THE IMP JOURNAL

ISSN 0809-7259,
VOLUME 2

CONTENTS
ISSUE 2.2
Page 3-24

Wendy van der Valk, Finn Wynstra and Bjrn Axelsson

An Empirical Investigation of Interaction Processes
between Buyers and Sellers of Business Services

Page 25-37

Roberta Bocconcelli and Hkan Hkansson

External interaction as a means of making changes in a
company: The role of purchasing in a major turnaround for
Ducati

Page 38-58

Ann-Charlott Pedersen, Tim Torvatn and Elsebeth Holmen

Towards a Model for analysing Supplier Relationships when
developing a Supply Network

Produced in cooperation with

Norwegian School of Management BI

The IMP Journal

Volume 2, number 2

A Letter From The Guest Editor, Hakan Hakansson

Introduction To Special Issue In Purchasing
Purchasing has always been an important field of research within IMP. One reason for this
importance was stated clearly in the first IMP book, Industrial Marketing and Purchasing: An
Interaction Approach, published in 1982. In this book we challenged the view that
purchasing was different from marketing. Another more practical reason for its importance in
IMP work is that companies are generally more open to discuss and document how they
work with suppliers compared to how they treat their customers. But independent of these
reasons, our studies of purchasing has forced us into an interesting theoretical question:
What is purchasing? This is a simple but at the same time a very essential question. We
probably all have the same picture when presented with this question: In order to make a
good purchase we need to have some alternatives. Purchasing is about selecting! But in
contrast, if we pose a similar question about selling then the answer is not all about selecting.
Selling is about convincing!
I would argue that the focus on selection is one of the major problems that those who seek to
develop purchasing in companies struggle with. This problem is illustrated in the second
article of this special issue about purchasing. But, the same basic theme can also be found
in the other two articles. All three articles are to a very limited extent dealing with choice
between alternatives. Instead the focus in each is on the interaction that takes place
between the customer and supplier companies. The main issue in each of the papers
concerns how the two sides can develop an interaction that solves the problems that both
companies face and at the same time is efficient.
In the first article by van der Valk et al the interaction concerns business services purchased
by an oil company based in the Netherlands. The authors use this case study to investigate
four interaction processes between this customer and four suppliers covering three types of
business services. One of these is a semi-manufactured service a drilling service. Two of
these concern instrumental services one is an engineering/construction service and the
other involves the management of a stock of piping materials. The final process relates to a
consumption service in terms of waste management. The authors find that the interaction
processes in these cases are different from each other in a systematic and predictable way.
The authors conclusion is that the ongoing interaction is a vital part of the selling and buying
of business services and that the process will be closely related to structural aspects such as
key objectives, functional representatives and organizational capabilities.
Interaction becomes an even more accentuated aspect in the second contribution by
Bocconcelli & Hkansson. This paper is based on a case study of the motorbike producer
Ducati. The authors concentrate on the important interplay between internal organizational
attributes and external interaction. In the case study, Ducati has financial problems and
needs to improve both efficiency and effectiveness and to change its supplier relationships.
As more than 80% of the value of Ducatis final product is produced by suppliers, its
suppliers have to be involved in the change process in order to achieve a turnaround in the
companys fortunes. The interaction between Ducati and its suppliers has to be intensified in
order to find better solutions from the perspective of efficiency and innovation. One internal
change was to create purchasing teams with a much broader competence, but also to

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Volume 2, number 2

change the name of the responsible unit from purchasing to supplier development. These
actions were done both to signal a new way to behave both internally and toward the
suppliers but also to try to convince the latter to develop their own way of functioning in order
to facilitate interaction. The case is an interesting example of how much there is to be done
in terms of increasing the capability to interact in order to develop much more efficient
production and logistic structures. In the third article by Pedersen et al both the customer
and supplier sides of relationships are treated in a truly interactive way. Both sides are
described in terms of how the focal interaction is part of a larger pattern of interactions. The
two parties and their contexts are matched in order to identify four situations of more or less
balanced character and to show the consequences of these for the interaction process. The
model developed in the paper builds on earlier research into purchasing portfolio models and
supply networks. The model is applied to a longitudinal study of a construction company and
its main suppliers. The empirical illustrations centre on company learning, capacity issues
and cost handling.
The three articles together provide an interesting picture of what can be achieved by taking
an interaction approach to purchasing. But they also show that there is a lot more for us to
learn about these issues.
Best Wishes

Hakan Hakansson

The IMP Journal

Volume 2, number 2

An Empirical Investigation of Interaction Processes

between Buyers and Sellers of Business Services
Wendy van der Valk a*, Finn Wynstra b and Bjrn Axelsson c

Eindhoven University of Technology, PO Box 513, 5600 MB Eindhoven, the Netherlands, w.v.d.valk@tue.nl.
Erasmus Research Institute of Management/ RSM Erasmus University, PO Box 1738, 3000 DR Rotterdam, the Netherlands,
fwynstra@rsm.nl.
c
Stockholm School of Economics, PO Box 6501 S 11383 Stockholm, Sweden, bjorn.axelsson@hhs.se.
*: Corresponding author
b

Acknowledgements: The authors wish to acknowledge the useful comments of Wilfred Dolfsma, Ferdinand Jaspers and
Thomas Ritter, and the anonymous reviewers of the journal.

Abstract
This paper presents the results of a theory-building study into processes of interaction between buyers
and sellers of different types of business services. We build on a recently developed usage-based classification of
business services which identifies four service types. Earlier studies indicated that interaction for different types of
services is associated with different key objectives, and differing functional involvement and organizational
capabilities. However, the interactive processes that take place between buyers and sellers were not included in
these studies.
The main objective of this article is to make a theoretical and an empirical contribution by 1) extending
the conceptualization of interaction by including process dimensions; and 2) empirically investigating what these
interactive processes look like for each of the four types of services. This empirical investigation is done by means
of an embedded case study.
The results of our case study suggest that different types of services are associated with differing
processes of interaction. Furthermore, we were able to replicate previous findings regarding the key objectives,
functional involvement and organizational capabilities. Additionally, we found that the level of perceived risk
associated with a service influences the extent to which interfaces and interaction processes are formally defined
and designed.
Keywords: Business Services, Interaction, Purchasing, Buyer-Seller Relationships

Introduction
The services marketing discipline
(Grnroos 2000; Lovelock 1983; 2001;
Zeithaml & Bitner 1996) has consistently
been emphasizing that (consumer)
services are produced in interactive
processes between the seller and the
buyer. Zeithaml, Berry and Parasuraman
(1988, p. 35) claim that in most services,
quality occurs during service delivery,
usually in an interaction between the
customer and contact personnel of the
service firm. As such, one could argue
that the success of a service is actually
established in the encounter between
service provider and buyer. These
observations equally apply to business

services, and highlight the presence of

ongoing buyer-seller interaction, or in
other words: continuous interaction during
the service delivery process.
Recently,
Grnroos
(2004)
stressed the importance of the service
encounter and the customer-service
provider interactions it comprises. This
parallels a shift in the strategy debate
towards a micro perspective on strategy
and strategizing (Johnson et al. 2003),
thereby calling for emphasis on the
processes and practices that make up the
daily activities of organizations and that
relate to strategic outcomes. Johnson et
al. (2003) argue that as the transparency
of
resource
markets
increases,
sustainable advantage remains more and

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Volume 2, number 2

more in the level of detail of the buyerseller relationship. Hence, daily activities
and ongoing interaction are the stage for
strategic behaviour.
Consequently, studies into buying
business services could benefit from
focusing more on the ongoing business
(as opposed to the transactional
purchasing process), where the design
and management of interfaces and
interaction processes are an important
determinant of the actual outcomes of the
customer-supplier
relationship.
Unfortunately however, researchers in the
area
of
Purchasing
and
Supply
Management (PSM) have not fully
acknowledged this typical aspect of
services, and have largely focused on the
initial phases of the purchasing process,
such as supplier selection (Day &
Barksdale 1994). An exception is Mitchell
(1994), who briefly touches upon problems
and risks in the buying process for
consultancy services and includes project
management and performance evaluation
in addition to the stages comprising the
up-front decision-making process.
In order to investigate this notion of
ongoing
interaction
from
a
PSM
perspective, Wynstra, Axelsson and Van
der Valk (2006) recently proposed a
classification of business services based
on how the service is used/ applied by the
buying company. They furthermore
identified several dimensions in terms of
which patterns of interaction can be
described and found variation on these
dimensions in their exploratory studies.
However, as acknowledged by Wynstra et
al. (2006), this conceptualization of
interaction is rather static, since it involves
only structural dimensions. Furthermore, in
their exploratory studies, these authors did
not explicitly address sampling issues or
the development of research instruments.
The purpose of this paper is twofold. Firstly, it extends the conceptual
framework provided by Wynstra et al.
(2006) by adding process dimensions to
the set of dimensions originally used to
describe patterns of interaction. According
to Whetten (1989), identifying how a
proposed change in the number of
variables affects accepted relationships
between the variables is a good way to

demonstrate the value of this change.

Secondly, we empirically investigate
ongoing interaction by conducting a single,
theory-building case study aimed at
understanding
what
processes
of
interaction look like for each of the four
types of business services. This case
study draws on theoretical selection
criteria (Dul and Hak, 2007), as well as on
a case protocol and an interview guide,
thereby preventing the limitations that
characterized the dataset of Wynstra et al.
(2006). Conclusions are drawn and
suggestions for future research are
developed.
Usage as a driver for variation in
ongoing interaction
Most firms nowadays tend to
engage in a limited number of long-lasting
relationships. As a result, the ongoing
interaction in these business relationships
has become highly important. The
Industrial Marketing and Purchasing (IMP)
Group was one of the first scholarly
groups to acknowledge the importance of
the ongoing business relationship and the
interactions
involved
(Ford
2002;
Hkansson 1982). In ongoing business
relationships, buying companies and
suppliers
interact
during
exchange
episodes and as part of the long-term
relationship (across exchange episodes).
Effective of functional interaction between
buyers and sellers is required to ensure
the successful ongoing exchange of
business services.
In order to determine what a
functional pattern of interaction looks like,
the
IMP
Group
has
extensively
investigated ongoing interaction between
buyers and sellers of industrial goods.
They identified variation in interaction and
found that the type of application of a
purchased good is the main determinant of
buyer-supplier interaction (Hkansson
1982). Based on this attribute, Hkansson
(1982) distinguishes three classes of
goods: capital equipment, raw and
processed materials and components
(note that services are not explicitly
accounted for in this classification). The
classification resembles the classification

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Volume 2, number 2

of industrial goods brought forward by

Robinson et al. (1967), who make a
distinction between product constituent
transformers
(components),
product
constituents
(semi-manufactures),
production facilities (investments goods/
instrumental services) and production
services (MRO goods/ consumption
services). Similarly, Jackson and Cooper
(1988) identify three classes containing
both products and services: 1) capital
products (major equipment); 2) operation
products (minor equipment and MRO
services); and 3) output products (raw
materials/ components and production
services purchased for the final product)1.
Building on the classifications of
Hkansson (1982) and Jackson and
Cooper (1988), Wynstra et al. (2006)
propose a classification of business
services, based on how the service is
used/ applied by the buying company, and
claim that this usage dimension is one of
the main factors affecting the appropriate
(effective) design of customer-supplier
interfaces and interactions. Four types of
services can be identified: component
services, semi-manufactured services,
instrumental services, and consumption
services.
Component services are, without
transformation by the buying company,
passed on to the end-customer. Examples
are subcontractors for a cleaning
company, or (inbound) call centre services
for
a
telecom
company.
Semimanufactured services are transformed by
the buying company before being passed
on to the final customer; these services
are primarily used as an input by the
buying organization for particular offerings
to final customers. An example is
outsourced market research, which is then
used by a marketing and advertising
company to develop a marketing plan for a
client. Instrumental services directly affect
how the buying companys primary2

1
MRO services are purchased by an organization to run
its operations (f.e. maintenance, but also legal services)
while production services become part of the production
process for a particular (set of) product(s) (Jackson,
Neidell and Lunsford, 1995).
2
By primary processes we mean those processes aimed
at fulfilling customers needs and wants (value-creating
processes). Secondary processes refer to those processes

processes are carried out (they are not

delivered to end-customers). An example
is subcontracted ICT services to support
the operations of a logistics service
provider. Finally, consumption services do
not directly affect how the buying
companys primary processes are carried
out. An example is the cleaning of office
buildings for a consultancy agency.
This
classification
has
several
important benefits. Firstly, it focuses
specifically on business services, which
according to Boyt and Harvey (1997) and
Jackson and Cooper (1988) have received
far less attention than consumer services.
Secondly, it takes into account services
that are being passed on to (business)
customers: these services have largely
remained
unaddressed
in
services
marketing research (Jackson & Cooper
1988). Thirdly, it takes on a buying firms
rather
than
a
service
providers
perspective. Finally, it enables the
identification of similarities between
services that are technically speaking of a
different nature. Whereas business
services are usually classified with regard
to the nature of the service (IT, HRM), the
service providers or the stakeholders
involved (Agndal et al. 2006), this
classification draws attention to the
importance of an individual service for the
buying firm, for example for customer
satisfaction or for the continuity of the
buying companys primary processes.
Similarly, Fitzsimmons et al. (1998) argue
that it is important to identify who or what
is the recipient of the service (people,
things or processes), since this provides
an understanding of the nature of the
service being offered and the required
interactions. Focusing on what they
can/should do with the service and its
provider rather than on the service itself
enables buying companies to think about
what functional aspects are crucial and
consequently who should be involved to
what extent in the purchasing decision
process and the exchange process that
follows thereafter. These issues are

that enable and support the primary activities (Porter,

1985).

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expected to be equally
business service providers.

Volume 2, number 2

relevant

for

Developing the concept of interaction:

adding process variables
Exploratory case studies into
service
procurement
indicate
that
differences exist with regard to the key
objectives
of
interaction,
type
of
representatives involved and required
buyer and supplier capabilities (Table 1)
(Wynstra et al. 2006). For example: the
key objective for component services is to
have the service fit with the buying
companys existing offerings, whereas for
instrumental services, the service should
result in the desired effect on/ change in
the primary processes. These key
objectives have certain implications for the
resources required from buyer and seller
(Cunningham & Homse 1986).
On the one hand, the key objective
of interaction is reflected in the type of
functional representatives involved in the
ongoing interactions. For component
services, for which the end-customer plays
an important role, this involvement comes
from people representing the end
customer (often the marketing function) or
perhaps even the end customers
themselves. The fact that instrumental
services affect the buying companys
primary processes results in the
involvement of business development and
primary process representatives. Other
internal users often include general
management and service specialists (e.g.
internal lawyers in the case of legal
services).
On the other hand, different key
objectives will require differing capabilities
from both the buying and the supplying
organization. When providing component
services, the supplier has to understand
the service itself as well as how it fits with
the buying firms complete (downstream)
offering. Furthermore, an important
capability is to match internal capacity with
the buying companys demand pattern.
Critical customer capabilities include the
ability to (timely) interpret, translate and
communicate (changes in) final customer
demands and the ability to synchronize

and coordinate the design (architectural

knowledge) and delivery (assembly
capacity) of the different services. For
instrumental services, the supplier should
have a thorough understanding of the
buying
firms
production
process.
Furthermore, since instrumental services
often have a long-term character, the
supplier has to be able to sustain and
support the service for an extended period
of time (Hkansson 1982, p. 163-192).
Critical customer capabilities concern the
ability
to
interpret,
translate
and
communicate the demands of internal
users and the capability to (help)
implement and leverage these services
within the own organization.
Although Wynstra et al. (2006)
acknowledge
the
limits
of
their
conceptualization of interaction in terms of
objectives, capabilities and interfaces and
point out that the concept of interaction
can be further developed by including
process-related dimensions, they do not
address this in large detail. This seems
inconsistent since the IMP Group has
repeatedly stressed the importance of
studying
the
interactive
processes
between buyers and sellers and identified
two
key
interaction
processes:
institutionalization and adaptation.
Institutionalization
Institutionalization occurs when buyerseller relationships are long-term: in these
relationships, conscious decision-making
may be substituted by routine behaviour
(Hkansson 1982). As such, patterns of
interaction will either be deliberately
designed or, more often, emergent.
Institutionalization may for example
emerge in the inter-organizational contact
patterns as well as the role relationships
being built up over time. Therefore, we
propose to primarily focus on ongoing
communication as an area in which
institutionalization takes place, since this is
expected to be strongly coherent with the
structural dimensions of interaction, i.e.
key
objectives
and
functional
representatives involved. Thus, we focus
on the results of institutionalization, not on
the process of institutionalization itself.
The differences in terms of key
objectives, functional representation, and

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Volume 2, number 2

Table 1
Differences in objectives, capabilities and interfaces for the different service types
Type of service

Objectives

Critical supplier capabilities

Critical customer capabilities

Component services

The service should fit

with the customers
final offering

Production capacity and

quality

Development capabilities (in
case of specialized services )

Translating/communicating
final customer demands (on
ongoing basis)

Synchronizing the supply of
various service components

Semi-manufactured
services

The buying company

should be able to
transform the service
in the desired way

Production capacity and

capability to maintain a stable
quality

Innovative capabilities (when
used as an external expert
and for strategic services)

Instrumental
services

The service should

affect the customers
primary processes in
the desired way

The service should fit
with important
characteristics of
these primary
processes

The service should
support various core
processes

Business development and

innovation

Business and service
production design services

Translating final customer

demands

Optimizing
fit
between
internal
and
suppliers
operations

Synchronizing suitable
contact interfaces between
internal and the suppliers
operations

Implementation skills:
understanding what fits when,
how and for whom

Consumption
services

Ability to supply the desired

service and (if needed) adapt
it to the specific situation of
customer

Translating/communicating
internal customer demands
(on ongoing basis)

Follow up on performance
and user satisfaction

Supplier
representatives

Marketing
representatives
regarding the
suppliers own service

Downstream
specialists
(knowledgeable of the
customers final
offering)

Production planning
and marketing
representatives

Customer representatives

Buyer specialists
regarding the service
bought, and marketing
representatives knowing
the needs of the buyers
customer

Production and quality

representatives

Product
representatives, often
including a team of
consultants or process
engineers

Business development
representatives and
affected internal
customers

Marketing
representatives

Buyers and internal

customers

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Volume 2, number 2

organizational capabilities will obviously be

reflected in these inter-organizational
contact patterns between the buying
company and the service provider. Indeed,
Wynstra et al. (2006) found that patterns
of communication for the different service
types differed in terms of broadness and
the
high-priority
issues
addressed.
Hkansson (1982) suggests that the
frequency and form of communication in
relation to the topic discussed and the
individual that was contacted are important
dimensions when trying to understand the
information exchange between buyer and
seller, both within and across exchange
episodes. Similarly, Cunningham and
Homse
(1986)
mention
frequency,
intensity and hierarchical and functional
scope of customer-supplier contacts as
short-term aspects of the interaction
process. Building on Cunningham and
Homse (1986) and Wynstra et al. (2006),
we propose to analyze the contact
patterns in terms of hierarchical and
functional scope, since this is expected to
fit well with our analysis of the buyer-seller
interface. These dimensions are evaluated
by investigating what issues in the buyerseller dialogue are important, since this
should reflect the relevant hierarchical and
functional issues.
With regard to these process
dimensions, several propositions can be
developed. For example: for component
services, which become part of the
offerings to final customers, critical issues
in the buyer-seller dialogue are the
integration of the service into the overall
offering of the buying company, endcustomer requirements (f.e. regarding the
sourcing of the component or the desired
use of the component) and the
coordination of service production/ delivery
and consumption. In contrast, for
instrumental services, a critical issue in the
buyer-seller dialogue is how and to what
extent the service impacts the buying
companys primary processes. Buyer and
seller
will
furthermore
discuss
developments in the supply market and
within the buying organization, as to obtain
long-term alignment. The complete set of
propositions
regarding
buyer-seller
communication of interaction is as follows:

Proposition 1
In the buyer-seller
communication for
a
component services, the most
important issues are customer
requirements, the fit of the service
with the rest of the offering, and the
customers evaluation of the
service.
b
semi-manufactured services, the
most
important
issues
are
customer requirements, service
transformation possibilities and the
fit between the customers and the
suppliers processes.
c
instrumental services, the most
important issues are the buying
companys
strategy
and
developments, and the effect of the
service on the buying companys
primary processes.
d
consumption services, the most
important issues are internal
customer demands, the internal
customers evaluation of the
service and how to increase
efficiency
(f.e.
by
reducing
administrative workload).
Adaptation
Adaptations refer to any relationspecific changes or investments made by
the parties involved aimed at facilitating
buyer-seller collaboration. Brennan et al.
(2003) brought forward several areas in
which adaptation can take place when
exchanging industrial services (derived
from Hkansson (1982) and adapted to
the specific situation of services by
Brennan
et
al.
(2003)):
service
specification, service design, service
delivery processes, capacity and demand
management, administrative procedures,
financial procedures, adaptations with
regard
to
provision
of
sensitive
information, and changes to organization
structure. They furthermore pointed out
that adaptations can be unilateral (one firm
making a modification for a specific
exchange partner, without the exchange
partner making a reciprocal modification)
or mutual (reciprocal modifications).
Since demand for component
services is strongly related to the purchase
pattern of the buying companies

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Volume 2, number 2

customers, adaptations are made with

regard
to
capacity
and
demand
management. With instrumental services,
sensitive
information
regarding
for
example the buying companys strategy is
provided to the service supplier, in order to
enable the supplier to optimally address
the developments within the buying
organization. Because of the long-term
collaboration between buying company
and
service
provider,
special
arrangements are also made with regard
to financial and administrative procedures.
We
thus
develop
the
following
propositions:
Proposition 2
Adaptations for
a
component services mostly
occur
with
regard
to
the
specification and design of the
service, and capacity and demand
management. Furthermore, critical
information regarding the buying
companys value proposition will be
exchanged.
b
semi-manufactured services
mostly occur with regard to service
delivery and capacity and demand
management. Furthermore, critical
information regarding the buying
companys value proposition will be
exchanged.
c
instrumental services mostly
occur with regard to organizational
structure. Furthermore, critical
information
regarding
internal
developments at the buying
company will be exchanged.
d
consumption services mostly
occur with regard to financial and
administrative procedures.
The perceived risk framework and its
consequences for buyer-seller
interaction
In addition to variation with regard
to structural dimensions of interaction,
Wynstra et al. (2006) found that patterns
for interaction were more explicitly defined
and designed for some of the services
they studied. For example: a qualified
dialogue between the companies involved
could be observed for the strategic and
knowledge intensive component service,

whereas for the non-strategic component

services, broader patterns of interacting
people were found. Also, the variety and
number of involved specialists differed for
an advanced semi-manufactured service
versus one that is standard. Based on
these findings, they suggest that patterns
of interaction surface most clearly for
those services that are associated with a
high degree of perceived risk, or high
potential impact. We therefore deem it
important to control for risk in our analysis,
since this may explain deviations from the
expected patterns of interaction, should
they occur.
This suggests that the buying
companies
studied
designed
the
interaction with the supplier with reference
to other factors than how the service is
used/ applied by the buying company.
From their review of the three most
influential models of Organizational Buying
Behavior (OBB) (Robinson & Faris 1967;
Sheth 1973; Webster & Wind 1972),
Johnston and Lewin (1996) conclude that
much of the variation in OBB can be
related to the level of perceived risk
associated with a particular purchase
situation. Building on Bauer (1960),
Mitchell and Greatorex (1993) and Sheth
(1973) claim that perceived risk is a
combination of consequences (measured
in terms of seriousness/ importance) and
uncertainty. Indeed usually, perceived risk
is viewed as the function of two variables:
the importance of the purchase and the
level of uncertainty associated with the
outcome of the purchase (Gelderman &
Van Weele 2002; Henthorne et al. 1993;
Kraljic 1983; Wilson et al. 1991).
Importance refers to the purchases
impact on organizational profitability and
productivity
(McQuiston,
1989).
Importance/ seriousness can thus be
interpreted as the extent to which a
service is strategic or critical for customer
satisfaction: in the case of component and
semi-manufactured
services,
service
delivery failure has a direct impact on end
customers. The service can also be of
critical importance for the continuation of
the
buying
companys
production
processes or result in a short-term or longterm impact on for example the primary
processes of the buying company: this

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Volume 2, number 2

mostly applies to instrumental services.

Consumption services will generally be
considered unimportant for the buying
companys
profitability,
competitive
advantage, or for the continuity of the
buying companys primary processes3.
Uncertainty is a concept that is
usually made up of complexity and
novelty. Considering complexity, two
elements can be identified (McQuiston
1989): complexity of the purchase
situation and complexity of the product
(service) being purchased. Since we are
interested in the potential influence of
complexity (as an element of risk) on
ongoing interaction, we focus on the
complexity of the service. This complexity
depends on the inherent complexity of the
service (i.e. the extent to which a service
is advanced) and the inherent complexity
of the context in which the service is
applied (Fisher 1976, p. 30)4. Similarly,
novelty refers to the extent to which
buyers are familiar with similar services or
similar contexts in which the service is to
be applied (Fisher 1976, p. 30).
The importance of these factors is
also noted by Fitzsimmons, Noh and Thies
(1998), who point out that the importance
or criticality of the service to the buying
firm must be considered in the purchasing
decision, and by Smeltzer and Ogden
(2002), who find that the nature of the
services being purchased and their
associated complexity are major factors
for purchasers.
Regarding
the
influence
of
perceived risk on interaction, Johnston
and Bonoma (1981) and later McQuiston
(1989) demonstrate that the functions/
people involved in interactions with
suppliers vary with the novelty, complexity
and importance of a purchase. Johnston
and
Bonoma
(1981)
define
five

Note that a consumption service like office cleaning can

be considered highly important when regarding them from
the perspective of the internal customers/ users of the
building.
4
Fisher (1976, p. 30) furthermore proposes the level of
experience the buying company has with the technological
characteristics of the service and the level of sophistication
of the buying firm in this specific area. In our view, this
resembles McQuistons (1989) definition of novelty; this
latter factor therefore determines uncertainty rather than
complexity.

10

measurable dimensions of the buying

centre and find that novelty, complexity
and especially importance were very
helpful in explaining the level of
managerial involvement, the functional
disciplines involved, the number of people
involved and the degree of linkage
between members of the buying centre.
McQuiston (1989) expands on the theory
of buy classes (Robinson & Faris 1967) by
studying the combined effects of novelty,
complexity and importance and finds that
particularly the last two constructs explain
participation and influence of different
organizational functions.
Johnston and Bonoma (1981)
furthermore claim that the influence of
novelty, complexity and importance is
likely to be present in and have an effect
on both the purchase situation and the
interactions afterwards. Within the OBB
research
tradition
however,
these
interactions have not been studied in great
detail. For example: the influence of risk
on ongoing interaction may be reflected in
a higher level of managerial involvement.
Therefore, in line with the claim of
Johnston and Bonoma (1981) and the
findings of Wynstra et al. (2006), we
propose that differentiated patterns of
interaction are more formally defined and
designed
for
services
that
are
characterized by high perceived risk, since
buying companies will make more
conscious decisions about how to deal
with these services. These ideas lead to
the development of the following
propositions:
P3a For high-risk services, the extent to
which the patterns of interaction for
the four service types are really
distinct is high.
Since consumption services are
generally characterised by low risk, we
also
bring
forward
the
following
proposition:
P3b Interaction patterns for low riskservices are similar across all
service types and resemble the
interaction pattern for consumption
services.

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Volume 2, number 2

A case study into ongoing buyer-seller

interaction
The propositions developed will now
be investigated by means of an embedded
case study. In this case study, i.e. the
study of one service of each service type
at one buying company, we investigate
what the processes of interaction look like
for each of the four types of services. We
thus study four cases (service purchases)
at one buying company. Furthermore,
collecting evidence on the structural
dimensions of interaction enables us to
replicate the findings of Wynstra et al.
(2006). After all, in their studies, Wynstra
et al. (2006) did not explicitly address case
selection issues or the development of
research instruments. In our case study,
we draw on a pre-determined case
protocol and interview guide5.
The case study is part of an overall
research project, in which we intend to
study one service of each type at several
companies (thus: multiple case studies).
Such an approach enables both withincompany
and
cross-company
comparisons, the results of which are used
to develop the emergent theory. We
developed theoretical selection criteria
using the following two dimensions: 1) the
type of company (service providers versus
manufacturing companies); and 2) the
type of customer of the buying company
(other companies or consumers). We
invited multiple companies in each of the
resulting categories; eventually, ten
companies agreed to participate in our
study. We expected results obtained at
different companies would be similar when
these companies are similar in terms of
the selection criteria used (withincategories); across-categories, results are
expected to differ.
From these ten companies, a Fossil
Fuels (oil and natural gas) Exploration and
Exploitation
company
(FFEE)
was
selected for this case study; the reason for
choosing this company was that it was the

5
Since in this case study we were to use our case protocol
and interview guide for the first time, this study would also
be used to evaluate the suitability and usability of our
research instruments and case protocol.

11

first company at which data could be

collected.
FFEE finds and produces oil and
natural gas in the Netherlands and the
Dutch part of the continental plate. It is the
largest natural gas producer in the
Netherlands, with annual production of
around 50 billion m, which covers around
75% of Dutch demand. With an oil
production of 0.8 million m a year, FFEE
covers about 4% of the country's total oil
demand. FFEE also performs various
construction projects with differing sizes,
ranging from relatively small modifications
to the realization of complete land or
offshore installations for the extraction of
oil and/ or natural gas.
In consultation with the authors, FFEE
selected the four services (one service
purchase for each category in the usagebased classification) to be studied.
Unfortunately, we were not able to identify
a component service. This can be
explained from the fact that at
manufacturing companies, it will usually be
more difficult to identify services that move
downstream to customers: instrumental
and consumption services will be more
common. We therefore proposed to select
four services from the remaining three
categories. This resulted in one semimanufactured service, two instrumental
services and one consumption service.
In our analysis, we control for the level
of perceived risk involved with each
service to see if this helps us to
understand why interaction may not vary
as strongly as expected. The risk
associated with the semi-manufactured
service and one of the instrumental
services was considered high; the risk
associated with the other two services was
low. Thus, specifically within the category
of instrumental services, interesting
insights may be obtained. The level of risk
associated with the service purchases
reflects the level of risk as perceived by
the buying company. The services
selected and their brief descriptions, their
respective
classifications,
and
the
functions of the people interviewed can be
found in Table 2.
Each of the purchases was
studied by means of two to three in-depth
interviews of 1,5 to 2 hours each with

The IMP Journal

Volume 2, number 2

12

FFEE

Table 2
Services and informants (SEM: semi-manufactured, INS: instrumental, CNS: consumption)
Service
Informants
Type
Drilling services

Supply Chain Engineer (purchasing)

Drilling Development Team Leader
SEM
Engineering and construction
Supply Chain Engineer
INS
services

Senior Project Engineer
HIGH RISK
Managing
stock
of
piping
Supply Chain Engineer
INS
materials

Mechanical Engineer Piping
LOW RISK
Waste management

Supply Chain Engineer

Representative Waste Management
CNS
department

purchasers and with contract owners

and/or users. The interviews with the
purchasers focused predominantly on the
purchasing process and to a lesser extent
on the ongoing stages, whereas for the
contract owners, who were deemed to be
most knowledgeable on what happened
after the purchase, the emphasis was on
these ongoing stages (data source
triangulation; Yin (2003)). Appendix I
contains the interview guide used. In most
cases, the buyer involved was approached
first. Other informants were usually
identified by the buyer. We tried to take
the suppliers perspective into account by
asking the buying company about supplier
representatives involved, the supplier's
actions/ behaviours, viewpoints, et cetera;
however, data was not collected at the
suppliers.
The
interviews
were
semistructured. The interview guide was based
on the interview guides used in similar
studies conducted by the IMP Group
(Hkansson 1982). Of each interview,
extensive interview summaries were made
and sent back to the informants for
verification. Approved summaries at the
informant level were merged into one
description at the case level, which was
again sent to the informants in order to
eliminate any inconsistencies and to
provide further clarification if necessary.
Furthermore, the interview results were
extensively discussed by the authors to
further enhance validity6. Table 3

6
The research team consisted of one principal researcher
and the two co-authors of this paper.

summarizes how we dealt with various

issues of validity and reliability.
Results of the case studies
We now turn to descriptions of the
four cases studied, after which we will
perform a within-case analysis and a
cross-case analysis across the three
service types. The findings for all cases
studied have been summarized in Table 4;
we will refer to this table in our analysis.
A semi-manufactured service: drilling
services
FFEE
works
with a main
contractor, which provides the equipment/
installations and the personnel to perform
the actual drilling for oil, and which is paid
a refund for its costs plus a fair profit
margin. The main contractor also
manages the contracts with third parties
(which can only be contracted in
consultation with FFEE) and carries out
some project planning activities. This
service becomes part of the customer
processes (increased speed of production
due to the use of a special drilling
technique); furthermore, demand for the
service is strongly connected to customer
demand. It is therefore considered a semimanufactured service.
The service
comprises a high risk purchase, since nonperformance of the contractor results in
substantial production (and thus revenue)
loss.
For this service, the key objective
of interaction is to integrate the drilling
service into FFEEs primary processes.
Consequently, the supplier needs to

The IMP Journal

Volume 2, number 2

Table 3
Validity and reliability in the case studies
Type of validity
Construct validity
establishment of correct operational
measures for the concepts being studied

Internal validity

13

Methods of addressing this in the case studies

Triangulation of questionnaire and interview data

Triangulation of multiple informants: different internal
representatives

All informants received draft versions of the interview
report for comments

Draft versions of the complete case report were verified
with at least one key informant from each buying firm

Three research team members gave input during data
collection and analysis

Result: emergent explanations adjusted and expanded;
participants agreed to the interpretations

Use of conceptual framework

Result: relationships between the different variables
from the conceptual framework identified and
substantiated

establishing
causal
relationships
whereby certain conditions are shown to
lead to other conditions, as distinguished
from spurious relationships
External validity

Theoretical sampling of cases at the firm level and the
level of the service purchase
establishing a domain in which the
Result: revised framework applicable to different types
studys findings can be generalized
of firms and service purchases
Reliability

Development of case protocol

Development of (interview) questionnaire
demonstrating that the operations of a
Result: methodology transparent and repeatable
study can be repeated with the same
results
Based on: Yin (2003).
understand not only its own service
delivery process, but also FFEEs primary
processes. The fact that this contract
involves a new drilling technique puts
certain requirements on the innovative
capabilities of the supplier (further
development and fine-tuning of the
technique).
The supplier needs to
understand the safety requirements of
FFEE, as well as the impact of nonproduction on FFEEs revenues. FFEE
has to be able to properly explain these
issues. Furthermore, FFEE should provide
a good forecast on when a drilling period
will start, as well as maintain the time
schedule (coordination of FFEEs and the
suppliers processes). We find the
involvement of production planners;
however, marketing involvement is
lacking. This can be explained from the
fact that production is delivered to a
company which is part of the same

conglomerate as FFEE. Formally, this

customer company is considered an
external customer. However, being part of
the conglomerate, production planners
also fulfil the marketing role. Regarding
the supplier representatives, an account
and a contract manager represent the
commercial side of the supplier. Technical
specialists are involved to plan, prepare
and
perform
drilling
activities.
Communication is intensive and concerns
production progress and deviations that
may occur. Adaptations mostly occur with
regard to the specification and design of
the service: the supplier has developed
the new technique in collaboration with
(and thus custom for) FFEE.
FFEE is satisfied with the
contractors performance in terms of the
service provided and the process of
service provision. The service is delivered
at the right time with the right quality and

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Volume 2, number 2

14

FFEE_INS
LOW RISK

FFEE_INS HIGH RISK

FFEE_SEM

Table 4
Findings for the different types of services at FFEE
Objectives
Critical supplier
Critical customer
capabilities
capabilities
Deliver a service
Understand how

Provide accurate
that enables
service contributes
forecast of
production
to revenue
demand
during drilling
generation FFEE

Maintain time

Understand
schedule (delay in
importance of
production means
safety aspects
revenue loss)

Innovativeness

Supplier
representatives

Account manager

Contract
manager

Administration
department (for
support
purposes)

Technical
specialists
(regarding
ongoing delivery)

Customer
representatives

Supply chain
engineer
(purchasing)

Technical
representatives

Contracting

Realize capital
investments in
construction as
soon as possible
(so they can
generate
revenue)

Understand how
the capital
investment fits
with FFEEs
primary process

Understand
FFEEs specific
requirements

Project
management skills

Clearly specify
tasks and
responsibilities of
supplier

Maintain time
schedule (delays
result in revenue
losses)

Management
team consisting
of proposal
manager and
technical
representatives

Purchasing

Technical
representatives

Tender board

Ensure timely
availability of
piping materials
to prevent
disruption of
primary process

Understand how
non-availability of
materials affects
primary process
(reliability)

Enable

Clearly specify
how they want the
supplier to
contribute to the
primary process

Clearly specify

Managing
Director

Sales/ account
manager

Engineers

Quality manager

Supply chain
engineer

Global account
manager

Mechanical
engineer

Communication

Adaptation

Production
progress,
deviations

Daily
operational
contact,
quarterly
review
meetings

Evaluation on
well-by well
basis

Feasibility of
outsourcing
scenarios

Schedule and
deliverables

Formalized
contact points
including hold
and witness
points and
review
moments

Quality and
delivery
reliability

Frequent
communication

Specification
and design
developed by
FFEE

Cost plus
payment

Exchange of
sensitive
information

Specification
and design
customized

Fixed unit price
per m3 and
kWh output

Exchange of
sensitive
information

Service design
customized

Standardizatio
n of materials

Service centre

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Volume 2, number 2

FFEE_CNS

standardization of
materials

Fulfill
governmental
requirements to
clean up waste
resulting from
FFEEs primary
process

Understand how
service contributes
to FFEEs license
to operate

Reduce integral
chain costs

Create process
which can pass
(environmental)
accountancy audit

15

tasks and
responsibilities of
supplier

Clearly
communicate
locations and
types of waste

Communicate
safety
requirements

Project
employees

Two account
managers: one
for contractual
and one for
commercial
aspects

Supply chain
engineer

Waste
manager

Coordination of
activities

Industry
specific safety
standards

Scorecard
results (HSE,
savings,
administration)

Transparent
pricing with
flexible
(maximized)
profit margin

Investments in
company
clothing and
containers

Supplier set up
service centre

The IMP Journal

Volume 2, number 2

there have been no major problems in the

collaboration. In a new contract however,
the focus will be more on cost optimization
issues in addition to just performing the
drilling activities requested.
A high risk instrumental service:
engineering and construction services
FFEE has started a development
project aimed at the profitable exploitation
of an oil field. Steam produced by a
hydropower plant is injected into the earth,
resulting in oil sinking into specially
constructed trenches (horizontal pits). The
construction and subsequent maintenance
of the trenches and the hydropower plant
have been outsourced to an engineering &
construction consortium. This service is
targeted at the buying companys primary
processes, and represents a major
investment: therefore, it is considered an
instrumental service. The risk associated
with this service purchase is large since it
is a greenfield project involving large
investments.
The key objective is to realize the
production facilities as quickly as possible
so that FFEE can start production. This
requires the involvement of technical
specialists (people knowledgeable about
construction activities). Since this project
involves an expansion of FFEEs business
activities,
business
development
representatives are involved. This project
involves a long-term collaboration (the life
cycle of the oil field is estimated to be 25
years); the selection of the consortium was
therefore done with the greatest care.
Furthermore, the final decision was made
by a tender board (higher management
involvement), which consisted of the
technical disciplines, finance, sales, et
cetera (all represented by someone from
the senior management level).
During
the
ongoing
service
exchange, a senior project manager and a
core team of five to six people (a.o.
engineering and quality) are dedicated to
the consortium, with purchasing in an
advisory role. The consortium is
represented by a management team
consisting primarily of a proposal manager
and technical representatives (involved
with the detailed design and execution of
the development project). Communication

16

for the engineering services is intensive

and formal and mostly concerns progress
in terms of project realization and technical
performance. The information exchanged
is critical, since the plan to redevelop an
existing oil field is considered sensitive
information from a competitive point-ofview.
At the moment of studying this
case, the project was still ongoing, and
FFEE has been confronted with a number
of delays. However, according to FFEE,
this is inherent to a development project of
this size, and FFEE claims to generally be
satisfied with the services provided and
the process of service provision.
A low risk instrumental service: managing
stock of piping materials
One of the construction activities of
FFEE concerns constructing pipelines.
Three suppliers have been contracted to
manage the inventory of the required
materials (f.e. flanges and fittings) at
FFEEs construction sites. This service
remains within the buying company and
directly affects the (primary) construction
processes of FFEE: this makes this
service an instrumental service. Orders for
materials (this is the majority of spend)
and related services (i.e. welding,
construction or digging services) are
placed on a daily basis and vary in size
from several euros to several millions of
euros. Failure of service delivery can lead
to delays in the construction activities,
which can eventually result in claims of
customers because of discontinued
natural gas supply. The same goes for
quality deficiencies in the materials
purchased. The key objective is thus to
maintain continuity of FFEEs primary
processes. Overall however, the risk
involved with this contract is considered
low, since the chances of a delay actually
resulting in customer dissatisfaction are
small.
This service affects the primary
process of FFEE: non-delivery or low
quality may cause delays. A mechanical
engineer (contract owner) therefore is
involved with designing the service
process and ensuring its fit with FFEEs
primary processes. Since this purchase

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Volume 2, number 2

concerns a European contract, a global

account manager is also involved. After
signing the contract, the contract owner
and the supply chain engineer conduct
quarterly review meetings with the
supplier. Since delivery reliability and
quality are important, these issues are
discussed here. The coordination of
supplies, the scope of activities and
specifications remain with the business
lines. Both FFEE and the supplier have
made adaptations with regard to service
specification and design (standardization
of Stock Keeping Units).
At the beginning of the contract
period, there were some problems;
however, these were not too serious (no
delays). The contract reviews demonstrate
increasing performance and overall, FFEE
is satisfied with the service provided and
service provision.
A
consumption
service:
waste
management
Waste management refers to the
collection of perilous waste, regular waste
(coming from on and offshore drilling
locations
and
office
buildings),
construction and demolition waste,
processing of contaminated earth and
drilling waste at various FFEE locations,
and delivering it to appropriate processors.
One service provider has been contracted
for dealing with and carrying the
administration for 80% of the waste
streams. The service remains within FFEE
and does not affect its primary processes:
it is therefore considered a consumption
service. Although the contract is critical
with regard to environmental and safety
regulations, risk is considered to be low.
The key objective here is to
support the primary process by dealing
with the waste resulting from production
and abandonment of activities in an
appropriate manner, as to safeguard
FFEEs corporate reputation and its
license to operate. Consequently, the
supplier has to conduct these activities
efficiently, thereby understanding that
good performance is critical for FFEEs
license-to-operate. FFEE has to be able to
clearly communicate where waste can be
found (internal demand) and the safety
regulations that apply. This is ensured by

17

allocating the role of contract owner to a

representative
from
the
waste
management department. The user has
daily contact with the supplier about for
example collecting containers. The
contract owner and purchasing have
regular contact with two account
managers (marketing representatives)
about execution of activities, the contract,
optimization opportunities, et cetera.
There have not been any critical
issues in this contract and FFEE is content
with the service provided and service
provision. The supplier has made some
relation-specific investments with regard to
clothing (because of safety regulations)
and containers (which are rented from the
supplier by FFEE). Furthermore, the
supplier has set up a dedicated service
centre, which serves as FFEEs focal
contact point. FFEE in turn has made
some adaptations with regard to
administrative procedures.
Cross-case analyses
Looking at the observations for the
three service types, we see that the
structural dimensions of interaction differ
in line with the findings of Wynstra et al.
(2006). Note that since our dataset did not
contain component services, we were not
able to investigate propositions 1a and 2a.
Regarding
the
interactive
processes, we see that for semimanufactured services, communication
mostly concerns production progress and
deviations that may occur, since this will
immediately affect FFEEs delivery to
customers. Customer requirements are
not
an
important
topic
in
the
communication, and we thus find that
proposition P1b is not supported. This may
be explained by the fact that FFEEs
customer
is
part
of
the
same
conglomerate, as a result of which there is
less explicit attention for customer needs
and wants. Adaptations have taken place
with regard to service specification and
design, and sensitive information about
FFEE's value proposition has been
exchanged. This provides support for
proposition 2b.
For the first instrumental service
studied, engineering and construction
services, communication involves the

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Volume 2, number 2

exchange of critical information, as well as

how the service delivered affects the
buying companys primary processes
(continuity of primary processes/ enabling
production at new locations). We therefore
conclude that proposition 1c is supported.
Adaptations were mostly made with regard
to organizational structure. Proposition 2c
is thus supported.
For the other instrumental service,
stock management services, the exchange
of critical information was not so profound.
In this case, proposition 1c is not
supported. Adaptations mostly concerned
administrative procedures, which does not
provide support for proposition 2c.
However, this instrumental service is
characterised by low risk, which explains
why we do not observe the expected
patterns.
The
engineering
and
construction services were characterised
by high risk: when comparing these
observations to the findings for the highrisk semi-manufactured service, we can
see that the patterns observed are clearly
distinct, thereby providing support for
proposition 3a.
When examining the findings for
the low-risk instrumental service more
closely, we see that the observations
resemble
the
expectations
for
consumption services, which provides
partial support for proposition 3b (note that
since we have only one low-risk service
outside the class of consumption services,
we are not able to gather evidence
regarding the first part of proposition 3b).
Finally,
communication
for
consumption services namely focuses on
the requirement of internal customers (the
users at various production locations) and
optimization opportunities. Consequently,
adaptations are made to financial and
administrative procedures, as to increase
the efficiency of the collaboration. This
provides support for propositions 1d and
2d.
To summarise: proposition 2b
regarding
adaptation
for
semimanufactured services was supported.
Proposition 1b regarding the importance of
customer requirements in buyer-seller
communication for semi-manufactured
services was not supported; this was
explained by the fact that FFEE delivers to

18

an internal customer (part of the same

conglomerate), as a result of which there
is less explicit attention for customer
needs and wants. Propositions 1c and 2c
regarding interaction processes for
instrumental services were supported, as
were propositions 1d and 2d (interaction
processes for consumption services). The
fact that the pattern for the low-risk
instrumental service differed from the
pattern for the high-risk instrumental
service provided support for proposition
3a. The pattern for the low-risk
instrumental service resembled the pattern
for
consumption
services,
thereby
providing support for proposition 3b.
Conclusions, limitations and further
research
Research
into
buying
business
services has mainly focused on the initial
stages of the purchasing process: not
much attention has been given to what
happens after the purchase decision has
been made (Bryntse 2000). Purchasing
and supply management is however not
just a matter of completing individual
transactions, but certainly also of dealing
with supplier relationships on an ongoing
basis. This is especially true for business
services, which are characterized by their
interactive nature.
Wynstra et al. (2006) recently
brought forward a classification scheme
based on the way the buying company
uses/ applies the service and found that
ongoing interaction between buyers and
sellers of business services will vary for
the resulting four types of services. They
investigated several structural dimensions
of interaction, i.e. the key objectives of
interaction and the buyer-seller interface
(functional representatives and critical
capabilities). Processes of interaction were
not included in their study.
This article has empirically investigated
these interactive processes that take place
between buyers and sellers of business
services after the contract has been
signed. We conducted an in-depth,
embedded case study and found that for
the process dimensions of interaction
differences arise across the three types of
services studied. We can not say however
whether this variation is systematic; literal

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Volume 2, number 2

replications of our study are required to

verify this. Concerning the structural
dimensions of interaction, our findings are
in line with the findings of Wynstra et al.
(2006).
Since our data-set contained
services that varied in terms of the level of
perceived risk involved, we controlled for
risk in the analysis. This was important
since Wynstra et al. (2006) found that
interaction is more formally defined and
designed for high-risk services.
Our
findings suggest buying companies define
and design interaction with providers of
high risk services more formally. This can
be explained from the fact that for high-risk
services, buying companies will think more
consciously about how they design their
interactions with providers of business
services. For service providers, an
understanding of this effect is important in
order to be able to involve the appropriate
actors and resources to deal with
representatives of the buying company.
Based on these findings, we propose
to use risk as a control variable in future
studies. We cannot use risk as a selection
criterion, since that would lead to almost
excluding (usually low-risk) consumption
services from our further studies.
Limitations and future research
Despite the contributions made by this
study, a few critical notes should be raised
here. One of these notes has to do with
the selection of the cases: we were not
able to identify component services at
FFEE. This can be explained by the fact
that we started our investigations at a
manufacturing company: component and
semi-manufactured services are more
common and thus more easily found at
service companies. This limitation could
not be overcome in this study, but future
studies should explicitly be aimed at
investigating ongoing interaction for
component services.
Another limitation concerns the fact
that data was only collected at the buyer.
In this case study, we were able to obtain
information on all the dimensions of
interaction, including dimensions that
concerned the supplier (i.e. supplier
representatives involved, critical supplier

19

capabilities). However, a concept like

interaction should be studied by means of
two-sided data collection. In future studies
therefore, data should also be collected at
suppliers.
Further research could be aimed at
replicating the patterns observed in this
case study at various other companies
(literal replication (Yin 2003)). Studying
services at many different companies will
result in the inclusion of many different
services: as such, generic patterns of
ongoing interaction across the wide variety
of services that organizations buy can be
identified, which is important according to
Smeltzer and Ogden (2002). This would
also address the observation by Agndal et
al. (2006), who conclude that purchasing
and
supply
management
research
covering different types of services is
scarce.
Since this study did not include
component services, we propose to select
service companies for the next study,
since the chances of finding both
component
and
semi-manufactured
services are expected to be higher there
than at manufacturing companies. We
suggest performing this study at a limited
number of buying companies, since this
enables making detailed cross-case
analyses. Furthermore, these studies
enable us to verify which dimensions show
consistent and strong variation; future
studies focusing on just these dimensions
can then be executed at a large number of
buying companies or can be based on
two-sided data-collection.
Although there are still many
possibilities for further research in this
area, we think this study has made an
important contribution by advancing our
understanding of differentiated ongoing
interaction between buyers and sellers of
business services.
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Marketing. Boston, MA: Allyn and

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22

turnover and/ or profit (hardly, quite

a lot, very much)?
6) How important is the service being
Questions on the service being
exchanged?
supplied
i) In terms of financial importance:
1) What is the service that is actually
what
share
of
purchasing
being supplied (in terms of activities
expenditures is spent on this
carried out for your company,
service?
personnel and equipment supplied, et
ii) If applicable, in terms of importance
cetera)? What is the frequency of
for customer satisfaction (your
service delivery and how important is
companys customers)
timely delivery?
7) How complex is the service being
2) What does the (simplified) supply
exchanged?
chain look like?
i) How many disciplines/ departments
are affected by this service?
Focal
Customer
Supplier
ii) What is the contribution of the final
organization
(internal/ external)
customer in the service delivery
(B2B/B2C)
process?
iii) To what extent does this service
rely on expert knowledge of
3) Could you please provide me with
employees on both the buyers and
some background information on the
the suppliers side?
supplier company?
iv) To what extent does this service
You could for example think of:
depend on support from information
i) Part of the supplier company you
systems?
are dealing with
v) To what extent does this service
ii) Product/ service range of the unit
have to be integrated with/ adapted
you are dealing with
to existing systems and/ or existing
iii) Types of customers and market
service offerings?
segments the supplier services
8) How novel is the service being
4) Which people/ functions are involved
exchanged?
with this service from
i) In comparison to existing service
i) the suppliers part?
offerings/ the offering preceding
ii) your companys part?
this offering, to what extent is this
iii) your customers part?
service new to the supplier
What are their respective roles/
organisation/ employees (not at all,
responsibilities? Please distinguish
a little, very different)?
between pre-purchase and postii) In comparison to existing service
purchase.
offerings/ the offering preceding
5) What is the position of the service in
this offering, to what extent is this
relation to your organisations offering
service new to the customer
to its customers? Is it:
organisation/ employees (not at all,
i) Consumed
within
your
own
a little, very different)?
organisation?
ii) Transferred (either directly or
Questions on the service purchasing
indirectly) to the customer?
process
iii) What are the consequences to the
9) Which departments are primarily
customer of delivery and/ or
involved in the purchasing process?
performance failure?
i) Which
departments
are
iv) Could you give an estimate to what
represented in the purchasing
extent this service contributes to
team?
your
companys
competitive
ii) Which functions represent these
position in terms of market share,
departments?
Which
function
Appendix
List of interview questions

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Volume 2, number 2

carries main responsibility and/ or

has the final word in decisionmaking?
10) How does supplier selection take
place?
i) Is there a list of preferred
suppliers?
ii) How many alternatives are there
and what is there respective
attractiveness? What are the costs
and difficulties associated with
switching to another source? What
is the market structure/ competitive
situation?
iii) What are important selection
criteria?
iv) To what extent is the service
contract detailed before selection
actually takes place?
11) To what extent can the characteristics
of the service be determined in
advance of the purchase/ development
project?
i) To what extent can the service
concept be designed in advance of
the
purchase/
development
project?
ii) To what extent can service delivery
be designed in advance of the
purchase/ development project?
iii) To what extent can performance
characteristics be determined in
advance
of
the
purchase/
development project?
Questions on life after the purchase
12) What does the customer-supplier
interface look like after the purchase
has been made (communication and
coordination mechanisms, boundary
spanning
roles,
and
DMU/PSU
structures)?
i) Which departments/ functions are
primarily
involved
in
the
interactions?
ii) Which departments/ functions are
involved in managing the ongoing
supply after the purchase of a
service? How does this take place?
iii) Which departments/ functions are
involved in managing the supplier?
How does this take place?
iv) Who are the counterparts of these
functions on the suppliers side?

23

13) What are the most important issues

discussed in the interaction?
i) What are the respondents contacts
with counterpart in terms of
frequency, form, topic, who was
contacted?
ii) What are the respondents contacts
inside the buying company in terms
of frequency, form, topic, who was
contacted?
iii) What are the contacts of others
inside the buying company with
counterpart in terms of frequency,
form, topic, who was contacted?
iv) What type of information is
requested from and provided by
the counterpart?
14) Is this relationship characterised by
frequent or little exchange? In between
exchange episodes, is the amount of
interaction considered to be low,
medium, high?
Questions
on
the
long-term
relationship
15) Could you please provide me with
some background information on the
nature of the relationship?
i) How long has the relationship been
in existence?
ii) How
was
this
relationship
established (in terms of reason for
and approach to)?
iii) What is the criticality/ overall
importance of the relationship?
16) Have any relation specific investments
been made by either or both parties to
accommodate the service exchange?
i) Have
any
special
financial
procedures been developed for the
benefit of financial exchange
between buyer and supplier?
ii) What adaptations have been made,
proposed or discussed by the
parties involved in the relationship
(for example: modifications of
product specifications, product
design, manufacturing processes,
planning, delivery procedure, stock
holding, administrative and financial
procedures)?
iii) What were the reasons for these
initiatives? What people were
involved in the development of

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Volume 2, number 2

propositions,
discussion,
and
execution of adaptations?
iv) How would you describe the social
character of the relationships
between members of the buying
and supplying organisation in terms
of trust, openness, personal
friendships, social contacts, et
cetera?
v) What is the buyers impressionistic
character of the counterpart?
vi) What is the buyers impressionistic
character of the dependence
between buyer and supplier
(mutual shares)?
vii) Have there been any critical issues
during
the
history
of
the
relationship? Please explain how
these have been solved.
Additionally,
information
will
be
gathered on the companies involved in
the focal relationship (through studying
documents, electronic sources, et
cetera):
1) Customer company:
i) Company
size
(number
of
employees, turnover, profit, size,
production technology, degree of
(international)
orientation,
organisation, competences);
ii) Product/ service range;
iii) Types of customers and market
segments;
iv) Organisation of the purchasing
department;
v) Organisation of Decision Making
Unit.
2) Supplier company:
i) Company
size
(number
of
employees, turnover, profit, size,
production technology, degree of
(international)
orientation,
organisation, competences);
ii) Product/ service range;
iii) Types of customers and market
segments;
iv) Organisation of counterpart of
Decision Making Unit.
3) Absolute and relative total value and/
or volume of business placed with the
supplier counterpart during history of
the relationship.
4) Characteristics of the individuals
involved in the interaction in terms of

24

functions,
roles,
status
levels,
education,
qualifications,
jobexperience, language competence.
5) Information on terms of trade, contract
procedures and protocols.

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25

External interaction as a means of making changes in a

company: The role of purchasing in a major turnaround
for Ducati.

Roberta Bocconcelli and Hkan Hkansson

a

a
Roberta Bocconcelli, Research Assistant, Universit di Urbino (or University of Urbino) Facolt di Economia (or Faculty of Economics)
ISA-Istituto di Studi Aziendali (or Department of Business Studies)
b
Hkan Hkansson, Department of Innovation and Economic Organisation Norwegian School of Management BI, Oslo,
hakan.hakansson@bi.no

Abstract
The interplay between internal organizational factors and external interaction is in focus in this paper. The paper
describes the turnaround of the motorbike producer Ducati, in terms of how the company systematically changes this
interplay. The paper shows how Ducatti changed its internal buying organization and developed a more interaction
friendly structure. The importance of the interplay between internal organization and external interaction has become
more important as companies have become more specialized and in this way more dependent on their external
counterparties. The paper argues that the only way that such a highly specialized company can achieve a turnaround is if
they manage to get their most important counterparts to become involved in a mutual change process.
Keywords: Organisational structure, turnaround, interaction, purchasing

1. Interaction and the way a company

functions internally
The internal way a company
organizes its production, flows of material
and technical development is closely related
to the way it interacts with important
customers and suppliers. To put it differently,
the way a company is organized internally
determines how it can interact with its
counterparts. This is a crucial aspect for
management in many different situations. For
example, if the company wants to develop its
relationships with customers or suppliers, it
normally changes its way of functioning
internally. Likewise, if the company wants to
develop its internal efficiency, internal
changes have to be accompanied by
changes in the way it interacts with important
counterparts.
Thus, the influence goes in both
directions. A certain way of organizing and
functioning internally can restrict how the
company interacts, and ambitions to achieve

a certain interaction require a certain internal

organization. This general dependency will
be penetrated in more detail in this article
with the help of a description and analysis of
a company case. In this case we will see how
the interaction with customers and suppliers
is closely related to the production and
organization of an Italian motorbike producer.
The starting point for the case is the need for
a major turnaround.
2. How to create a turnaround in a highly
specialized company
Our modern economy is full of highly
specialized
companies.
Increased
specialization has been accomplished in two
complementary ways affecting both the
output and input sides of the company. One
is a concentration to a more limited range of
product or service on the output side. The
other is an increased outsourcing giving the
suppliers an increasing share of the total

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Volume 2, number 2

value of creation/production. This increased

specialization creates an interesting situation
for a company that has to make some kind of
turnaround due, in part, to severe financial
problems. This article is about such a
situation. We will analyze the changes made
by a highly specialized producing company
facing the need to make a turnaround.
A highly specialized company with
severe economic or financial problems has
somewhat different problems compared with
a traditional producing company. A traditional
producer does a majority of the production
activities itself and a turnaround is usually
directed toward changing the internal
activities, i.e., increasing internal productivity.
This is not the case for a highly specialized
company. It is usually focused on a set of a
few products and specializes in performing
some narrow production activities (if any). It
is not possible for such a company to
turnaround by changing its internal activities
in isolation: it has to involve and interact with
external partners, often on both the customer
and supplier sides. Changes have to include
these counterparties thereby making them
modify their way of functioning. One reason
for this is that an increased specialization
goes hand in hand with an increased
activation and utilization of resources outside
company boundaries.
Making such a turnaround is certainly
not an easy task. One major challenge is
mobilizing all of the external counterparts with
which the company interacts to become
involved in a change process. They have to
be approached and convinced that it is in
their interest to change the way they interact
with the focal firm. This is to argue that the
earlier interaction methods have some
important weaknesses and the new way can
result in something more positive for both
sides. Another related problem that is a
prerequisite for handling the first one is for
the company to get the personnel within the
focal firm to change their way of working in a
relevant and coherent way. One reason for
this is, of course, that the previous way of
behaving in the interaction by the focal firm
has to be changed. This is difficult for all
organizations as the interaction has been
developed over many years and has become
embedded in many routines and procedures.
So, it is a problem to get its own personnel to
change, which, in turn is a prerequisite to get

26

the counterparts to change. However, in

some cases it is even more difficult as the
change involves not just breaking with the old
way of interacting but also with what is
generally supposed to be the best way to
interact. This is the case for the purchasing
side in the case that will be presented here.
The new way that the company has to
develop goes very much against the classical
way purchasing has been handled. The main
purchasing advice has been to try to
establish better markets for the input
products but this will not work now. This is
obvious in traditional purchasing textbooks
but can also be found in modern purchasing
models such as the most commonly used
oneKraljic (1983)and modern purchasing
books like Van Weele (2005) Furthermore, it
is also an obvious element in theoretical
approaches such as transaction cost and the
resource based view. This view is challenged
if interaction with the suppliers is put into the
focus (Gadde & Hkansson 2001, Gadde &
Snehota 2000). Then another type of
questions come into forefront such as how
should the interface with the supplier be
designed (Araujo et al 1999) or how can we
find positive cooperative possibilities in
whatever type of situation there is
(Hkansson & Persson 2007).
An interesting consequence is that the
way the company solved this situation
indicates that markets are no longer sufficient
from an efficiency point of view. There is
need for a structure where it is possible to
interact in a way other than a straight market
exchange. This interaction, it seems, can
create more cost efficient solutions for the
buying company than the market solution.
This is, of course, a very provocative
conclusion as the free market is assumed to
be the most cost efficient solution that can
exist from a buying point of view. However,
the following Ducati case gives at least one
reason to question this assumption. In this
article we will describe how Ducati made a
major turnaround through developing its way
of interacting with customers but especially
with suppliers.
3. Ducati
problems

Case

3.1. The background

background

and

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Volume 2, number 2

Ducati is well known worldwide for its

sportive motorbikes, but it started in 1926 as
Radio patents Ducati with the main intent of
producing industrial components for the
growing
radio
transmissions
industry,
components that were produced thanks to
some patents by Adriano Ducati (the data
collection for the case is described in the
appendix). The first product, the Manens
condensator for radio apparel, followed by
other complementary products, had great
worldwide success, allowing the firm to
rapidly grow and to obtain the respect of the
international industrial community. In 1935
the company built a new and ambitious site in
Bologna (the same site is used today) with
the intent of forming an important industrial
and technological centre in Bologna. In the
same period Ducati amplified its international
activities and opened new offices in London,
Paris, New York, Sidney and Caracas to
ensure direct services and assistance to its
customers.
At the Milan Fair in September 1946 Ducati
presented Cucciolo, an auxiliary engine to
put onto a normal bicycle. This engine was
sold in a particular assembly box and the final
customer had to attach it to its own bicycle.
After a short time the company decided to
also develop a special frame to combine with
the Cucciolo making the engine turn rapidly,
with some adaptations, into a small
motorbike. Thanks to Cucciolo and its
derivates, Ducati also became an important
company in the mechanical industry. The
years from the 1950s to the70s represent the
definitive
passage
to
the
mechanical/automotive sector and the brand
Ducati is now exclusively associated with
sportive
motorbikes
and
with
the
Desmodromic engine developed by Ducatis
engineer in the 1960s.
In 1983 Ducati was acquired by the Cagiva
Group (another Italian automotive company).
In the following period the company had a
very intense growth period that culminated in
the launch of the famous Monster Model.
But Ducati entered a more problematic period
and, after a financial crisis in 1996, Ducati
was bought by the American Texas Pacific
Group. The new owner brought
the
necessary liquidity and a new group of
international
managers.
The
new
management, together with the previous
group of product development engineers,

27

began a turnaround that ended in some

important results in terms of revenue and
profits. One result of the turnaround period is
the entering of Ducati Motor Holding into the
Stock Exchange in New York and Milan.
The problems identified
At the end of the last century Ducati
was, among motorbike users, identified with
good design but also that it required a driver
who could handle technical problems.
Ducatis own perceptions of the problems
were that the financial crisis was due to both
increased costs and insufficient product
quality. There was a need for increasing
efficiency as well as becoming more
innovative.
Among
all
the
improvements
identified, the changes on the consumer or
user side became the most public. The
ambition went from selling just a motorbike to
offering a whole lifestyle or to transform
progressively Ducati into an entertainment
company offering a complete motor
experience, as it was formulated by the
company itself. However, a far more
important improvement, from an operational
point of view, was the total re-modeling of the
supply chain.
Ducatis deficiency in its own productivity was
obvious.
There were easily identifiable
weaknesses in both the production and in the
logistics. There were also problems in terms
of quality development of components and
sub-systems. An internal investigation
showed that the company could improve its
internal productivity by about 20%. This was
regarded as a significant possibility by the
management until this figure was related to
the product calculation. The effect of such an
improvement on the total product cost was
insignificantonly 4%. The reason was that
Ducatis share of the total product cost was
only 20%; purchased components and
outsourced sub-systems accounted for 80%.
This is, in turn, an effect of the increased
specialization that Ducati, as most other
modern western companies, experienced
during
the
last
decades.
Increased
specialization is often combined with
outsourcing of more components, parts or
whole systems to external suppliers. The
single company will, as a result, be

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Volume 2, number 2

responsible for a smaller part of the total

product cost. Consequently, the suppliers
take a larger share of the total product cost
and for many producers their share is 7080%, as in the Ducati case.
The management team of Ducati
realized that this substantial improvement in
internal productivity created such a small
improvement in relation to the products sold
that it could not be the base for the needed
turnaround. The fact is that, independent of
how much they could improve internal
productivity, it could only affect 20% of the
product cost80% would be outside any
such improvement. The conclusion was
simple and obvious. The key issue was not to
focus on an internal changethe turnaround
had to be based on external changes in
relation to customers and suppliers. Without
changing the way they interacted with
customers and/or suppliers Ducatis chances
were very bleak. Thus the important change
had to take place in the interaction processes
with customers and suppliers
4. The turnaround process
4.1. The marketing side
The change in Ducatis vision and
strategy centered on the interaction with the
customer and on the value creation for
him/her. The turnaround process started from
the statement that in a company as Ducati
the traditional marketing, decomposing the
market in homogeneous clusters of
consumers and coming up with effective
action for each of them, doesnt workThe
unique unifying element for all the customers
is simply the motor (from an interview with
Antonio Ducati, 2003). On one side the
management recognized the importance and
the force of the product both from the image
and from the incorporated technology point of
view (i.e., the desmodromic technology that
was considered a very distinctive and

28

important feature of the product), on the other

side management faced weaknesses in both
the internal and external organization with a
serious problem of function integration and
lack of managerial skills, which had a
negative effect on the interaction with
potential customers.
The first action undertaken was the
revamp of the Ducati brand through the
reinforcing of the unique brand character
associated
with
a
broader
product
performance with the main objective to
transform progressively Ducati into an
entertainment company offering a complete
motor experience and create a Ducati
Community around the focal product bikeaccessories-apparel. This included the
creation of a DOC-Desmo Owners Club, new
Ducati stores, a museum connected to the
factory, a number of special events including
participation in racing, and advertising. In this
way Ducati was related to a whole life style.
This change can also be seen in the
percentage of the revenues from accessories
and gadgets that increases from 10% to 19%
between 1997 and 2004. (see Table 1).
The first World Ducati Weekend, an
event organized in Misano (near Bologna),
was a great success drawing 10,000 Ducati
fans from all over the world. The design and
opening of new DucatiStores had some
important effects. The philosophy of a
DucatiStore is completely different from a
traditional reseller shop. A DucatiStore is
directly owned by Ducati and managed with
particular attention to the creation of a unique
atmosphere. The opening of the Ducati
Museum in the Borgo Panigale factory and
the return of Ducati Racing in the GP in 2002
concluded this process.
These actions that can be seen as a
very traditional marketing strategy change,
actually mirror a radical internal change that
originates and develops from a complete reexamination of the Supply Chain concept and
Supply Chain management principles in

Table 1
Ducatis sales revenue
- Motorbike
- Accessories / Gadgets
(sportswear,.)

1997 2000 2004

90% 85% 81%
10% 15% 19%
100
100
100

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Ducati.
Its
very
significant
that
the phrase In the last years the customer
becomes and will remain the centre of the
Ducatis world and activity was formulated
and used by the Purchasing Director before it
was used by anyone who was responsible for
the companys marketing.
In the automotive sector, innovations
in product projects and development activities
are obviously important, but first of all, in our
case, the innovations in business processes
are the most importantIt was the
innovations in this field that allowed us to
reach significant cost reduction and value
creative goals, in particular innovations in the
supply network managementThe first
question we posed was, where does the
customer value originate? The value concept
has to be integrated into the whole supply
chain. The most important innovation in
Ducati was the revolution in the operations,
that is all the activities linked to the
production process both from an internal and
external perspective, in relation to the value
creation in the entire supply chain (From an
interview with the Purchasing Director, 2004).
If we look at this statement from an
interaction point of view, the manager is
pointing to the importance of a symmetry
between what is going on internally with what
is taking place in the interaction with
customers and that this has to be directly
connected to what takes place in the
interaction with suppliers.
This is the point of departure for the
Ducati Improvement Process or Change
Management that derives from the statement
that the value for the customer depends and
is generated in the entire supply chain in an
integrated vision. It is not simply a
restructuring of the Ducati supply chain in a
purely efficiency way, addressed to cost
reduction and waste elimination, but a reorganization that begins with the identification
of the critical nodes of value creation and
then enlarges upstream and downstream in
the supply chain. The main targets and
constraints of this change process were
focused both on internal production activities
as well as on the suppliers activities.
However, the main consequence of this
change is that the interaction with the
suppliers has to be developed in order to
create the customer value but also to better
relate what is going on inside Ducati with

29

what is done by the suppliers.

4.2. The purchasing side
In this perspective it is clear that the
upstream relationships have to be considered
essential for the achievement of the
companys goals The change in Ducati
wouldnt be effective if it would remain into
Ducatis
boundariesThe
reached
improvement had to be extended where most
value is created, throughout the supply
chain (From an interview by the
Purchasing Director, 2006).
The revolution in the purchasing strategy has
followed two main principles:
i)
identifying what is of value for the
customer, what the customer is
willing to pay for;
ii)
mapping and putting into the right
sequence the identified value
activities
and
removing
or
rationalizing all other activities
following a lean supply logic.
These two principles led to a complete
new philosophy and organization of the
purchasing activities following the changed
philosophy of the company: We are not
more reasoning in terms of goods
categories, but in terms of customers value
creation in our purchasing activitiesIt has
been a very important shifting from
commodities to supply chain categories
(idem).
Previously (until 2002) the purchasing
function just had operative and administrative
goals and was internally structured into
commodities sub-functions, each of them
responsible for the purchase of some well
identified groups of goods (see Figure 1). The
people in charge of each sub-unit had
developed specific competences just on the
materials and corresponding suppliers they
were responsible for losing touch with the
final product and with the creation of value for
the final customer (idem). The result was
that, in the company, diverse people
(logistics, quality, projecting, purchasing)
were involved in different manners in the
same supply, with many problems in terms of
relationships with suppliers, that were forced
to dialogue in an incoherent way with
different people, and in terms of conflicts
among internal organization units. In this
way, the suppliers met a counterpart that was

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composed of a number of different units with

very different opinions and evaluation criteria.
Thus the internal organization within Ducati
created problems in the interaction with the
suppliers. It was impossible for the supplier to
understand what Ducati wanted out of the
interaction as Ducati itself had problems with
it. This is a normal problem in companies with
a specialized purchasing function, which
often stresses the importance of competition
between suppliers in order to lower the price
while other units are more concerned with
quality and deliveries. There will often be
double messages from the buying company.
To find another way of interacting with
the suppliers the purchasing function had to
be changed. Today it has been renamed
supplier development and it is organized
into five basic units that bring together all the
competencies to manage the purchasing
activities on a supplier development and it is
organized into five basic units that bring
together all the competences to manage the
purchasing activities on a supply chain base

30

in relation to macro-assembling groups: color,

electronic,
engine,
functional
groups,
commodities (see Figure 2). The purchasing
activities are now supported by interorganizational teams composed of five senior
buyers in charge of each of the five supply
chain units and the respective junior buyers
(12 in total) and different people from
logistics, product development and quality.
If we consider now, for example, the
chain color, previously the purchasing
operations involved in this chain (considered
a chain of high value for the final customer)
were managed by different buyers with
different buying competences in terms of
single commodities (frame, rims, plastic
components) with a lot of difficulties in terms
of coordination. Now the objective of each
single group (managed by a single buyer) is
to ensure that each single component
involved in the same value chain is
developed, produced and delivered following
the same logic in a coordinated way.
From the final customers point

Finance
AD
Personnel
Quality
R&D

Operations

Sales
I.T.

Purchasing

Direct iron materials

Direct non iron

materials

Figure 1
The earlier purchasing organization

Electric materials,
plastics,
commercials

Indirect materials,
services, plants

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31

Finance
AD
Personnel
Quality
R&D

Operations

Sales
I.T.

Suppliers Development

1
Color

2
Electronic

3
Engine

4
Functional
Groups

5
Commodities

Buyer

Buyer

Buyer

Buyer

Logistics

Logistics

Logistics

Logistics

Product Dev.

Product Dev.

Product Dev.

Product Dev.

Product Dev.

Quality Inspector

Quality Inspector

Quality Inspector

Quality Inspector

Quality Inspector

Buyer
Logistics

Figure 2
The purchasing organization after the change
of view, the result is that he doesnt have to
wait 60 days for his order if he changes his
mind about his first color choice after placing
the order in a Ducati Store, but just five days.
The different components had very different
supplying times, ranging from one month for
a frame, two months for rims and 15 days for
plastic components and the total lead-time
was equal to the time of the slowest
component. With the new approach, the
entire process could be analyzed in a
coherent
way
among
the
different
components of the chain and with stress on
the slowest component, to shorten the total
time. Mapping the materials flow along with a
very strict stocking policy allowed the
company to reach a total lead-time of five
days for the change of color.
The same can be found with engine
performance or electronic equipment and not

only at the choice moment, in terms of

customization of the product, but also in the
post-sale phase, for example in case of a
malfunctioning of the product. The problems
are more easily individualized and more
quickly solved thanks to the competences
accumulated in Ducati and, above all, in
Ducatis supplier network.
The supplier can now meet a buyer
that is able to discuss all combination of
problemsincluding different sets of costs,
quality and delivery alternatives. It is possible
to discuss the effects of different solutions for
both sides and to find suitable compromises
given that the supplier is also organized in a
similar way.
In general the new and closer
interaction with suppliers created the
following advantages for the involved
companies:

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better planning of time resulting in

lead time reduction for the buyer;
cost reduction: the enlarged picture of
the components in a single order
allowed for a better understanding of
how costs evolve in different activities
across firm boundaries;
quality improvement: the new way of
interacting increased the possibilities
both to increase the innovation
content in each relationship and to
combine different suppliers, i.e., it was
useful
to deal
with
potential
incompatibilities among the suppliers;
product
development
processes
across company borders were
facilitated resulting in time reduction.

At the same time, a single supplier

dialogue now can not only solve diverse
problems easily and quickly thanks to the
multifunctional team, but can also develop
coherent objectives and find common
solutions to problems connected with both
product
development
and
production
including deliveries.
4.3 The suppliers involvement process
The internal change within Ducati was
a reflection of the basic changes that
appeared in the interaction within Ducatis
supply network, including within its suppliers
relationships. The new orientation was the
result of a number of highly complex projects

32

together with some key suppliers. Seen from

Ducatis side these projects involved three
main elements:
- outsourcing
- reduction of the number of
suppliers and rationalization of the
suppliers portfolio
- strategic
and
operational
integration
Outsourcing
One important element in the changed
interaction has been a systematic analysis of
where to perform different production
activities. One important starting point has
been an analysis made by Ducati where the
value the component/product/service had in
relation to the value for the final customer
was related to the necessary competences to
produce it (see Table 2). One effect has been
that some assembling phases, some
mechanical processing, the distribution of
spare
parts
and
accessories,
were
externalized. In particular inbound activities
(collecting components from suppliers,
Ducatis internal warehouse and the sourcing
of assembly lines) and outbound logistics (
packing
and delivering
bikes)
were
outsourced. One important change in the
interaction was an increased utilization of
external resources and capabilities despite
the fact that at the start Ducati already was
highly dependent on these resources.

Table 2
Where to produce (Source: Ducati)

SUPPORTING
Selective outsourcing
Outsourcing: spare parts
logistics, inbound logistics,
outbound logistics
In house: assembling
MARGINAL

Value

Outsourcing
Canteen, mail, employee
payments,

CORE
In house
Projecting, purchasing,
marketing
STRATEGIC
Selective outsourcing
Outsourcing: aluminum
processing
In house: steel processing

+
Competencies

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Reduction of the number of suppliers and

rationalization of the suppliers product
portfolio
One very distinct change due to the
developed interaction was a significant
reduction in the number of suppliers it used.
From 1997 to 2004 Ducati reduced the
number of qualified suppliers from 380 to 170
(see Table 3). This was primarily due to the
fact that all suppliers were not prepared to
take on the increased responsibilities and
engagement
in
a
close
interaction.
Additionally, it was also an effect of an
increase in the supply of pre-assembled
complex
systems
instead
of
single
components.
Today the 170 first tier
suppliers supply complex assembled groups
and are fully responsible for the subsuppliers network beyond and for the
technical/functional competencies of the
whole system. Of the 170 suppliers, nine
account for 40% of the supply costs and 36
for 80%. The five most important suppliers
(wheels, braking system, head-engine,
basements, cylinders and pistons) are
located in Italy and two of them in EmiliaRomagna, near Bologna. The changed
interaction seems to enhance the position of
the closely situated suppliers. It might be both
easier and more motivating for them to
increase the interaction with the buying
company compared with suppliers being
located farther away.
Strategic and operational integration
The reduction of the numbers as well
as the increased concentration in terms of
volume and geographical location is a
reflection of a more intensive interaction
based on collaboration and integration of

33

activities and operations. The increased

interaction
takes
advantage
of
the
competences accumulated over years in the
mechanical industry and of the proximity of
the suppliers in terms of logistics and
operational process management. The
choice of the strategic suppliers is based on
history and the selection was made based on
how suppliers responded to the proposal to
participate in the Suppliers Partnership
Project. Most of the already highly involved
suppliers accepted and invested in some
conjoint initiatives that changed the content of
the interaction in a substantial way:
- Participation in DESMO projects
(Ducati
Evolution
&
Supply
Management
Optimization)
an
acronym reminiscent of the famous
desmodromic engine, developed by
Ducati.
This
project
can
be
considered the core of the entire
suppliers partnership project. DESMO
is based on the transfer and
development of particular methods
and techniques designed to reduce
waste in both the products and
logistics/production processes in the
suppliers plant. The DESMO is
composed of three modules: cost
analysis, process analysis and
product simplification. Until 2005, 14
DESMO projects were completed that
led to an average
product cost
reduction of 5%;
- Mapping of flows to reduce the lead
time;
Logistics coordination. In 2005 about 12
suppliers worked in JIT with Ducati. With
some of them, thanks to collaboration with
logistics suppliers, also Just in Sequence
methodologies was implemented;
- Training;

Table 3
Number and location of suppliers
Local (district)
Italy
EU Countries
Extra-EU Countries
TOTAL

Number of qualified suppliers

60
80
20
10
170

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Network data interchange platform

development based on Internet
technology.
All these tools have been useful to a
larger or lesser degree in single relationships
due to differences in the earlier interaction.
The main positive effect has probably been
that they forced all the involved actors to
make a very systematic analysis of the
existing interaction and suggested different
types of improvements.
-

4.4 Results
One important result is that Ducati
managed to increase its production from
12,000 to 40,000 bikes per year without
increasing the number of employees or
changing the production site. This had very
positive effects on revenues and profit and
resulted later in the introduction of Ducati
shares on important stock exchanges.
Another important effect is that the
make/buy ratio has been further developed
through increased use of suppliers. The
activities performed within Ducatis Borg
Panigale plant is now only 8% of the total,
i.e., 92% is done by suppliers. Of the 8% just
half refers to the internal mechanical
transformation activities (production of headengine and basements, that covers 35% of
the total needs and production of drive
shafts), the remaining refers to the assembly
process.
5. Discussion
This case can be seen as an example
of how interaction can be used as a means to
change the position as well as the results of a
specialized company. Ducati is a highly
specialized company that is making a
turnaround through changing its interaction
with customers and suppliers. This is a
distinct break with how the interaction was
conducted before, especially in relation to the
suppliers. This is also an example of how
little attention interaction processes usually
get. When they are seen as just a market
mechanism without any problem-solving
content, there are no reasons to consider
them. But, as soon as they are believed to
have a potential content in terms of creating

34

opportunities to find new technical and

commercial opportunities the situation
becomes quite different. Then, one key
question is what kind of ambitions the
company has to utilize these problem-solving
and opportunity-creating processes. The
case is a good example of both what can be
achieved and of what is required to start such
a major change of interaction processes,
which in this case also resulted in a major
turnaround process.
If we start with what is achieved, the
major result can be seen as the
accomplishment of a much more fine-tuned
orchestra of suppliers. A supplier is, in itself,
a set of activities based on a complex
resource constellation. If a buying company
wants to utilize such a resource constellation
in a more extensive way there is need for a
difficult and time-consuming interaction
process. This process can be developed over
time and there are no limitations as to what
can be done. This is especially the case
when the suppliers way of using different
sub-suppliers is included and/or how the
single supplier can be combined with
complementary suppliers. In this case the
activities performed by different suppliers and
the producer were related to each other in a
more systematic way than was done
previously. There were a large number of
adaptations of these activities in order to
increase efficiency in terms of the produced
components as well as the final motorbike. In
the same way the resources used by the
different involved companies went through a
process where they were more thoroughly
combined also across company borders.
Both the relating of activities and the
increased combination of resources required
that the involved supplier companies were
mobilized to take part in a more intensive
interaction process with Ducati and with each
other.
To achieve this increased efficiency
and better use of resources there are also
some important changes that had to be
accomplished. One very crucial ingredient is
that Ducati revised its purchasing methods. It
was such a big change that the company
even changed the name of the unit from
purchasing to supplier development. The
classical way of purchasing did not create the
type of interaction the company was looking

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for. The key issue in the traditional way of

purchasing lies in the decision where to
buyin the selection of the best supplier. All
established purchasing decision models
focus on this aspect. However, this is not the
key issue in the supplier interaction method
developed by Ducati. The key issue now lies
in how to find the best way to interact with the
suppliers. There is certainly a selection of
suppliers but this is much more long term and
closely related to how to interactthe
suppliers must be prepared to take part in
this close interaction. It is in this way more of
a self-selectionwho is prepared to be an
active and highly involved counterpart.
Changing
the
purchasing
organization is one example of those internal
changes that must be made within a buying
company when it wants to change its
interaction with suppliers. This can also be
reversed to state that an organizations
internal changes will always have effects on
the interaction with its counterparts. To gain a
certain interaction, an organization has to be
oriented toward conducting this interaction.
This was manifested in the Ducati case in
terms of creation of special teams that were
responsible for the interaction. These teams
included people with competence in technical
dimensions (production as well as product
features) and in logistical processes. The
ambition was to create a team that had both
the competence and ability to handle intricate
problem-solving
processes
within
the
interaction and would influence the
counterparts to create similar teams. Thus,
one key issue is to get a set of specialists
involved from both sides in order to find not
just the right competence but also the right
attitude toward the interaction process. The
activities are geared toward creating a
positive, creative problem solving process.
Thus, in order to interact in a problem-solving
way there are important reasons to design an
organization to get people involved that have
a certain attitude as well as a certain
competence.
The internal changes must often also
be mirrored by some of its counterparts
(suppliers) internal changes. These can be
larger or smaller dependent on how the
suppliers interact with other customers. Some
of them might already have a suitable
organization while others (many) have to go
through some major internal changes. This

35

can be initiated and influenced by the buyer

through the content of the interaction
process.
There is also an external change that
is important in relation to the buying
company. This regards the way single
suppliers are related to each other. It is a
question of how to organize the total
production and development work conducted
by suppliers and sub-suppliers. To what
extent should they be systematically related
to each other? First is how single supply
chains should be organized and second how
these chains should be intertwined. The
question is how ambitious should the
company be in creating a tight supply
network. This is very much related to the
utilization
of
different
types
of
interdependencies (Hkansson & Persson
2007). All types of serial, pooled and mutual
interdependencies can be found in the total
structure. Each type requires special
attention and special activities
The internal and external changes
described above are necessary for creating
the basic conditions for the interaction but
must also be formed together with the
counterparts. In this case the development of
these
interaction
processes
was
systematically influenced by the use of
certain tools. Furthermore, this development
of the interaction must never endit must
continue and new forms must evolve as it is
developing. The systematic efforts are used
both to get the process started and to
continue development day by day. This must
be done in two complementary ways. One is
a conscious process of development with
each single supplier and the other to
systematically combine each relationship with
some of the other supplier relationships.
These systematic efforts include a number of
different activities. Some of them are related
to the use and activation of specific
resources, others regard the design and
control of development, production and
handling activities and a third type regards
the handling of relationships with the
counterparts. Let us have a closer look at
each of these types starting from the last one.
a) Configuring the relationships: One
crucial aspect is to find a suitable
interaction form within each supplier
relationship. One important part can
be for both sides to increase their

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Volume 2, number 2

consciousness as to how the

interaction can be used to influence
costs and revenues. Here the use of
the DESMO tools was one ingredient.
Another is that by focusing on the
relationship and its way of functioning,
the other party is also influenced in
the same direction.
b) Designing the activities: In this case,
Ducati works hard with developing
operations, and the DESMO project is
one important starting point. However,
in the long run the involved
companies have to refine and develop
these type of projects as the total
activity pattern must always be
developed further. Ducati has to
develop its tools but it has also to
encourage the suppliers to develop
their tools. If not, the supply network
might easily turn into a very
hierarchical one creating more
problems.
c) Combining the resources: The
designing of activities has a significant
impact on the total efficiency
combining resources has the same
effect on the innovative capability.
Single resources as well as
constellations of resources have to be
combined. This is one of the reasons
why the involved teams should
include several types of specialists.
There are so many different resource
itemsboth tangible and intangible
that might be combined in better ways
within
both
single
supplier
relationships and, even more, across
different supplier relationships. The
importance of the combining ranges
from whole constellations to single
resources. An interesting example is
the combining of tangible and
intangible resources. These can be
combined in many different ways
especially as they are adapted to
each other over time. In this case, the
intangible resources are also the glue
between the tangible resources
increasing their value for the involved
actors. This is, probably, one of the
most important reasons for the
positive effects that Ducati created
through
the
more
extensive
interaction with the suppliers.

36

Another interesting aspect that

emerges from this case is that Ducatis
turnaround process did not start out from
either a very extensive analysis of the
situation or from a very developed theoretical
model. Instead, the early phase of the
turnaround was dominated by the use of
strategic and operational instruments and
theoretical models that are not actually very
sophisticated or innovativeoutsourcing,
reduction of the number of suppliers,
strategic and operational integration, lean
supply philosophy and the Kraljic matrix. On
the contrary we could consider them very
traditional if compared to the mainstream
literature on purchasing or SC management.
Through
the
companys
increased
consciousness of cost and revenue
influencing factors, the effect became highly
innovative at the end. The result was a
turnaround process that certainly is not just
impressive but also from which much can be
learned.
Appendix
Data collection
This case is mainly based on in-depth
direct interviews with the managers of Ducati
Motor Holding S.p.a. and on written material
from the company.
The first contact was in March 2003
when the company was asked to take part in
a research study concerning purchasing
behavior in medium sized companies in the
mechanical sector in Italy. The first interview
was carried out through a semi-structured
questionnaire with the purchasing director of
Ducati Motor Holding. In the same period we
had the possibility to collect some additional
information regarding Ducati from two of its
suppliersone large company located in
Bologna, near Ducati, and a small enterprise
(located near Pesaro) that was contacted in
the same research project (Bocconcelli,
Tunisini 2006; Bocconcelli 2005).
The data collected from Ducati and
from Ducatis suppliers, was considered
interesting and stimulated a next step in the
investigation for the development of a specific
case study based on the Ducati turnaround.
In December of the same year the
purchasing director was contacted again to

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more precisely map the most important steps

of the turnaround process. Based on this data
a first draft of the case was written.
In 2005 two more extensive interviews
were conducted with Ducati: the first with the
Information Systems manager and the
second one with the same purchasing
manager as above who, in the meantime,
had changed his position. Now he was one of
the partners of Ducati Consulting S.r.l., a
company born to exploit the competences
developed during the turnaround process.
In 2006 there was a follow up
interview with the same manager in
connection with a workshop at Urbino
University where he also presented the
Ducati turnaround for an academic audience.
References
Araujo, L., Dubois, A., & Gadde, L-E.
Managing interfaces with suppliers.
Industrial Marketing Management. 28,
497-506.
Bocconcelli, R. (2005) Creazione del valore
per il cliente finale e Supply Chain
Management: il caso Ducati. II
Convegno annuale della Societ
Italiana
Marketing:
Tendenze
evolutive del marketing dei servizi.
Trieste. 2-3 Dicembre.
Bocconcelli, R., & Tunisini, A. (2006).
Cambiamenti nel comportamento
dacquisto delle medie imprese
industriali: unindagine sul settore
meccanico. Sinergie. 70.
Gadde, L-E., & Hkansson, H. (2001). Supply
Network Strategies. London: Wiley.
Gadde, L-E., & Snehota, I. (2000). Making
the most of supplier relationships.
Industrial Marketing Management, 29,
305-316
Kraljic, P. (1983). Purchasing must become
Supply
Management,
Harvard
Business
Review.
September/October, 109-117.
Persson, G., & Hkansson, H. (2007).
Supplier Segmentation When
Supplier Relationships Matter. IMP
Journal. 1 (3), 26-41.
Van Weele, A. (2005). Purchasing & Supply
Chain
Management:
Analysis,
strategy, planning and practice. 4th ed.
London: Thomson International.

37

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38

Towards a Model for analysing Supplier Relationships

when developing a Supply Network
Ann-Charlott Pedersen a, Tim Torvatn b and Elsebeth Holmen c

Norwegian University of Science and Technology, Department of Industrial Economics and Technology Management, Trondheim,
Norway Phone: + 47 73593503, e-mail: pedersen@iot.ntnu.no
Norwegian University of Science and Technology, Department of Industrial Economics and Technology Management, Trondheim,
Norway Phone: + 47 73593493, e-mail: tim.torvatn@iot.ntnu.no
c
Norwegian University of Science and Technology, Department of Industrial Economics and Technology Management, Trondheim,
Norway Phone: + 47 73590464, e-mail: holmen@iot.ntnu.no
b

Abstract
In this article we propose a model for analysing supplier relationships when developing a supply network. The model
takes the buying firm as the point of departure but also conceptualises how it can take the suppliers context into
account. The first dimension of the model discerns between situations where the supplier is the most important
supplier for the specific product or service for the buying firm, and situations where the buying firm has several
important suppliers for the same product or service. The second dimension of the model discerns between situations
where the buying firm is the most important customer for the supplier, and situations where the supplier has several
(equally) important customers (of which the buying firm is one).
We use the proposed model to analyse a particular longitudinal case in the construction industry, which focuses on a
main contractor that initiates the development of a supply network. The aim of the analysis is to offer an illustration of
the different quadrants in the model and discuss effects with regard to three issues: learning, capacity and handling
costs. Following this, we examine the use of a portfolio approach in relation to supply network initiatives. Specifically
we discuss three managerial challenges; (1) managing with differences, (2) eliminating differences and (3) creating
differences. Finally, we draw conclusions and suggest some areas for further research.
Keywords: Supplier relationship, supply network, purchasing portfolio models, construction industry

Introduction and purpose

Over the last decades, purchasing
has
increasingly
become
supply
management
(Kraljic,
1983).
Firstly,
purchasing has become more important
because the amount a firm spends on
purchased goods and services comprises a
larger amount of its turnover. Firms in
different industries report that figures of 6080 percent are not uncommon as firms
increasingly
focus
on
their
core
competences and outsource other activities
to suppliers (van Weele, 2000). Secondly,
supplier relationships have become more
important because companies more often

make use of one or a few suppliers instead

of shopping on the market from various
suppliers (Gadde and Hkansson, 2001).
This means that within the field of
supply management, several management
issues have increasingly been attended to.
One of these issues is purchasing portfolio
models which have received a great deal of
attention in the literature the recent years
(Canils and Gelderman, 2007). From the
seminal article by Kraljic in 1983, many
researchers have discussed and further
developed different type of portfolio models
(see e.g. Olsen and Ellram, 1997; Bensaou,
1999; Nellore and Sderquist, 2000;
Gelderman and van Weele, 2002). The

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general idea is with the help of a portfolio

(2x2) matrix to optimise the use of
capabilities of different suppliers and
thereby effectively manage suppliers
(Canils and Gelderman, 2007, p. 220).
Another important issue within the
field of supply management is how to
manage single supplier relationships, and
furthermore how to manage supply chains
and supply networks (Hkansson and
Persson, 2004). So far, single supplier
relationships have received much attention,
and thus there is quite an amount of
knowledge on how such relationships may
be handled (see e.g. Hkansson, 1982;
Lamming, 1993; Dwyer et al., 1987; Frazier
et al., 1988, Gadde and Snehota, 2000;
Gadde and Hkansson, 2001). However,
the development into managing supply
networks has received much less attention.
We characterise supply networks as
consisting of interconnected entities
whose primary purpose is the procurement,
use, and transformation of resources to
provide packages of goods and services
Harland et al. (2001, p. 22). Thus, we have
a buying firm as the point of departure
which organise a set of suppliers and subsuppliers into a supply network.
Most of the scarce research within
the field of supply networks has so far
focused on organisational aspects e.g. the
number of suppliers, the number of
organisational levels/tiers, and how the
network develops over time from the
perspective of the buying firm (Gadde and
Hkansson, 1994; Dubois et al., 2003;
Harland et al., 2004). This is hardly
surprising given that supply directs the
focus on purchasing issues and thereby the
buying firm. However, over the last few
years more contributions have paid
attention to the suppliers view on supply
networks. We find these contributions
interesting since we take a network
perspective to supply management and
thereby emphasising the importance of the
suppliers context for the buying firm when
trying to develop a supply network.
Thus, the purpose of this article is to
develop a model for analysing supplier

39

relationships when developing a supply

network. The model takes the buying firm as
the
point
of
departure
but
also
conceptualises how it can take the
suppliers context into account. The
conceptualisation is based on a case study,
which focuses on a main contractor within
the construction industry that initiated the
development of a supply network.
In the next section, we review
literature on purchasing portfolio models
with special attention to models which focus
on classifying/assessing buyer-supplier
relationships. Following that, we look into
recent contributions on supply networks
seen from both the buying firms and
suppliers point of view. At the end of this
section we develop a model a buying firm
can use for analysing supplier relationships
when developing a supply network.
Furthermore, in section 3 we discuss
methodology and present an empirical case.
The case concerns a main contractor which
has initiated the development of a supply
network. In section 4 we analyse and
discuss how the case firm may benefit from
using insights from the suggested model.
Finally, in the two last sections we discuss
the use of the portfolio approach in relation
to supply network initiatives and how this
can affect the managerial challenges, and at
the end we draw some conclusions and
suggest implications for further research.
1. Theoretical basis
The theoretical part of the article first
presents and discusses literature on
purchasing portfolio models with special
attention to models which focus on
classifying/assessing
buyer-supplier
relationships. Following that, we look into
recent contributions on supply networks
seen from both the buying firms and
suppliers point of view. At the end of this
section we propose a model a buying firm
may use for analysing supplier relationships
when developing a supply network.
Purchasing portfolio models which focus
on
classifying
buyer-supplier

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relationships
In 1983 Peter Kraljic published an
article in the Harvard Business Review
entitled Purchasing must become supply
management, and by doing so he was the
first to bring portfolio models into the
purchasing area (Gelderman and Van
Weele, 2000). Kraljics model is based on
two dimensions for classifying a firms
purchased materials or components; (1) the
strategic importance of purchasing and (2)
the complexity of the supply market. The
article received a great deal of attention
both from managers and academics, and is
still applied in practice and used as a
reference by researchers in industrial
purchasing.
In later years, a number of
academics have further developed Kraljics
model
by
classifying
buyer-supplier
relationships
instead
of
purchasing
situations. We shall present a few of these
contributions as an inspiration for further
discussion on assessing buyer-supplier
relationships. One example is Sinclair et al.
(1996) who extend Kraljics model by
introducing the perspectives of both the
customers and suppliers. They use the

40

dimensions (1) Customers importance to

suppliers and (2) Importance of supplier to
customer. According to Doran et al. (2005),
who have used this model, the model by
Sinclair et al. (1996) stresses in what
situations buyers (and sellers) seek closer
relationships. In a similar vein, Bensaou
(1999) has used the dimensions (1) Buyers
specific investments and (2) Suppliers
specific investments in his portfolio model,
and thereby reaching a relationship
classification similar to Sinclair et al. (1996).
Furthermore, Gelderman and van Weele
(2000) have used the power-dependence
between the buyer and the supplier to
differentiate between different types of
relationships (or exchanges). Based to this
classification they have developed different
supply strategies. For an overview of these
contributions see table 1. For a review of
some of the latest developments in
purchasing portfolio models, see Dubois
and Pedersen (2002) and Persson and
Hkansson (2007).
The similarities between the models
is that they use the buyer-supplier
relationship as the point of departure for the
classification and thereby focus on both the
buyers and the suppliers perspectives. In

Table 1
Different portfolio models focusing on buyer-supplier relationship
Portfolio model
Sinclair et al. (1996)

Classification dimensions
- Customers importance to
suppliers
- Importance of supplier to
customer

Bensaou (1999)

- Buyers specific investments

- Suppliers specific investments

Gelderman and Van

Weele (2000)

- Suppliers dependence
- Buyers dependence

Classifying what?
Business relationships
- Market Exchange
- Dependence Leverage
- Dependence Management
- Strategic Partnership
Relationships
- Market Exchange
- Captive Buyer
- Captive Supplier
- Strategic Partnership
Supply strategies
- Efficient processing
- Exploit power
- Volume insurance
- Balanced relationship

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our view these models, with Kraljics model

as the point of departure, have become
popular and widespread partly because they
are fairly easy to communicate and
understand, and partly because they give
practical guidelines for how to manage
different
buyer-supplier
relationships/situations.
This
is
also
highlighted by Gelderman and Van Weele
(2002, p. 35) who claim that the models
building on Kraljics model seems to be
an effective tool for discussing, visualizing,
and
illustrating
the
possibilities
of
differentiated purchasing and supplier
strategies. In the follow part we shall turn
our attention to the concept of supply
network.
Supply network
In an article by Mills et al. (2004)
they conduct an extensive review of
strategic supply network literature. The
authors claim that supply network
management is a rapidly expanding field
with a fast growing amount of literature. In a
similar vein, and based on a literature
review of both purchasing and nonpurchasing journals, Holmen et al. (2007, p.
180) identify and discuss three important
issues in supply network management.
These issues are:
1) interconnected relationships, i.e.
creating
relationships
among
suppliers in the supply network
(which also incorporate the nature of
the relationships)
2) the structure of supply networks
3) the process of initiating, creating,
managing and/or changing a supply
network.
In the following, we will use these
three issues to structure the presentation
and discussion.
If we start with the issue of
interconnected relationships many of the
contributors within the field of supply
networks
have
touched
upon
this

41

characteristic. Harland et al. (2004, p. 2)

consider how a supply network can be
delimited in space and argue that we
could examine the total supply network for a
firm that could be represented by the set of
upstream and downstream organizations it
deals with, either directly or indirectly, from
original source of raw material or service
creation, to ultimate end customer. This
would provide a map of all relationships
within that firms supply network. Dubois
and Gadde (2000) also argue that an
important issue of supply networks is that
collaboration not only takes place between
a buying firm and its suppliers, but also
among the suppliers thus creating
connected relationships. In a similar vein,
Andersen and Christensen (2005, p. 1261)
claim that supply networks are
characterized by sets of purposeful and
connected exchange relationships. This is
supported by Hkansson and Persson
(2004) who discuss different types of
interdependencies in supply networks.
The second issue is how the
structure of supply networks can be
characterised and classified. In Lamming et
al. (2000) and Harland et al. (2001) a model
for classifying supply networks based on
two dimensions is presented; (1) the degree
of supply network dynamics and (2) the
degree of focal firm supply network
influence. Based on these two dimensions
the authors develop a 2x2 matrix and
discuss four supply network types. Mills et
al. (2004, p. 1023) also discusses structural
elements of supply network and claim that
the static network perspective of a focal
firms whole supply network is important
in order to compare performance in its
multiple supply chains. Furthermore, they
emphasise the firms position in the network
and how the position can be improved
without changing the structure of the supply
network. Related to position in supply
networks, Knight and Harland (2005)
discuss organisational roles in supply
network management and, based on
empirical research and the use of role
theory, they identify six different roles that
firms can have in supply networks.

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Hkansson and Persson (2004) also focus

on structural issues as they discuss
interdependencies in supply network, on the
basis
of
Thompsons
concepts
of
sequential,
pooled
and
reciprocal
interdependencies. They claim that one
major issue in relation to supply networks is
the fact that any focal organization is
normally part of several supply chains, each
of them representing different entities, which
may or may not be in conflict as far as
optimization and integration is concerned.
This issue in fact is related to the
exploitation of pooled interdependencies
(Hkansson and Persson, 2004, p. 18).
A third issue, which over the latter
years has become more prevalent in the
literature, is the process of initiating,
creating, managing and/or changing a
supply network over time. This is also
pointed out by Mills et al. (2004) who divide
what they call the dynamic network
perspective into (a) the evolution of existing
supply chains and (b) the creation of new
supply chains. One stream of research
within this area is carried out at the Centre
for Research in Strategic Purchasing and
Supply (CRiSPS) at University of Bath, see
e.g. Harland (1996), Johnsen et al. (2000),
and Harland et al. (2004). They have
particularly focused on (a) the creation and
operation of supply networks and (b)
strategies related to how to manage these
supply networks over time. A more logisticsoriented approach is taken by Hines et al.
(1998) who present and discuss a lean
logistics approach to design a programme
to develop a supply network. Romano
(2003) also takes a logistical point of
departure and discusses co-ordination and
integration mechanisms to manage logistics
processes across supply networks. He
develops
a
conceptual
framework
containing three elements and concludes
that the process has lead to intensified
interaction and communication both at a
dyadic level, but also at an overall supply
network level. In another stream of research
we find Dyer (2000) and Dyer and Nobeoka
(2000)
who
have
studied
and
conceptualised the knowledge management

42

processes in Toyotas supply networks. In

relation to that they describe the evolution of
the network in three phases: First, the
development of weak ties between the
buyer and the different suppliers in the
network. They use the term weak to point
out that the relationships were new and the
frequency and intensity of the interaction
was low. Second, the development of strong
ties between the buyer and the suppliers,
where Toyota transferred know-how of, for
example, production technologies. Third,
the development of strong ties among the
suppliers, enabling the suppliers to create
sub-networks within the full network to
maximise willingness to share information
and knowledge.
The discussions so far about supply
network has been from the buying firm point
of view, e.g. how a core buyer may manage
and organise its suppliers in networks, and
thus, not many studies have taken the
suppliers interests into account. The
suppliers are rarely viewed as actors with
their own plans and visions, and seldom are
the alternative relations available to the
suppliers discussed or handled. Lately a
few contributions have pointed out that fact
that there is less focus on the supplier
perspective of supply networks (Mills et al.,
2004; Stjernstrm and Bengtsson, 2004;
Andersen and Christensen, 2005). For
example Stjernstrm and Bengtsson (2004,
p. 137) claim that one shortcoming,
however, is that most of the literature is
based on buyer perspective, while studies
made from the supplier perspective are
rather few. However, there are a few
examples of contributions which have taken
the suppliers view of supply networks as
the point of departure. We shall present and
discuss some of these contributions
because we are interested in the network
view of supply network and thus more
knowledge about the supplier side is
needed.
Some
contributions focus
on
situations where it is only one buyer or a
dominant buyer. One early contribution is
Lilliecreutz (1998) who takes into account
how a buying firms restructuring of its

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supply base affects the suppliers, and how

a buying firm can synchronise its strategy
with the strategies of its suppliers. He
claims that suppliers need to develop their
own strategies as a consequence of buying
firms growing interest in restructuring,
rationalising and developing their supply
base/network. Lilliecreutz (1998) concludes
that the suppliers ability to orchestrate their
resource base, role and position is of great
importance. In a similar vein, Calabrese
(2000) studied 25 small and medium sized
suppliers and looked into the strategies they
adopted in order to handle changes initiated
by the manufacturers (the buying firms), for
example reorganisation of the supply
base/network. Finally, Johnsen and Ford
(2005, p. 184) look at how suppliers react to
two different sets of strategies applied by a
buying firm. The first strategy is network
intervention, i.e. that the buying firm is
actively
involved
itself
in
indirect
relationships. The second strategy is
network delegation, i.e. that the buying firm
instructs another actor to disseminate or
forward the buying firms preferences.
Based on a case study they conclude that it
in some situations was difficult for the
suppliers to carry out their own strategies
because they were constrained by the
buying firm. What is typical about these
contributions is that they focus on situations
(or structures) where it is only one buyer (or
a dominant buyer). This implies that all
changes, strategies etc. are related to the
initiatives taken by a single, often dominant
buyer in a supply network.
Some other contributions have
focused on the suppliers situation in
multiple supply networks. One example is
Stjernstrm and Bengtsson (2004) who
discuss
suppliers
contributions
to
customers
product
and
process
development in multiple supply networks.
By contributions they mean (a) new product
development,
(b)
new
product
manufacturability, (c) efficient manufacturing
processes and (d) the general development
of the supply chain/network. Stjernstrm
and Bengtsson (2004) have studied six
suppliers who have overlapping customers,

43

and the three different customers had

different views on the fact that their
suppliers delivered to a competitor. While
the suppliers believed that delivering to
different, competing customers would lead
to faster technological development and
more learning, one of the customers
stipulated in the contract that the suppliers
should not to deal with the competitors (of
the specific customer). Andersen and
Christensen (2005) also discuss different
supply network structures and look at the
positions and roles of individual suppliers in
such structures. Based on different
illustrative cases they present a typology
with
five
different
bridging
roles
subcontractors (suppliers) can have in
international supply networks. They are: (a)
the local integrator, (b) the export base, (c)
the import base, (d) the international
spanner and (e) the global integrator.
Andersen and Christensen (2005) identify
some of the same issues related to how to
handle situations with multiple buyers who
individually may initiate new supply network
strategies.
Based on the literature review above
we conclude that it is important to pay
attention to the context both of the buying
firm and of the suppliers which form part of
such supply networks. In the following
section, we shall use parts of the different
models we have introduced and discussed
in the theoretical basis to generate a model
for analysing supplier relationships a buying
firm may use to develop a supply network.
Towards a model for analysing supplier
relationships when developing a supply
network
So far, the article has reviewed
literature within two fields of supply
management. First, purchasing portfolio
models with a special focus on
classifying/assessing
buyer-supplier
relationships and second, the supply
network seen from both the buying and the
supplying firms perspective. As mentioned
earlier, this article focuses on how a buying
firm (the customer) can take the suppliers

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perspective and the suppliers context into

account when developing a supply network.
Following this logic, we suggest the
following model for analysing supplier
relationships:
The first dimension of the model is
related to the buying firms type of
relationship to the potential suppliers in the
supply network. We separate between
situations where the supplier is the most
important supplier for the specific product or
service, and situations where the buying
firm has several important suppliers for the
same product/service. In both situations the
two firms may have established a close
relationship and, as a consequence, have
cooperated and made mutual adaptations in
the past, as well as developed a
considerable amount of trust towards, and
knowledge about, each other. The
difference between the two situations
concerns to what extent the buying firm has
divided its attention among a number of
different suppliers (dual sourcing) or
focuses on one important supplier (single

Buying firm most

important customer

Suppliers
context
Buying firm one of
several important
customers

44

sourcing).
The second dimension of the model
is related to the suppliers type of
relationship to the buying firm and its other
customers. We separate between situations
where the buying firm is the most important
customer for the supplier, and situations
where the supplier has several (equally)
important customers (of which the buying
firm is one). Also in these two situations the
two firms may have established a close
relationship and, as a consequence, have
cooperated and made mutual adaptations in
the past, as well as developed a
considerable amount of trust towards, and
information about, each other. The
difference between the two situations
concerns to what extent the supplier is
involved with a number of other important
customers or focuses on one important
customer (the buying firm).
By combining these two dimensions,
we can construct a model which is
illustrated in Figure 1.
Based on the two dimensions we get

II
Dual sourcing

IV
Single sourcing
and providing

I
Dual sourcing and
providing

III
Dual providing

Buying firms context

Supplier one of
several important
suppliers

Supplier most
important supplier

Figure 1
Model for analysing supplier relationships a buying firm can use when developing a supply
network

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the following four quadrants:

Quadrant I Dual sourcing and
providing: In this quadrant both the buying
firm and the supplier have relationships to
other important suppliers/customers. This
implies that that buying firm uses a handful
of different suppliers for the same product or
service, and thus needs to divide its
attention between the different suppliers.
The supplier has a few other important
customers besides the buying firm, which
also may or may not have different types of
supply network initiatives or supplier
development programmes. Thus, the
supplier also has to share its attention
between different customers.
Quadrant II Dual sourcing: In this
quadrant the buying firm is the most
important customer for the supplier but the
buying firm has relationships to several
other important suppliers. This implies that
the supplier is very much focused on the
request, needs and routines of the buying
firm to be able to serve its most important
customer in the best possible way. The
buying firm, on the other hand, uses several
different suppliers for the same product or
service, and thus needs to divide its
attention between the different suppliers.
Quadrant III Dual providing: In this
quadrant the supplier is the most important
supplier for the buying firm but the supplier
has relationships to several other important
customers. This implies that the buying firm
is dependent on the supplier and is working
to get the most out of the supplier
relationship and become prioritised by the
supplier. The supplier, on the other hand,
has several other important customers
besides the buying firm, and thus, the
supplier has to share its attention between
different customers.
Quadrant IV Single sourcing and
providing: In this quadrant both the buying
firm and the supplier is the most important
counterpart for each other (in relation to a
specific product area or service). This

45

implies that the buying firm is dependent on

the supplier and is working to get the most
out of the supplier relationship when it
comes to adaptations etc. The supplier is in
the same situation and is focused on the
needs and routines of the buying firm to be
able to serve its most important customer in
the best possible way.
In the following section we shall look
into and discuss three important issues we
may use to evaluate positive and negative
effects in the four different quadrants of the
proposed model. The first issue is learning
which has been an important issue in the
supply network review above, especially in
the discussion of initiating a supply network.
The second issue is capacity which is
touched upon in the discussion of how the
suppliers may react to customers supply
network initiatives. The third issue concerns
handling costs which are related to the
number of suppliers and tiers and the
different roles in the supply network, as
discussed in the part of the supply network
review focusing on structural issues.
The first issue is learning across
relationships, which has been addressed by
several authors. Among those we find
Nobeoka et al. (2002) who discuss the
influence of customer scope on supplier
learning and performance in the Japanese
automobile industry. They suggest that the
extent of learning as well as the
performance of a supplier is strongly related
to the number and type of customers with
whom it cultivates highly cooperative
relationships. Nobeoka et al. (2002)
distinguish between relationship-specific
knowledge vs. re-deployable knowledge
and argue that in order for knowledge to be
re-deployable across different customer
relationships, the customers must have
related needs, e.g. by all being large
automotive assemblers. Based on these
premises, Nobeoka et al. (2002) propose
that a supplier who engages in a small set
of relationships to customers with related
needs and, furthermore, is able to transfer
re-deployable knowledge across these
relationships will not only learn more but

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also perform better. The authors stress the

importance of focusing their attention on a
small set of relationships to customers with
related needs because too many result in a
lack of information sharing and investment
and in high administrative costs (Nobeoka
et al. 2002, p.731). Somewhat similar
conclusions have been reached by
MacDuffie and Helper (1997) who have
studied Hondas supplier development
practices in the automotive industry. They
suggest that an important issue for the
buying firm as well as for the supplier in a
relationship is to consider the potential
complementarities between the focal
relationship and the suppliers other
customer relationships. On the one hand,
the supplier may benefit from understanding
which skills will be taught and how
applicable they will be to other customers
(MacDuffie and Helper, 1997, p.144)
thereby trying to assess whether or not the
practices it is to learn in one supplier
development
initiative
will
be
complementary to and useful for what the
supplier learns and does in its other
customer relationships. On the other hand,
the buying firm may benefit from
considering that helping a supplier to
achieve consistency across
all its
operations and all its customers can be an
important component of a buying firms
strategy towards its suppliers.
The second issue is related to
capacity. It is argued by Dubois and
Fredriksson (2008) that in addition to the
learning issue, the efficiency/volume issue
is important when selecting a sourcing
strategy (and thereby the type of supplier).
This implies that how the suppliers
production capacity is divided between
different important customers is crucial for a
buying firm. Hkansson and Persson (2004)
argue using the different interdependences
identified by Thompson, that pooled
interdependence is important because
pooled interdependence between two
activities means that they share a common
resource. When selecting a supplier for a
supply network the buying firm should take
into account that the production capacity of

46

the supplier is a common resource that are

shared between the different customers of
that particular supplier. The stress of
responding to several major customers with
different priorities was also studied by
MacDuffie and Helper (1997, p. 143), who
stated the following: Dont worry about
knowledge spillover to competitors through
a shared supplier. Do worry about the
impact of multiple customers on a suppliers
responsiveness, in terms of taking up too
many of the suppliers managerial resources
and other forms of capacity.
The third issue is handling costs
both regarding specific suppliers as well as
the overall supply/purchasing related costs.
Gadde and Hkansson (1993), in their
discussion of indirect costs in purchasing,
discuss handling cost as one important
factor. They claim that these costs are both
related
to
specific
buyer-supplier
relationships as well as costs generated in
the purchasing process by handling
documents, invoices etc. Gadde and
Snehota (2000) divide these handling costs
into relationships handling costs and
supply handling cost. According to Gadde
and Snehota (2000) handling cost is one of
the important type of costs to consider when
deciding to either have one or a few
suppliers for each product or service and to
work in high-involvement relationships or
using multiple sourcing and work in lowinvolvement relationships. The handling
costs are assumed to increase with the use
of a multiple sourcing strategy. This is also
discussed by Dubois (2003) who claims that
the number of suppliers a buying firm use
(for a specific product or service) have a
direct impact on the handling costs, but also
have a indirect effect on a lot of other cost
drivers (e.g. number of invoices).
In the following sections of this article we
present and discuss a processual case
study of a main contractor within the
construction industry who has tried to
develop a supply network, together with its
technical subcontractors, across a large
number of construction projects carried out
over a number of years.

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2. Methodology and empirical basis

The case in this article is based on a
long-term processual case study, which is
real-time, theory-led, and contextual. The
focal firm in the study is a large main
contractor. Most studies of supply network
management focus on firms in various
manufacturing industries, often automotive
(see Kinder, 2003 and Stjernstrm and
Bengtsson, 2004). Thereby, this study adds
to our awareness of how supply networks
can be developed (and managed) in other
industries, e.g. the construction industry.
The empirical material for the case
study was gathered in real-time, over a
period of almost ten years, and multiple
sources of information were used. For
example, we have:
-

taken part in the main contractors

supply network project
carried out approx 40 semistructured, personal interviews with
people from the contractor as well as
the subcontractors (suppliers),
taken part in various internal
seminars, workshops and field trips
(to construction sites),
read various company documents,
and
supervised a number of (master)
students writing their theses with the
contractor as the core firm.

Empirically, we have followed a

large main contractor in its efforts at
reorganising and reducing the supply base
of the firm and structuring part of the base
as a supply network. This process started
in 1997 and we have followed the firm in the
period 1997-2007. For a more thorough
description of the case, see Holmen,
Hkansson and Pedersen (2003) and
Holmen, Pedersen and Jansen (2007).
We have divided our longitudinal
data into the following four periods:
1. before 1998, when the first supply
network initiative started

47

2. during 1998-1999, when the first

supply network initiative was carried
out
3. during 2000-2005, after the first
supply network initiative
4. 2005-, during the second supply
network initiative
In the first period, before the first
supply network initiative started, the main
contractor mainly used competitive bidding
in
relation
to
its
suppliers
and
subcontractors, which were quite numerous
in number. However, being increasingly
dissatisfied with this approach, the main
contractor decided to change its approach
towards some of its suppliers.
In order to change its approach, the main
contractor organised its efforts by means of
a sourcing project with the aim to design a
supply network within the Building Division
of the firm. The project was called; Network
with technical subcontractors, and the
supply network consisted of subcontractors
of three types of technical services:
Electrical services, Ventilation services and
Plumbing services. The aim of the project
was to develop a method for choosing
and organising co-operation partners which
will enable the firm to achieve competitive
advantages. This should enable the firm to
become better at: (1) choosing optimal
technical solutions for their customers, (2)
handling interfaces among technical
subcontracts and (3) utilising advantages
stemming from co-operative relationships.
In this second period, the firm
classified all the suppliers (the supply base)
of one chosen business unit in the Building
Division into a catalogue called the Supplier
Library where all the business units current
preferred
suppliers
were
classified
according to the materials they produced
and/or the service they delivered, for
example timber frames, steel, plumbing
services etc. Since the sourcing project
mainly focused on designing a supply
network of technical subcontractors, the
subcontractor subset of the supply base
was singled out, i.e. suppliers delivering
Electrical services, Ventilation services and

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Volume 2, number 2

Plumbing services. In total, nine suppliers

were selected, three for each type of
technical subcontract. The supply network
was to be tried out in a number of actual
construction projects through which it was
assumed that the supply network would
develop
substance
within
single
relationships as well as connections
between relationships (creating a network).
In these projects the subcontractors were
divided in different constellations which
were to work together as sub-networks
with electricians, plumbers and ventilation
installers.
Through this process (beginning of
1998 to end of 1999), the way in which the
business unit related to its technical
subcontractors changed dramatically. For
example, the purchase of electrical services
from
the
three
chosen
technical
subcontractors tripled during this period
(without any major change in turnover). Out
of the business units total purchase of
technical services in 1999, approximately 95
% were from the designed supply network.
In the third period, between 20002005, some of the subcontractors from the
original supply network project were
gradually used less and some relationships
even ended. Other subcontractors became
more important in the years after the supply
network project, and still others started to be
used after 2000.
In 2005, the main contractor wanted
to establish mechanisms which could
facilitate joint learning and mutual
adaptations among the firms most
important technical subcontractors, and
among these technical subcontractors. In
particular, the main contractor wanted to
establish a small network of technical
subcontractors which could train as a team
across a number of construction projects
which would function as pilot arenas for the
collaborative efforts. Therefore, in the fourth
period, the main contractor started a new
process of mapping their present technical
subcontractors in order to identify suitable
candidates for the initiative. Among the
important features of the relationships, the
main contractor stressed that the technical

48

subcontractors should have worked with

firm for several years, that the collaboration
had been satisfactory, and that there were
good personal relations among the
individuals from the different firms which
were most heavily involved in the
relationships to the main contractor.
Having singled-out 5-6 technical
subcontractors, the main contractor invited
themselves to
visit the
respective
subcontractors, on the premises of the
subcontractors. In beforehand of the
meetings, the main contractor had asked
each of the subcontractors to make a
presentation of their firm which would
enable the main contractor to assess
whether the subcontractor had the intention
as well as the ability to partake in efforts
aimed at joint, continuous improvement and
learning. Based on these meetings, the
main contractor chose three subcontractors
covering the respective areas of plumbing,
ventilation, and electrical services. After the
selection, the supply network initiative has
developed over a number of construction
projects used as pilots for the initiative, and
recurrent meetings, workshops as well as
theme groups - all with representatives from
different levels at the various firms have
been carried out in order to generate
learning as well as to systematise and/or
transfer it among the network participants.
The changes over time are shown in
Table 2.
3. Analysis
In this section we use the proposed
model for analysing supplier relationships
developed in section 2, to provide an
illustration of the different quadrants and
discuss effects with regard to the three
issues: learning, capacity and handling
costs. Even though we have discussed the
three issues theoretically both in relation to
a buying firm (a customer) and its suppliers,
we shall focus the analysis only on the
buying firms perspective since it is the
buying firm who initiates a supply network
and
thereby
analyses
its
supplier
relationships.

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Volume 2, number 2

49

Table 2
Technical subcontractors used by the main contractor, 1997-2007
Subcontractor

Used during the

supply network
initiative in 1998-99

Used in the period

2000-2005

Subcon 1

Used in the years

before the supply
network (SN)
initiative started in
1997
Yes

Yes. Part of SN

Subcon 2

Yes

Yes. Part of SN

Subcon 3
Subcon 4

Yes
Yes

Yes. Part of SN
No. Part of SN

Subcon 5

Yes

Yes. Part of SN

Subcon 6
Subcon 7
Subcon 8

Yes
Yes
Yes

Subcon 9

No

Yes. Part of SN
Yes. Part of SN
Yes. Part of the
period. The firm had
financial problems
and left the SN.
No

No. The subcon.

changed its strategy.
Yes, but only on
smaller projects.
Merged in 2000.
Used quite little in this
period.
Merged with subcon.
13 and 14 in
2000.Not used after
2000.
Yes
Yes
No

Subcon 10

No

No

Subcon 11

Yes

Yes, became partly

part of the SN.

Subcon 12

Yes

Yes, but not part of

the SN.

Subcon 13

No

Yes, but not part of

the SN.

Subcon 14

No

No

Subcon 15

No

No

Yes. The subcon.

started to be used
because the main
contractor needed
more subcontractors
of electrical services.
Yes. Some former
employees of subcon.
5 became owners of
this subcontractor.
These persons have
been the main
contractors key cooperation partners.
Yes. The subcon.
started to be used
because the main
contractor had too
few plumbing
subcontractors.
Yes. Much used
today and an
important partner.
Yes. More used after
the merger (with
subcon. 5 and 14).
Yes. Stated to be
used after the merger
(with subcon. 5 and
13)
Yes. Important
partner today.

New supply network

initiative (2005-)

Yes (plumbing)

Yes (ventilation)

Yes (electrical)

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Volume 2, number 2

Quadrant I - Dual sourcing and providing

Empirical illustration
During the first supply network
initiative (1998-1999) the main contractor
developed a close relationship with the
plumbing
subcontractor.
The
main
contractor had bought a lot of services from
this subcontractor (but always based on
tendering procedures) over the years before
the supply network initiative started. During
the initiative, the relationship strengthened
and new routines were developed.
Furthermore, potential new co-ordination
mechanisms at the construction site were
analysed and implemented. However, the
main contractor also frequently uses threefour other subcontractors within the field of
plumbing. One of these (subcon 7) took
part in the supply network initiatives
together with the plumbing subcontractor in
focus, and thus also has a long term
relationship with the main contractor. The
two-three other plumbing subcontractors
that are widely used today started the
cooperation with the main contractor in the
late
90ties.
Thus,
the
plumbing
subcontractor in the New supply network
initiative is one of several important
subcontractors in the field of plumbing for
the main contractor.
The plumbing subcontractor also
has a few other important customers than
the main contractor within the construction
industry. The subcontractor has reduced its
number of important customers since the
New supply network initiative started in
2005, but still the main contractor is one
among two-three important customers of the
plumbing subcontractor. Two of these other
customers are large construction firms and
one has a very different supply strategy
than the main contractor (with a focus on
competitive biding) and the other has more
a collaborative strategy towards suppliers,
and is known for working with a new
collaborative method on a very large and
prestigious project.
Analysis
In the following section we shall look

50

at the advantages and disadvantages for

the main contractor with regard to the three
main issues introduced above:
Learning: The main contractor can learn
from the plumbing subcontractor with regard
to ways of working together. Since the
plumbing subcontractor has been quite
heavily involved in a large project with
another main contractor who has developed
collaborative strategies with its suppliers, it
is possible for the subcontractor to transfer
some of these routines into the New supply
network initiative. Thus, what the main
contractor can learn in this situation in not
about plumbing but ways of working in close
relationships as well as coordination
methods for the construction site.
Capacity: The main contractor is one of
several customers which the plumbing
subcontractor has to divide its production
capacity among. This implies that the
subcontractor often is occupied with other
large projects and do not have the sufficient
production capacity for the main contractor.
This sometimes creates tensions in the
relationship as the main contractor
experiences delays from the plumbing
subcontractor. Thus, in this situation the
main contractor does not get top priority
from the plumbing subcontractor, and
thereby the production capacity is not that
reliable.
Handling costs: The main contractor
experiences some relationship handling
costs since it has to develop and maintain
the relationship with several plumbing
subcontractors. This also increases the
cost of handling invoices, technical
drawings etc. from the different plumbing
subcontractors. Thus, in this situation the
main contractor needs to work with several
subcontractors and thereby the total
handling costs will rise.
Quadrant II - Dual sourcing
Empirical illustration
The electrical

subcontractor

has

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Volume 2, number 2

delivered services to the main contractor for

15-20
years
(based
on
tendering
procedures), but the more substation
relationship started around the year 2000. In
the period from 2000 to 2005 the main
contractor
has
used
the
electrical
subcontractor more and more frequently,
and the two firms have developed a closer
relationship over the last years. Since the
electrical subcontractor had not taken part
in the supply network initiative (1998-1999)
the main contractor still works quite a lot
with four-five other subcontractors for
electrical
services.
Two
of
these
subcontractors are somewhat smaller than
the electrical subcontractor in focus, but the
other three subcontractors are to a large
extent, large competitors (of the focal
electrical subcontractor).
After entering the New supply
network
initiative,
the
electrical
subcontractor, on the other hand, has
directed much of its activities and resources
towards the main contractor. The electrical
subcontractor does not have any other large
customers within the construction industry
and thus the main contractor has become
the most important customer.
Analysis
In the following section we shall look
at the advantages and disadvantages for
the main contractor with regard to the three
main issues introduced above:
Learning: It is more difficult for the main
contractor to learn from the electrical
subcontractor
(than
the
plumbing
subcontractor) since the subcontractor has
very few other large customers. As it is not
a question of learning about electrical
issues, but instead working methods,
coordination forms and routines the
subcontractor has few others to learn from
than the main contractor. Thus, the learning
opportunities are minor when it comes to
transferring knowledge.
Capacity: The electrical subcontractor has
devoted most of its production capacity to
the main contractor. Often the main

51

contractor
takes
100%
of
the
subcontractors
total
capacity,
and
sometimes the subcontractor also hires
extra manpower to make sure they can fulfil
a contract with the main contractor on time.
Thus, in this situation the main contractor is
highly
prioritised
by
the
electrical
subcontractor, and thereby the production
capacity is reliable.
Handling costs: The main contractor
experiences some relationship handling
costs since it has to develop and maintain
the relationship with several electrical
subcontractors. Even though the number of
different electrical subcontractors is smaller
than for plumbing subcontractors, the main
contractor still has to divide its attention
between
a
few
different
electrical
subcontractors. Thus, the main contractor
will experience that the relationship handling
costs will be high.
Quadrant III Dual providing
Empirical illustration
When the New supply network
initiative started in 2005 the main contractor
changed its strategy and decided to
gradually develop the three subcontractors
into the most important supplier for each of
the three technical areas, but as we have
discussed above this has not yet happened
for the plumbing and electrical areas.
However, the ventilation subcontractor
gradually has become the main contractors
most important supplier of ventilation
services. If we look at the development
related to the ventilation subcontractor, the
relationship started in 2000, as a result of a
merger. In the period from 2000 to 2005 the
main contractor has used the subcontractor
more and more frequently, and the two firms
have developed a closer relationship.
The ventilation subcontractor on the
other hand is heavily involved with several
other
important
customers
in
the
construction industry as well as in other
industries, and the ventilation subcontractor
is the preferred supplier for one of these
other customers. Most of these other

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Volume 2, number 2

customers are competitors of the main

contractor within the construction industry.
One of these customers is the same as the
firm mentioned above (for the plumbing
subcontractor) which has a collaborative
strategy towards suppliers, and is known for
working with a new collaborative method on
a very large and prestigious project. The
other two customers within the construction
industry are large national and international
main contractors.
Analysis
In the following section we shall look
at the advantages and disadvantages for
the main contractor with regard to the three
main issues introduced above:
Learning: The main contractor can learn
from the ventilation subcontractor with
regard to ways of working together. Since
the ventilation subcontractor has been
heavily involved in a large project with
another main contractor who has developed
collaborative strategies with its suppliers, it
is possible for the subcontractor to transfer
some of these routines to the New supply
network
initiative.
The
ventilation
subcontractor also has a few smaller main
contractors who it has developed beneficial
working routines with. Thus, in this situation
the main contractor can use the learning
opportunities.
Capacity: The main contractor is one of
several customers which the ventilation
subcontractor has to divide its production
capacity among. This implies that the
subcontractor often is occupied with other
large (and small) projects and do not have
sufficient production capacity for the main
contractor. This sometimes creates tensions
in the relationship as the main contractor
experiences some delays from the
ventilation subcontractor. Thus, in this
situation the main contractor does not have
top
priority
from
the
ventilation
subcontractor, and thereby the production
capacity is not that reliable.
Handling costs: The main contractor will

52

experience lower relationship handling costs

compared to the relationship with the
plumbing and the electrical subcontractors,
since it has to develop and maintain the
relationship with primarily one ventilation
subcontractor. Thus, in this situation the
main contractor will work in a highinvolvement relationship with the ventilation
subcontractor and thereby the relationships
handling costs will fall.
Quadrant IV - Single sourcing and
providing
Empirical illustration
Even though the main contractor has
worked with all three subcontractors, which
are part of the New supply network initiative,
over a long period of time (approx. 7-15
years), none of the relationships have
developed into single relationships.
Using the proposed model the
analysis can by summed up in the
illustration in Figure 2.
4. Discussion
In this article, we have suggested a
model (inspired by a portfolio approach) for
analysing and categorising a main
contractors relationships to three suppliers
who are part of a supply network initiative
introduced by a main contractor. By using
this model, the three suppliers were placed
in different categories/quadrants. We also
identified
different
advantages
and
challenges related to the three different
categories and, hence, to the three different
suppliers.
From a portfolio perspective, it can
seem beneficial to have suppliers in
different categories since this enables the
main contractor to achieve all types of
benefits
(but
also
all
types
of
disadvantages) of the different types of
relationships. For example, it may be
beneficial to have some relationships in
which one primarily learns from the supplier
due to it having multiple relationships to
related customers, and some relationships
in which one primarily teaches the supplier.

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Buying firm most

important customer

Suppliers
context
Buying firm one of
several important
customers

Volume 2, number 2

II Dual sourcing
Electrical subcon
Learning: Capacity: +
Handling costs: -

53

IV Single sourcing and

providing

Han
I Dual sourcing and
providing
Plumbing subcon
Learning: +
Capacity: Handling costs: -

III Dual providing

Ventilation subcon
Learning: +
Capacity: Handling costs: +

Han

Buying firms context

Supplier one of
several important
suppliers

Supplier most
important supplier

Figure 2
Analysing the case using the proposed model
If we follow the logic of many
portfolio models, e.g. the one suggested by
Kraljic (1983), the managerial consequence
would be to have differentiated approaches
to the differently-categorised suppliers. In
our case, the main contractor initiates a
supply network initiative in which the three
suppliers are treated in the same manner,
i.e.
a
non-differentiated
approach.
Furthermore, not only are the suppliers
each treated in a similar manner (applying a
similar approach to different supplier
relationships), they are also directly grouped
together by the main contractor (similar
approach to a network of suppliers). An
interesting issue then becomes to what
extent such an approach offers advantages,
or creates problems, for the main
contractors supply network. We suggest
that different managerial challenges may
arise in such a network.
One such managerial challenge
relates to managing (with) differences
among suppliers in the network initiative,
thus preserving the heterogeneity among
them. Firstly, if some suppliers always take
more of a teaching role towards the main

contractor, whereas other suppliers never

do so, this may create problems and tension
among the suppliers. It may require the
main contractor to point out that the
suppliers are equally important regardless
of their different learning-related roles and
inputs; alternatively that the main contractor
explicitly assigns different roles to suppliers
belonging to different categories. For
example, a supplier with a learning-role may
first be asked to adopt a new routine
developed by the main contractor, and if
benefits can be shown to result from this
test, suppliers with a teaching-role may
subsequently be asked to adopt the
routines. Secondly, if there are never
capacity problems related to some suppliers
but frequent capacity problems related to
other suppliers, this may create problems
among the suppliers in case of sequential or
reciprocal interdependencies among their
activities. It may also create problems for
the main contractor who needs to find ways
of handling such differences, possibly
developing penalties which are accepted
among the supply network members, or
developing a system of differentiated

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Volume 2, number 2

penalties implying that it is accepted that

some suppliers are allowed to cause delays
while others are not. We may also note that
differences may not only create negative
effects but also positive ones, for example
when one supplier is able to teach another
supplier without much intervention and effort
from the main contractor. We may also
observe that managing with differences
may require the main contractor to make
separate, supplementary efforts towards
some suppliers in addition to the similar
efforts within the supply network initiative.
Another managerial challenge may
be related to eliminating differences among
suppliers in the network initiative, thus
creating some homogeneity among them.
Whereas the suppliers may be placed in
different categories at the outset of a
network initiative, one purpose of such an
initiative may be to make the suppliers
become more similar, over time cancellingout the differences among the suppliers in
the different categories. For example, the
main contractor may view the initiative partly
as a supplier development initiative aimed
at upgrading and aligning the capabilities of
the suppliers in certain dimensions, or
requiring of the suppliers that they make
changes in or of their other relationships.
Furthermore, by encouraging the suppliers
to work together as a team over a large
number of projects, the main contractor may
rely on the suppliers becoming more alike
through socialization and by making other
types of adaptations among them. However,
similarly to the arguments above, we may
also note that eliminating differences among
suppliers in a network initiative may not only
create positive effects but also negative
ones, for example if group-think, fixed
routines, and reduced creativity occur. This,
in turn, may lead to a third managerial
challenge, i.e. generating differences
among suppliers in a network initiative, thus
creating some heterogeneity. We may also
observe that eliminating (as well as
creating) differences may require the main
contractor to make separate, supplementary
efforts towards some suppliers in addition to
the common efforts within the network

54

initiative.
While the three types of challenges

managing
differences,
eliminating
differences, and creating differences are
theoretically distinct, they may coexist
empirically, in the sense that a main
contractor may focus on managing with
differences in some dimensions while, at the
same time, eliminating differences in other
dimensions, and creating differences in yet
other dimensions. Furthermore, while
eliminating or creating differences requires
the passing of time, and hence touches
upon the handling of dynamics in a network
initiative, managing (with) differences can
be an approach both for the short-term as
well as for the long-term. In addition, we
may also mention a fourth approach
ignoring differences which may be quite
widespread approach, since it is impossible
and possibly unproductive to deal with all
types of differences, even if one might be
aware of them.
5. Conclusions and implications
In general, portfolio models are tools
for simplifying analyses of complex
processes and/or situations. By using 2x2
matrices, we can focus the analysis on a
limited number of factors which may be
important in the four different situations. In
addition, 2x2 matrices serve as a way of
presenting strategies for how to act. In this
article we have proposed a model for
analysing supplier relationships when
developing a supply network, showing how
a buying firm may consider the suppliers
perspective and the suppliers context. The
first dimension of the model separates
between situations where the supplier is the
most important supplier for the specific
product or service for the buying firm, and
situations where the buying firm has several
important suppliers for the same product or
service. The second dimension of the model
separates between situations where the
buying firm is the most important customer
of the supplier, and situations where the
supplier has several (equally) important
customers (of which the buying firm is one).

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Volume 2, number 2

We use the model to analyse three issues;

learning, capacity and handling costs, as
outlined earlier. All three issues help to
emphasis differences in the situations
described in the model, and together they
create a set of unique opportunities and
drawbacks linked to each quadrant in the
model. We do not, however, claim that
these three issues are the only relevant
ones which could have been analysed. For
example, R&D costs and economies of
scale and scope could be other relevant
issues which can be analysed using the
same type of models.
By offering an illustration of the
different quadrants of the proposed model,
we have demonstrated in the analysis
section that the chosen issues have an
impact on the dimensions presented in the
model. The proposed model represents a
simplification of the real situation of the case
firms. Thus, we claim that a buying firm may
benefit from analysing the supplier
relationships with regards to the dimensions
outlined in the model, for example before a
new supply network initiative is introduced.
The model can help the buying firm by
giving an overview of the status quo before
starting a new initiative, and thus help
understanding how the buying firm can
emphasise different aspects in order to
succeed with the network initiative. We are
aware that there might be an information
problem for a buying firm in relation to
finding out its suppliers degree of
involvement with other main customers.
Handling this requires a close relationship
with the suppliers in question, and it can be
resource-intensive to acquire this type of
information. However, the case study shows
that it is possible for a buying firm to gain
insight into the important customers of its
main suppliers. Such knowledge may be
vital to a firm which would like to develop
and manage a supply network.
There are two areas which we have
not focused on in the article, but which we
would like to suggest for further research.
The first suggestion is to use the proposed
model (and other portfolio models) to
analyse and monitor changes over time in a

55

supply network. By analysing the situation

at different points in time, the buying firm
may look at changes in the structure which
can be met by a shift in the way in which the
buying firm attempts to develop the
relationships. If, for example, a supplier has
moved from quadrant I to quadrant III over a
period of two years, it may be necessary to
rethink and adjust how this relationship is
managed. The portfolio model can thus be
used to alert the buying firm to changes,
and enable the buying firm to suggest new
strategies to dealing with the changes.
The second suggestion is to develop
the model into also covering the suppliers
situation and their view on their customers
supply network initiatives. As mentioned
above, portfolio models can serve both as
analytic tools and as presentation tools, and
using the model as a basis for discussion
between the buying firm and the suppliers
will be an example of using the model as a
presentation tool. This would also facilitate a
possibility to discuss the suppliers view of
their possibilities for learning, for handling
capacity issues, and for influencing handling
costs.
From a portfolio perspective it is
considered beneficial (and easy) to use
different
managerial
approaches
for
suppliers belonging to different categories.
However, in a network initiative which
involves suppliers from different categories,
it may be problematic to use differentiated
approaches. This implies that differences
among suppliers may need to be eliminated
or managed in other ways. Consequently,
we may conclude that the managerial
challenges which arise from taking a
portfolio perspective on a set of separate
supplier relationships can differ significantly
from the managerial challenges which arise
when considering the same supplier
relationships as part of one network
initiative.
References
Andersen, P. H., & Christensen, P. R.
(2005). Bridges over troubled water:
suppliers as connective nodes in

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