26 th NOFOMA 2014 - pure.au.dk · Veronica Svensson Ülgen, Åsa Gustafsson Critical Factors for Supplier Development: A Study of Suppliers in the Heavy Vehicle ... : A Pilot Study

26th Conference of the Nordic Logistics Research Network

Competitiveness through Supply Chain Management and Global Logistics

11–13 June, Copenhagen Business School, Denmark

Organized by the Department of Operations Management

NOFOMA 2014

Britta Gammelgaard, Günter Prockl, Aseem Kinra, Jesper Aastrup, Peter Holm Andreasen,

Hans-Joachim Schramm, Juliana Hsuan, Malek Malouf and Andreas Wieland (Eds.)

Proceedings

ISBN 978-87-997433-0-8

Sponsored by and

Table of Contents

Welcome to the NOFOMA 2014 8 Conference Organization 9 Conference Program 10 Full Papers 16 Logistics, Transport & Models Johan Holmgren, Linda Ramstedt, Paul Davidsson

A Study on Quantitative Freight Transport Analysis Models in Denmark and Sweden 17

Stephanie Finke Empty Container Management – The Case of Hinterland: Formulation of a Mathematical Model and Implementation in a Case Study

33

Yauhen Maisiuk, Irina Gribkovskaia Strategic Fleet Sizing for Offshore Supply Vessels with Stochastic Service Time

48

Food & Retail Linea Kjellsdotter Ivert, Anna Fredriksson, Riikka Kaipia

Managing Supply Uncertainties through Supply Chain Planning: Experiences from the Food Industry

63

Åse Jevinger, Malin Göransson, Klara Båth A Field Test Study on a Dynamic Shelf Life Service for Perishables

78

Karen Spens, Peter Tatham, Gyöngyi Kovács Supply Chain Practices in the Wine Supply Chain

93

Supply Chains, Organisation & Design Hans-Joachim Schramm, Dennis Goetjes

Supply Chain Management Implementation in Austrian Manufacturing Companies 109

S. Jaya Krishna Supply Chain Competence Framework for Competitiveness and Growth

125

Hana Hulthén, Dag Näslund Supply Chain Integration: A Grounded Theory Based Model of Contextual Factors

148

NOFOMA 2014 Proceedings Copenhagen Business School

1

SCM & Sustainability Katrin Molina-Besch, Henrik Pålsson

Consideration of Supply Chain Environmental Impacts during Packaging Development: Theory versus Practice

164

Maisam Abbasi Themes and Challenges in Making Supply Chains Socially Sustainable

182

Maisam Abbasi, Henrik Sternberg, Fredrik Nilsson Who Controls Logistics Emissions? Challenges in Making Fragmented Supply Chains Environmentally Sustainable from a Logistics Service Provider’s Perspective

201

SCM, Competences & HRM Pernilla Derwik, Daniel Hellström

Supply Chain Competence: A Literature Review 219

Sebastian Wünsche, Herbert Kotzab, Christoph Teller In Search of Excellence: What is the Competence and Qualification Profile of Logistics Managers?

235

Matthias Sohn, Werner Sohn, Thorsten Klaas-Wissing, Bernhard Hirsch The Influence of Corporate Social Performance on Employer Attractiveness in the Transport and Logistics Industry: Insights from German Junior Talent

249

Supply Chains, Organisation & Design Quan Zhu, Harold Krikke, Marjolein C. J. Caniëls

Supply Chain Integration: Value Creation through Knowledge Management 266

Erik Hofmann, Stephan Knébel Supply Chain Differentiation: The Next Level of Competiveness in Operations Management?

282

Linda Annala, Tunca Tabaklar, Ira Haavisto, Gyöngyi Kovács, Stephen McDowell Supply Chain Scalability

297

Urban Logistics Britta Gammelgaard, Jesper Aastrup

The Emergence of City Logistics: The Case of Copenhagen’s Citylogistik-kbh 314

Henrik Pålsson Diversified Service Offerings in City Logistics: Understanding the Need for Different Groups of Users

329

Maria Björklund, Uni Martinsen From City Logistics Problems to Solutions: A Multiple Stakeholder Perspective

346


2

Purchasing, Sourcing & Management Steven Sørensen, Troels Chr. Andersen, Alfredo V. Matamoros, Torben C. B. Bjerrum, Simone F. Fejerskov, Torben Tambo

Management of Complexity in Cleantech: With Modularisation as a Strategy

363

Veronica Svensson Ülgen, Åsa Gustafsson Critical Factors for Supplier Development: A Study of Suppliers in the Heavy Vehicle Industry

379

Sergei Teryokhin Specific IOS Investments in Buyer-Seller Relationships: A Pilot Study of IOS Impact on Buyers’ Perceived Transaction Costs

394

Servitization of the Supply Chain Olle Olsson, Malin Wiger, Håkan Aronsson

Developments in the Field of Healthcare Logistics and SCM: A Patient Flow Focus 409

Anu Bask, Merja Halme, Sari Kujala, Yiying Wu, Haian Xue Customer Preferences on E-Stores’ Order-Delivery Service Architecture: Case China

423

Jawwad Raja, Jens Roehrich Risk Mitigation in Triadic Network Configurations within a Servitized Context

440

Transport & Sustainability Jesper Kronborg Jensen, Jan Stentoft Arlbjørn, Lars Huemer, Maria Huge-Brodin

Drivers and Barriers for Collaborative Environmental Sustainability: Transport Buyers Perceptions

458

Christina Tobescu, Stefan Seuring Internal Enablers for the Implementation of Sustainable Supply Chain Risk Management Systems

475

Pratyush Dadhich, Maja Piecyk, Phil Greening, Andrew Palmer, Richard Holden Carbon For Money Model: Design and Development of a Decision-Support Tool for Sustainable Road Freight Operations

489

Modelling & Simulation Marco Simonetti, Giuseppe Confessore, Giuseppe Stecca

A Model for Multi Resources Location and Allocation in Logistics for Emergency Management

504

Reinny Patrisina, Nikorn Sirivongpaisal, Sakesun Suthommanon, Wanatchapong Kongkaew Design of Humanitarian Relief Chain Model for Disaster Relief Operation in Indonesia

518

Godson A. Tetteh Optimal Allocation of Platelets Using Simulation

533


3

MANAGEMENT OF COMPLEXITY IN CLEANTECH

WITH MODULARISATION AS A STRATEGY

Steven K. Sørensen*

Troels Chr. Andersen**

Alfredo V. Matamoros***

Torben C. B. Bjerrum****

Simone F. Fejerskov*****

Torben Tambo******

Aarhus University, AU Herning, 7400 Herning, Denmark, *) E-mail: [email protected], Tel: +45 30639130 **) E-mail: [email protected], Tel: +45 21672081 ***) E-mail: [email protected], Tel: +45 30675895 ****) E-mail: [email protected], Tel: +45 21226010 *****) E-mail: [email protected], Tel: +45 28406173 ******) E-mail: [email protected], Tel: +45 40254416

ABSTRACT

Purpose

Supplier network management in wind turbine generator (WTG) industry is important to support innovation, fluctuations and manage commoditisation. The purpose of this paper is to explore and demonstrate the balance and complexity of the four organisation-theory inspired SCM-theories of Halldorsson et al. (2007) (PAT, TCA, RBV, NT) in relation growth, complexity and sourcing in cleantech.

Design/methodology/approach

This paper is methodologically based on a qualitative case study using a deductive research approach with elements of action research and insider-as-researcher perspectives. The viewpoint of the buyer-supplier relation is fully seen from the buyer side.

Findings

Despite the emergent and contingent character of the buyer-supplier relationship, it was found that key characteristics is specifically related to (1) asymmetric dominance, (2) degree of vertical integration, (3) electronic integration, and (4) strategic alliances.

Research limitations/implications The research has been done in one of the organisations in the WTG industry that best have managed to navigate within the changes in the marketplace and maintained rapid growth implying limitations to the findings, but also suggesting potential ways to generally improve supplier-buyer relations.

Practical implications The ability to mix and match theoretical positions are giving an excellent insight into the rapid changes in specific supplier – buyer relations needed and used in the WTG industry.


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Originality/value The WTG industry is critical in transformation of energy systems and as a general industrial-economic growth area. Organisation of supply chains and architecture of buyer supplier regimes has been less documented. The insider view of this paper contributes to a better understanding of the recent transitions in the WTG field.

Purpose

Keywords: strategic purchasing, wind turbine manufacturing, principal actor theory,

transaction cost analysis, resource based view, business relationship theory


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1. INTRODUCTION

The global wind turbine generator (WTG) market is constantly in change. Cost and innovation form an intricate dyad (Ellonen et al., 2009; Platzer, 2012). Up until now WTG manufacturers have been rather self-sufficient when it comes to innovation, whereas suppliers have been bearing the obligation to pursue cost reductions (Harrison and van Hoek, 2008). To connect cost and innovation, sourcing is more and more playing a critical role (Eltantawy and Guinipero, 2013). Studies of changes in sourcing behaviour is both interesting in understanding general industrial patterns’ applicability in WTG, but also – given the magnitude of the WTG industry in Denmark – what learning that can be extracted from new trends in WTG sourcing (Song et al., 2013; Mols, 2010). Among recent trends are requests from WTG manufacturers to suppliers to enter into clusters for developing collaboration around manufacturing of modules (Persson and Åhlström, 2006). The trend of modularisation is largely inspired from especially the automotive industry (Doran et al., 2007). For small batch sizes of rapid evolving WTG’s, the clustering and modular approach is, however, not as straightforward as it is in the automotive sector. A lot of issues are to be understood. The changes are of a highly empirical nature, and call for a deeper discussion related to the scientific literature. This paper is aiming at discussing the WTG industry sourcing trends in a more theoretical perspective. This perspective needs to transcend from “the good” of clustering and modularisation and into application of more fundamental theories of SCM (Spina et al., 2013; Schneider and Wallenburg, 2013; Handfield and Nichols, 2002).

The sourcing process must refer to inter-organisational relationship management with the objective of improving the overall profitability of the activities and/or organisations involved (Halldorsson et al., 2007). Understanding the practical side of SCM is becoming a more prominent factor as companies are getting more dependent on their ability to produce and deliver customized products and services (Harrison and van Hoek, 2008). If intra-company value-creation is decreasing, higher focus on the participant’s outside the company must be paid (Halldorsson et al., 2007). Harland (1996) states as a central factor in SCM is the relationship between the buyer and supplier, and is supported by previous studies that indicates that a successful management of these relationships will contribute to the company’s overall performance (Tan et al., 1999). Another factor making the relationship important is the customization of the product the suppliers deliver to the company. Often the product is both complex and customized to fit the company’s exact needs and delivery method (Håkansson, 2002) and to make a successful the relation between these parties constitutes a prominent factor.

Previous researchers have mostly been using single theory perspectives to explain different dynamics in SCM (Halldorsson et al., 2007) and that perspective will influence the way decision in the supply chain is made. Lamming (1996) is explaining SCM as an extension of the logistic management.

Halldorsson et al. (2007) implies that looking at the supply chain from one theoretical explanation is not a reliable way to analyse SCM, but is explaining that several theories must be used to achieve a complete view of SCM. This is done using the following four theories: 1) The principal-agent theory (PAT), 2) transactional cost analysis theory (TCA), 3) the network theory (NT) and 4) the resource-based view (RBV) (Halldorsson et al., 2007). By presenting and discussing the four theories, and how they complement each other, Halldorsson et al. states that it lead to a more comprehensive and nuanced view of SCM. The idea of theorising towards a deeper insight in SCM is also found in Chicksand et al. (2012), Schneider and Wallenburg (2013), and Spina et al. (2013). Chicksand et al. (2012) goes however further to present 17 perspectives.


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The purpose of this paper is to do a theoretical research on SCM with a focus on the above mentioned strategic changes in the WTG industry and the subsequent sourcing relationships between the buyer and supplier, and on that basis conduct a case study of the global renewable energy company EnerCo to investigate, how theory impact buyer-supplier relationships and the overall SCM. Contradicting views in this area is that Poncin et al. (2011) have rated EnerCo among the poorest performers in wind turbine manufacturing SCM, at the same time EnerCo were among the best economic and market performers from 2011 to 2012 in the wind turbine industry.

2. THEORETICAL FRAMEWORK

A multiple theoretical perspectives will be used as framework for this paper offsetting in Halldorsson et al. (2007). The framework is largely internal, seen from the buying company, and based on well-known theory used for analysing external organisational relationships and are therefore viable to use in this case. The following sections present the each of the theoretical perspective and aim at clarifying, how this relates to the buyer-supplier relationship which is supported with relevant theory.

2.1. The Principal Agent Theory (PAT)

PAT explains how a relationship between the organisation (principal) and the contact point (the agent) with the supplier can differ from another assuming they are both trying to maximize utility without the other parts knowledge (figure 1) (Fayezi et al., 2012; Kleeman and Essig, 2013). The agent is tied between incentives and risk aversion typically in a salesman or a buyer role, and governed by the principal and the contractual bonds.

The most efficient contract will be the one that rewards the agent with the best mix of behavioural- and income based incentives and informs the principal so that information is symmetric (Narayanan and Raman, 2004). However, the agent can have a different preference from the principal, on issues such as; working hard, sharing information, coordination and the strategy used. Actions can be based in self-interest and risk aversion.

PAT relates organisational interrelationships and thereby ideally reduces the misalignment that could occur between the principal and the agent: “The SCM is mitigating the principle

agent problem. Misalignment often stems from hidden actions or hidden information.

However, by creating contracts with supply chain partners that balance rewards and

penalties, misalignment can be mitigated” (Halldorsson et al., 2007). To avoid hidden action and information, contracts are a key success factor in aligning expectations between buyer and supplier to ensure mutual benefits. The principal agent only relates to a one-point contact in the supply chain, but it is known from theory that multiple contact points exists (Baiman and Rajan, 2002). It is therefore necessary to look at different types of relationships.

Figure 1 - PAT model


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The relation between the agent and the principal determines the complexity of the control of the SCM (Baiman and Rajan, 2002). The contract and the number of contact points therefore determine the possibility for various problems to arise. The more points introduced, the more standardized the process and procedures need to be to keep the information between buyer and supplier consistent (Baiman and Rajan, 2002).

Figure 2 - The stability matrix (Watson, 1984)

Balancing of dominance (Watson, 1984) represents an opportunity to build upon the success of strategic sourcing and traditional procurement initiatives through strategic alliances (Watson, 1984). This involves developing partnerships with key suppliers to reduce costs, innovate and create value for both parties based on mutual commitment (Cooper, 1997). Different kinds of partnerships can e.g. be collaboration, co-operations, joint ventures, vertical integration or strategic alliances (Eltantawy and Guinipero, 2013). Watson (1984) discuss kind of power (figure 2), power circumstances, mutual benefits or disadvantages, SCM stability, commitment to long-term collaboration versus opportunism, and emphasises negative effects of asymmetric dominance.

Watson (1984) points out key factors defining a dominant relationship: 1) The importance of the supplier’s product to the buyer’s business. 2) The effectiveness of the product in satisfying the buyer’s performance requirements. 3) The economic value of the price paid. 4) The availability and costs of substitutes. 5) The availability of alternative suppliers. 6) The buyer’s credible potential to integrate backward into the supplier’s industry (self – source).

The model consists of three typical relationships going from stable or threatened equilibrium, dominance by either supplier or buyer to prevailing margin levels consistent with any given equilibrium. The main idea is that it is possible to pinpoint where the buyer-supplier relation is located.

2.2. The transaction cost analysis theory (TCA)

Transactions costs are costs related to an economic exchange (Ambrose et al., 2010). This includes costs regarding search and information’s, bargain costs, contracts, action costs and enforcement costs etc. (Cheung, 1987; Mols, 2010). Transaction costs therefore encompass a lot of elements and affect both the customer and the supplier (Frauendorf, 2006).

Transaction costs are considered to add no value other than completing the transaction. It is costs added to the product purchased and companies seek to reduce its total transaction costs.


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(Halldorsson et al., 2007) Transaction costs can be reduced by cooperating with external partners such as suppliers also called vertical integration. “Co-operation, teamwork and the rapid interchange of data among companies in a supply chain will reduce transaction costs.” – (Hobbs, 1996)

Their reduction is therefore a key element of SCM (Hobbs, 1996). Hobbs describes 6 different alternatives of coordinating economic activities which can be seen as different degrees of vertical integration in the SCM. The 6 alternatives are:

Spot market: Goods are exchanged between multiple buyers and sellers. The price is the only determinant negotiable; SCM in this case is completely absent.

Contract: Contracts exist in great variety where a supplier provides a certain amount of goods within a given timeframe. Control procedures would often be included.

Strategic alliance: A strategic alliance is two independent firms mutual agreement of serving a common strategic objective. Success depends on trust and mutual benefits.

Quasi-vertical integration: Quasi-vertical integration is where buyer and supplier form a long-term contractual obligation; parties share costs, risks profits and losses.

Tapered vertical integration: Transfer of a proportion of output through own distribution network or obtains inputs through backward integration with the supplier.

Full vertical integration: When a firm carries out two or several consecutive stages of the value chain either upstream or downstream into the supply functions.

The degree of vertical integration depends on the characteristics of the transaction costs such as: - The degree of uncertainty surrounding the transaction - The degree of assets specificity - The frequency of the transaction

Several degrees of vertical integration exist in order to reduce transaction costs, and choosing the relevant integration depends on factors as mentioned above.

2.3. Network Theory (NT)

Håkansson (2002) states, that a network, in its abstract form, is a structure of a number of nodes that are related to each other by specific threads. Nodes are business units, manufacturing and service companies, where the relationships between them are threads. Connections are complex in the form of resources, knowledge and understanding through interactions, adaptations and investments (Gadde et al., 2010). Network management is not trivial and it is important to managers to be aware of both the positive and negative affect these relationships can inflict upon the company (Håkansson, 2002). Perspectives of social networks might contribute to formalised networks of SCM (Borgatti and Li, 2009).

SCM reflects a network of intertwined and complex processes involved in the provision of products and services that cover the requirements from end customers (Harland, 1996). The cooperation of a buying company with its suppliers pinpoints the value of a network; a strong network will support the development of new resources and achieve greater benefits by reaching the goals collectively, rather than by individual efforts. (Håkansson, 2002).

The network theory supports the development and understanding of relations between the relevant stakeholders on a supply chain, also suggesting establishing standard communication methods and information exchange. The more direct the interaction is, the more effective the achieving of corporate targets and fulfillment of customer requirements will be for the company (Halldorsson et al., 2007).


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Relations through EDI – systems. Halldorsson et al. uses the NT in an inter-organisational perspective looking at transactions between business units within an organisation, however, this can also be solidified and automated networks in practice EDI (Electronic Document Interchange) (Nygaard-Andersen and Bjørn-Andersen, 1994) as a communicative tool between the buying company and the respectively suppliers (Kantor and Burrows, 1996). EDI systems will structure, control and purchase from relevant suppliers (Agi, 2005). EDI is characterised by formal representation, high degree of automation, and a system theoretical construct in inter-organisational relations information sharing (Lim and Palvia, 2001).

The effect of using EDI systems in a network is to control suppliers through a semi-automated system that reduced the transactional costs (TCA), the reduction of errors, and acceleration of information transmission and processing (Nicolaou, 2002). Moreover the costs of EDI systems have decreased which makes it more attractive and easier for companies to implement for use (Agi, 2005). Using the EDI system as an informational tool effects the communication and the control methods when dealing with a larger number of suppliers (Agi, 2005). Companies can be mandated to implement EDI systems before being able to trade with others in the same network (Agi, 2005). Because EDI systems contribute to reducing costs related to relationships, using EDI systems is a more integrated part of SCM and EDI capability is becoming a factor when choosing suppliers (Webster, 1995).

2.4. The Resource-based View (RBV)

RBV theory describes resources existing in each firm capable making the firm more sustainable and provide competitive advantages. The criteria of the resource are that it must be 1) valuable 2) rare, 3) inimitable and 4) non-substitutable which is sometimes known as the VRIN model (Salvador et al., 2002). The resources can be: capital, technology, physical assets, and human resources, used by firms in their production processes (Salvador et al., 2002). For the WTG industry, Awate el at. (2012) points to issue of the corporate knowledge-base consisting of intellectual capital and relations, and that low knowledge and few relations can be substituted by knowledge acquisition.

The relevance to SCM is that the company resources and capabilities are used throughout the SCM to gain more competitive advantages. Also in consideration to do outsourcing decisions the company can base these decisions upon knowledge about their core competences represented by the RBV approach. (Halldorsson et al., 2007)

The buyer-supplier relationships can be affected by the company’s core competences by using it as a means to collaborate in the form that the supplier receives knowledge and learns from the company (van Weele and Raaij, 2013). This could be done by letting the partner do a part of the overall process, and gain from their available core competences. In this way both parties have mutual benefits by using each other’s resources and capabilities.

Alliances and mergers/acquisitions (M&A) are central to obtaining resources (Das and Teng, 2000). The RBV suggest to favour alliances over M&A’s (1) strategic alliances are more viable than M&A’s when not all the resources are valuable to the acquiring company, (2) asset specificity might be less valuable or redundant resources in a M&A and can easily disposed of without taking a loss (Das and Teng, 2000). The requirements for a strategic alliance are that the following condition has to be met (Monczka et al., 1998);

• Independence of the parties • Shared benefits among the parties • Ongoing participation in one or more key strategic areas, for example. Technology,

products, markets etc.


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The RBV theory states that a company’s core competences are one of the key factors for sustainability and to sustain competitive advantages. Competences which are not part of the company’s core competences can be obtained through the use of strategic alliances with suppliers, where both parties can benefit from this.

3. APPLIED METHOD

The applied method for this paper will a qualitative, deductive method since the research is profoundly based on theory to conduct a case study. The deductive method takes basis in, what is known about a specific domain and on behalf of the theory deduces a hypothesis that will be the foundation of the empirical study (Bryman and Bell, 2010). In this paper, the hypothesis were presented in the theoretical framework: Is it possible to use Halldorsson et al.’s inter-organisational theoretical view to analyse the external dimension in SCM and get a comprehensive view of SCM with a focus on the buyer-supplier relationship. The chosen theory will then be translated in to operational terms and be used to conduct the empirical study (Bryman and Bell, 2010), in this paper presented as the case study. The case study approach is furthermore supported in (Ellonen et al., 2010; Easton, 2010, Ellram, 1996) for its application in collecting in-depth phenomena.

The qualitative method will consist of in-depth semi-structured interviews with relevant employees in EnerCo forming a 360 degrees company-internal perspective (Senior Management, Teamleads, Operatives). The employees’ interviewed are Director of Global Procurement, Teamlead Documentation Specialists, Teamlead Assembly Concepts, and Head of Supply Management. Furthermore, five of the authors have been engaged as ‘participants as observers’ for at least 6 months in the departments for Production Technology, Assembly Concepts, and Collaborative Engineering Systems. This is forming a pool of data of both interviews and observations. Data processing has rather been interpretivistic than subjected to an actual coding although the ontology associated with the four theoretical perspectives has been through a coding process as represented in table 3. The overall validity and reliability will be explained in the further research paragraph in the end of the paper.

4. CASE STUDY OF ENERCO

This section covers a case study of EnerCo in relation to the four theoretical perspectives presented by Halldorsson et al. (2007).

4.1. Brief introduction of EnerCo

EnerCo is a European wind turbine manufacturer that originally was an independent company, but was purchased by LargeCo in 2003. LargeCo’s competencies in how to manage a global engineering, their organisational structure, and processes, were added, which contributed to an increase in growth and volume. The sales in wind turbines went from approximate €260 mill in 2003 to €3400 mill in 2013 as shown in table 1.

2013 2012 2011 2010 2009

Turnover Mill EUR

3.370

2.830

2.610 2.375

2.085

Gross margin Mill EUR

840

630

660 605

470

Earnings Mill EUR

218

73

152 171

114


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Growth % 19,1 8,6 9,9 14,0

Purchase of “raw

materials and

consumables”

Mill EUR 2.050 1.860

Table 1 – Key figures of EnerCo – European operations only

A characteristic of the wind industry is the amount and variety of different components – all from small standardized components to specialized and advanced, heavyweight products and modules (Platzer, 2012). This variety makes the value chain comprehensive and complex for any wind turbine manufacturer. Despite beliefs a few years back, WTG components are not easily subject to commoditisation as batch volumes remain low typically less than 100. Global competition as led a high degree of innovation in adaptation to special requirements (low wind, high turbulence, offshore) and constant introduction of new designs. Of global top 3 manufacturers in 2011, only one was still in top 3 in 2012.

EnerCo has stated the following strategic challenges for the SCM

- Price productivity demand increasing (aka LEC – leveraged energy cost) - Shorter project lead times - Customer quality requirements are increasing - Product variety is increasing - Everything is globalised

Suppliers are critical, and as stated in table 1, the value adding in EnerCo is relatively small. Supplier qualification audits will include quality, HSE (Health, Safety, Environment), logistics, and commercial issues. All suppliers are required to have fully implemented ISO9001, ISO14001 and OHSAS18000. Quality requirements include documentation processes, traceability, control structures, validation, training and maintenance. Quality documentation must be updated, version-ised, change managed, reviewed, and CTQ (critical to quality) factors transparently identified. Traceability includes materials certificates with CoC’s, batch numbers, tool numbers, and documentation version. Supplier controls must encompass CTQ’s in design as well as manufacturing phases using e.g. FMEA (Failure Mode and Effects Analysis), control plans and MSA (Measure System Analysis).

A relaunch of supplier strategy in 2013 underline (1) modularisation and (2) strategic collaboration. Strategy acts with the paradox of requirements of logistics excellence, fast reaction, optimised supply chains, system supply with standard modules versus innovation, small batch numbers, specialised turbines and fast reaction. Largely this follows the paradox of agile versus lean as manufacturing principles. The strategy calls for “4i” of Innovation, Industrialisation, Internationalisation and customer/supplier Intimacy. Within innovation, modular thinking across platforms is seen as dominant in order to accelerate the innovation cycle and distribute more responsibility with the suppliers, thereby both reducing the supplier base, but also keeping suppliers in still more strategic relationships. Industrialisation (“lean”) is rather contradictory to the pace for innovation, as this calls for “relentless cost down” and “large serial production” knowing that batch numbers remain small and deliveries uneven.

Particularly modularisation is a major change for EnerCo’s suppliers. This not only means that blades, hubs, generators, tail ends, towers and power units are by nature modular and interchangeable, but also should suppliers start to collaborate within complex modular deliveries. An example is the yaw gear assembly.


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The yaw gear used to be made from large gear rings, motors, motor controls and additional fittings, bolts, lubrication systems, etc. this is now to be seen as a module where a single supplier should deliver a module consisting of all necessary components associated with the yaw gear. It is stated that “Using modules and

product platforms for wind power plants saves

money on purchasing activities, simplifies

storage and allows us to execute large

production runs as just a few benefits.” The introduction of module suppliers is seen as contrary to traditional component suppliers as characterised in the following table.

Component suppliers Module suppliers

• Competitive pricing • Payment terms of 75 days next first • Acceptance of our contractual standards • Global footprint or supply scope • Deliveries under schedule agreement and

within short lead times • On Time Deliveries of more than 90% • Highest Quality • Strong technology capabilities • Flexibility

• Risk sharing models • Investment requirements based on

commitments and shared risk. • Raw material and 3rd-party sourcing. • Storage and logistic • Open book policy • Shared innovation - Early

involvement • Optimization and cost out • Contract design (warranties &

liabilities) • Quality (System responsibility)

Table 2. Component versus module supplier conditions

Of further supplier policy statements, EnerCo highlights flow of knowledge in both directions between suppliers and EnerCo, but also a range of behavioural measures are assumed, such as obligation, dependency, trust, conflict resolution and communication practices.

Compared to other industries, EnerCo is stressing the issue of local presence in its supplier strategy. Heavy components might be overcomplicated or senseless to transport over long distances, and local manufacturing in e.g. South Asia or Brazil is giving more meaning than shipping. Furthermore, is the ability to disperse and localize

4.2. EnerCo and the PAT view

Before 2003 when the company was independent, the supplier network was very local and EnerCo was considered a Small-Medium Enterprise (SME) with limited cultural and geographical barriers. The contact with the supplier at the time before 2003 was ‘one point of contact’. One person had the entire contact with the supplier and acted as an agent for the company. The person knew everything needed to know about the supplier to be able to take fast decisions and skip some processes to deal with the formalities afterwards. This was preferably done to avoid the possible crash of a project. As of today, EnerCo has divided the buying process into several steps and abandoned ‘one point of contact’. Several departments handle different parts of the buyer process such as; compliance, legal procurement, logistics, test, payment processing, etc.

Figure 3. Yaw gear assembly


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4.3. EnerCo and the TCA View

Due to the amount of supplies and thereby the amount of suppliers EnerCo handle each day there is a sharp focus on reducing transaction costs. Overall these costs are reduced by reducing the amount of Suppliers: “We want to have as few suppliers as possible, but yet

enough” – Director of Global Procurement. EnerCo evaluates each supplier and their product looking into the criticality and complexity of the product, the stability of the supplier and amount of alternative suppliers, delivery time, price and switching costs. EnerCo always have a backup supplier to secure the production flow. The variety of supplies from small to specialized components causes EnerCo to have many different types of buyer-supplier relationships.

The relationship with the suppliers providing standardized components is in open competition. The criticality of the product is low, and the amount of other suppliers with the same product is high. If a supplier is too expensive or makes a mistake it’s easy for EnerCo to choose another supplier because the product is (tends to be) standardized. EnerCo prefers a dual sourcing strategy with standardized components so they don’t rely on one supplier’s capability, the supplier faces the price pressure, and at the same time they limit the amount of certificates and quality checks to more suppliers.

As stated above, EnerCo seeks to limit the amount of suppliers is by forming strategic alliances with suppliers who deliver more added-value by providing pre-assembled modules. Alliances are formed with a supplier capable of delivering the module pre-assembled, reducing e.g. 20 suppliers to one. By doing so, design and engineering competences are moved up in the value chain and the product is industrialized although the very low batchsizes is conflicting with this.

4.4. EnerCo and the NT View

With the increasing volume over the past ten years, the amount of components, suppliers and costs have followed. The supplier network has been expanding fast and in order to handle the complexity of the supply chain EnerCo introduced EDI systems in 2009.

EnerCo have chosen the SupplyOn collaboration platform to increase the cooperation with several suppliers by introducing a standard system that can close the communication and technology breaches between the company and the supplier in the entire procurement process from ordering to billing.

With SupplyOn it’s easier for EnerCo to control Kanban, Vendor managed inventories (VMI) and consignments. Suppliers manage deliveries and stock levels and to deliver directly to the production. Also it’s possible to transfer the ownership at consumption.

"Through universal use of the central industry platform SupplyOn, EnerCo expects a

substantial acceleration in the elimination of non-value-adding activities in operational

procurement of both direct and indirect material," says project leader Wayne B, Corporate SCM at EnerCo AG, talking about the decision to choose SupplyOn. "Collaboration

processes with suppliers will be more efficient, secure and traceable." (SupplyOn, 2013)

The platform is currently supporting 1468 suppliers from EnerCo, and the main objective is to have all of the suppliers for EnerCo integrated in SupplyOn in the near future. Because suppliers have a choice of connecting via WebEDI or EDI, all of EnerCo suppliers can be integrated electronically, depending on their specific preferences and capabilities.


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4.5. EnerCo and the RBV

The wind power industry only covers a little percentage of the whole energy sector. Instead of viewing other wind companies as direct competitors EnerCo see themselves competing with other energy sectors such as coal, solar and gas. With that perspective the market potential is enormous. The focus is therefore on making wind energy affordable and developing the industry compared to other forms of energy.

EnerCo has identified their core competences as wing design, generators and controlling systems. Everything else is relative standard in the industry and shouldn’t be part of EnerCo’s activities.

“We’ve always had a philosophy where we want to do as little as possible ourselves. We

outsource what is possible and only contribute a few percentages to the wind turbine’s

value.” – Director of Global Procurement

As mentioned in section 2 – TCA, EnerCo moved a lot of design and competences out in the value chain with strategic alliances to industrialize the products and active to request modularisation. By having industrialized products the suppliers are capable of selling the product to other companies in the wind industry. The product is no longer an EnerCo product but a wind product. EnerCo doesn’t consider this a problem because industrializing the products helps developing the industry; improve the quality and the costs of the products and also the competences of the supplier. Thereby, EnerCo is more competitive in relation to other energy sectors, also stated clearly in the strategic supplier guidelines at the main competitor is not other WTG manufacturers but fossil fuel.

5. DISCUSSION

The following will be a discussion on how the four different theory perspectives and the case study at EnerCo correlate. This is done in order to establish that the relationship between the buyer and supplier is very complex and must be managed by looking at SCM relationships from different perspectives.

Looking at the principal agent theory it is important for EnerCo to find a balance between the whole organisation and the roles in the company that are responsible for the contact to the supplier (Narayanan and Raman, 2004) and furthermore understand it’s position of dominance (Cooper et al., 1997). EnerCo has gone through several phases of PAT including both globalisation and professionalisation.

Because EnerCo’s complexity many different product configurations and multiple product components, the dominance with the different suppliers is also very different. The most common relationship EnerCo has with their suppliers is dominated from the size of EnerCo, and to decrease risks, if losing a supplier EnerCo always has a backup supplier to secure the production flow. In some cases the supplier delivers such a complex and critical product to EnerCo that requires a closer relationship and collaboration, and in an example of the most critical component, EnerCo bought the supplier in 2005.

Modularisation and clusterisation is closely related to PAT where the buyer dictate changed relations in the supply chain. EnerCo enacts dominance to enforce change. The SCM organisation is actively travelling around to form clusters. Active use of PAT is therefore closely related to the transition of WTG component sourcing.

In a critical view, PAT has significant shortcomings in the EnerCo case: Multiple contact-points, contracts lagging behind changes, staff churn, and market dynamics do all contribute to an image of “managed chaos” rather than management. Another supplier stated it as “we


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sell products, but we (gladly) also coordinate between EnerCo’s departments, so just call our

service ‘project management’”. EnerCo has a history of both overplaying dominance leading to suppliers bankruptcy, but also underplaying it’s buying power resulting in too high cost. The PAT approach in modularisation conforms to general tendencies of standardisation and commodisation although potentially overlooking the distinct ‘engineer to order’ construct in place till now.

The transactional cost analysis theory is about vertical integration to bring down costs that does not add any value to either party (Cheung, 1987). EnerCo is using several kinds of integration presented in this paper. EnerCo has distinct processes for analysing suppliers on factors as price, complexity, delivery time, stability etc. analysing these factors among others a degree of vertical integration can be determined (Hobbs, 1996). In some cases it is important to establish strategic alliances because they have full vertical integration which makes the company and the supplier depended on each other. It is in both parties interest to maintain the relationship because a new strategic alliance is costly (Hassan et al., 2010). Contradictory to TCA is the anyhow quite vast number of suppliers and an expected constant influx of new suppliers. The low batchsizes and strong engineering content erode buying power. As an interviewee said, “we need innovation, collaboration, and then price, price, price”. The thought of imitating the automotive industry (Dordan et al., 2007) in e.g. TCA is difficult given these circumstances and lead to a loss of credibility when the difference between what is said and what is done become too large. In selected areas of standardised components, EnerCo succeed with a TCA mindset. Given modularisation as an underlying effort, EnerCo has better opportunities as transaction costs are moved up in the supply chain although transaction cost reduction is unsure.

The network theory (Gadde et al., 2010; Borgatti and Li, 2009) contributes to the understanding of the different dynamics that exist in the relationships in the organisation particularly related to engagement and involvement. Involvement helps to build trust and is a good foundation in building positive long-term cooperative relations adhering also to conflict resolution and “crisis” management. There seems to be discrepancy between personal intimacy and EDI as a tool to control, communicate and purchase (Nicolaou, 2002; Webster, 1995; Kantor and Burrows, 1996; Nygaard-Andersen and Bjørn-Andersen, 1994). The personal connections to the suppliers are relatively low when using the EDI as a communication tool outwards and contradicts strategic alliances. NT would be ideal in managing the sourcing transition although several factors blur the picture: Modularisation seems to happen mostly with important and mature supplier clusters; this would sever old and valuable ties; modularisation thereby disregard NT. At the same time, with more than 1000 suppliers, “unimportant” suppliers will remain as tier-1 getting undeserved attention. The transformation is considering giving “modularised” suppliers some advantages primarily by actively encouraging and “orchestrating” relevant clusters. Questions remain unanswered in how relations are orchestrated in the new clusters, e.g. if cluster leaders can cut corners and freely change relations.

The essential of the resource-based theory is resources giving competitive advantages e.g. based on the VRIN concept. EnerCo is sourcing components and modules for assembly at chosen suppliers they have strategic alliances with. EnerCo focus more on the few things that gives them a competitive advantage in the wind turbine industry. These core competences are the design of the blades and the controlling system. Outsourcing components, assemblies and modules can have both benefits and constrains. The benefit is that EnerCo can focus on their core competences to secure competitive advantages in the future. The constraints are loss of overview of the modules which make EnerCo have less influence.


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A critical position to the theory-driven approach is, how much we can derive from theoretical positions, in getting deeper into SCM processes. As questioned by Schneider and Wallenburg (2013), to some areas there might be a limitation. Contrary to this, is it utterly critical that the WTG industry after 30 years find new ways to mature. Not as in 2010 were Chinese manufactures just started to duplicate production, but a mature production platform, where knowledge, innovation, industrialisation and collaboration is dominant all through the supply chain. The strong level of theorising in this paper (Weele and Raaij, 2013; Woodside et al., 2012) help to contribute to manage the paradoxes of the WTG supply chain and highlight the further potentials in the development thereby stressing strategic sourcing and procurement as ambidextrous with both having deep product and process knowledge, but also master the analytical inter-disciplinarity suggested by the multi-theoretical perspective.

The following table summarise the changes in the strategic sourcing with an assessment of potential risks and benefits of modularisation from the theoretical perspective:

Existing and prior conditions

Impact of current changes Positive Negative

PAT Point-to-point Intermediate contractual complexity Ad hoc approaches

Professionalisation Specialised Contract driven Higher dominance

Bureaucracy Slower speed Higher cost Dominance as negative

TCA Spot-market Contract agreements Few strategic alliances Low risk sharing

Higher level of integration Higher risk sharing Simpler purchasing Less shift of responsibilities

Higher external dependency Cost shifted upstream

NT Complex network Relatively simple direct connections

More focused networks Higher engagement Higher involvement Asymmetrical foci

Less detailed insight Less SCM insight Loss of relations

RBV Current high resource requirements Inimitable

Lower resource requirements Reduced non-strategic focus Accept of imitation

Less strategic preparedness Abandonment of existing VRIN – can new be created?

Table 3. Status and effect of the strategic sources changes

The theoretical perspectives open a deeper analytical approach to the sourcing transformation of EnerCo. In table 3 are the perspectives summarised. EnerCo has to this day had a generally positive supplier engagement although suppliers from time to time have bankrupted. The changes in the WTG sector are dictating that less suppliers must be deeper engaged in innovation and cost development. After 10 – 20 years of customisation it is obvious that some artefacts turn into commoditised modules, e.g. the yaw gear assembly. In the critical view, the strategic sourcing changes seem questionable. The WTG industry has also had a tradition for modularisation in cases of e.g. blades, towers and castings. The forthcoming efforts of further modularisation are eroding the knowledge base and contributes positive to especially the Indian and Chinese competitors following the arguments of Awate et al. (2012). The strategy is also not answering the strong asymmetry in the sourcing with more than thousand probably obscure suppliers remain unaffected whereas critical and important suppliers are shifted in to clusters.


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6. CONCLUSIONS

As Halldorsson et al. stated about SCM in general this paper may also conclude that there is no uniform theory explaining SCM relationships in enterprises. The relations can be viewed from many different perspectives and the theory reviewed in this paper is not exhaustively for the topic. Other relevant theory could be the bonding theory that describes the motives for collaborating in business relationships.

The four theoretical perspectives are presented in table 3. This is also suggesting the interpretation of the complexity where each perspective might lead to advantages but also might erode EnerCo position and leave technology open for EMNE’s as proposed by Awate et al. (2012).

This study has several limitations due to the chosen theoretical framework, the research of theory and to the case study of EnerCo. The theoretical framework is based the four different theories to use when looking at SCM. The research of theory throughout the article is based upon the theoretical framework and due to that the results of the article will rely on the reliability of the theoretical framework. Further research within the framework should aim for selected quantitative evidence. The case study of EnerCo is largely generalizable in emerging industries like WTG due to the 360 degree approach in the article and due to that fact that the community of WTG manufacturers and suppliers do have an increasing interdepence e.g. as a consequence of modularisation.

EnerCo has had financial success due to reliance on a particular lucrative segment of the WTG market. The pressure to reduce the price of energy output is increasing. The simpler SCM approaches taken in the past have by and large not succeeded, and the changes in SCM related to clusters and modules are well supported by the multi-perspective theoretical approach.

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