, raw materials tend to have a strong impact on sustainability. In Cases 1 and 2, the production of grain has an effect on several environmental indicators such as greenhouse gas emissions, water and land use. In Case 3 (Pork), it was observed that Retailer (B) was reaching out to Breeder (SS) under its corporate social responsibility agenda to gain greater control over certain aspects of the supply chain such as environmental impact and animal welfare standards. Similarly, in Case 2 (Bread), it was clear that the Baker (B) was stretching out to the supplier's supplier to gain greater influence on issues such as quality, safety, cost and sustainability. In particular, their concern to obtain “quality grain at the right price,” motivated them to put a contract in place with the supplier's supplier.
Fundamentally, the Buyers of all three MSCs focused on product design and marketing, while the suppliers engaged in manufacturing and trade. Only the supplier's supplier was handling the raw materials that are embedded in the final product. The raw materials in an undifferentiated state would have comparatively more sustainability and quality implications. Further, once embedded, problems become more difficult to detect. Therefore, we propose that:
- Proposition 2: A buyer who wants to influence key product characteristics needs to connect directly with its supplier's supplier who works with undifferentiated resources.
This research involved organizations at three supply chain levels. However, it is likely that this proposition applies to longer and more complex supply chains where suppliers that have a strong environmental impact (Choi & Linton, 2011), such as those involved in the extraction of natural resources, might be very distant in the supply chain. According to Choi and Linton (2011), if organizations want to influence the overall quality, environmental or social impact of the products and services they provide, they need to reach out to those key suppliers upstream that lie beyond their top-tier suppliers.
This proposition is also consistent with the relational view of the firm (Dyer & Singh, 1998). In particular, it aligns with this view's proposition that a greater proportion of “synergy-sensitive resources” would tend to increase the value of such resources and increase the potential for relational rents. In this case, the behavior observed by the buyers, as they try to establish links with supplier's suppliers, indicates they are seeking to influence such synergy-sensitive resources to generate value.
In all three case studies, participants revealed an overarching sense of interdependence (i.e., mutual dependence for success or survival) and overall satisfaction with their participation in the MSC. However, the degrees of expressed interdependence varied. In fact, there was a correlation between the level of connections and the collective sense of interdependencies.
In Case 1, the Open MSC, there was a view that the Grain Trader (S) brought benefits to the MSC by achieving economies of scale and potentially cost reductions to be shared across the supply chain. The perception was that all firms were benefiting from participating in this relationship. However, there was a perception that these benefits were primarily operational and cost focused and there was uncertainty about future developments. In Case 3, the Transitional MSC, the dynamic of the relationship became more complex and the collective sense of interdependencies seemed to grow. For instance, a degree of tension existed between the Processor (S) and the Retailer (B) over the increasing influence of (B) over the Breeder (SS). However, instead of creating a more acrimonious relationship, this apparent tension stimulated the adoption of positive measures (better communications and a more stable price structure) that have increased interdependence. As members of the MSC realized, they depend on each other and they opted for building closer ties.
In Case 2, the Closed MSC, all relationships among members of the supply chain appeared to be positive, and the long-term associations between the companies, even in the absence of contracts, were an indication of trust and cooperation. Interviewees from all three organizations indicated a strong sense of interdependence and admitted they did not believe the other parties in the MSC would take advantage at their expense. Being “closed” means all members of the MSC know and understand each other, they have a clear view of the value-add each member contributes to the MSC and understand each other's challenges. This visibility strengthened the sense of interdependence among members of the MSC.
- Proposition 3: As an MSC transitions from an open to a closed structure, the sense of interdependence among its members grows.
Balance theory (Simmel, 1950) has been used to describe organizations and networks, in particular triads, involving a buyer and its suppliers (Choi & Wu, 2009b; Madhavan, Gnyawali, & He, 2004). In their effort to apply balance theory to the context of buyer–supplier–supplier triads, Choi and Wu (2009b) considered closed triads as well as open triads. Their discussions seem to suggest that closed triads have more complicated interdependencies, supporting our Proposition 3 above.
Dyer and Singh (1998) propose that if partners can align the transactions with appropriate governance structures, they can gain greater potential for relational rents. In this case, we can see that a closed structure provides a governance mechanism that has tighter self-enforcing agreements and stronger informal social controls, which are reflected in a greater sense of interdependence. It is also apparent that firms move into this state in the expectation of gaining greater rents, which would be consistent with Dyer and Singh's proposition extended to a multi-party perspective.
The three supply chains in this research were selected deliberately because they had a distinctive structure. In the Open MSC (Case 1), the Grain Trader (S) was introduced as an intermediary, fulfilling an agency function by relaying orders, providing information and facilitating the process, while the direct relationship between the other two parties (buyer and supplier's supplier) was severed. The buyer had de facto relinquished responsibility and control over the source of raw materials to a supplier. This structural arrangement had simplified the management for the buyer and led to cost reductions through economies of scale. However, there were tensions between buyer and supplier due to concerns about the length of the contract. The future stability of the MSC's relationships had been put into question.
In the Closed MSC (case 2), the relationships appeared to have blossomed under the leadership of the buyer, who maintained open communication with both the supplier and supplier's supplier, and helped to resolve conflicts between them. This cooperative arrangement, based on mutual trust and commitment, had brought stability to a relationship that had been operating for over a decade and appeared to have brought together all the members of the MSC “pulling in the same direction.” Although this arrangement appeared to satisfy all three members of the MSC, it was acknowledged that it required a considerable amount of effort to manage it. For instance, the Baker (B) was committed to organizing a Farmers' (SS) conference every year, awarding prizes for quality and delivery performance to the farmers. These activities, which are relatively rare at a second-tier level, require investments in terms of time and money, but help to increase perceptions of stability within the MSC.
Finally, in the Transitional MSC (Case 3), the Retailer (B) was trying to create a Closed MSC by establishing a link with the Breeder (SS), and the result was a more dynamic and better engaged MSC. However, this has also created additional demands for all members of the MSC, particularly in terms of management time devoted to coordinating activities. Both case 2 (Closed) and case 3 (Transitional) appear to show that as the MSCs become fully linked, information becomes more transparent, helping the members unite around a common goal and diminishing the possibility of opportunism and adversarial behaviors while bringing stability to the relationships. However, this stability comes at a cost, mainly in the form of management effort. Therefore, we propose that:
- Proposition 4: Closed (Open) MSCs offer stronger (weaker) perceptions of stability but require additional (and require fewer) management resources.