Bologna, 28 Aprile 2010

Buyer-supplier relationship as a lever to increase competitiveness and

sustainability. Empirical findings from the construction

industryPaolo Barbieri, Mariolina Longo, Matteo Mura

Department of Management

University of Bologna

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Construction industry represents a particularly rewarding terrain for the analysis of CSR issues

A general lack of awareness about the environmental impact produced. The existence of best practices in terms of eco-compatibility of the

production processes and products. High rate of work-related injuries. Frequent use of sub-contractors and other modes of outsourcing. Long and fragmented supply chains that are difficult to control and

monitor in terms of quality of work and effectiveness in the management of sub-contract relationships.

(Eurostat, 2004)

Introduction

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Introduction

Construction industry is frequently perceived as generally inefficient

(Cox and Thompson, 1997; Kadefors, 2004) cost overruns high defectiveness (and perceived low quality of tasks’ execution) frequent project delays poor productivity low innovativeness

(Dainty et al., 2001; Khalfan et al., 2006)

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Inter-firm relational instability due to:

adversarial culture(Cox and Thompson, 1997)

scarce collaboration (Kadefors, 2004)

reciprocal perception of opportunistic conducts (Egan, 1997)

frequent disputes and high level of competitive behaviour (Kamann et al., 2006)

dominant blame-culture (Khalfan et al., 2007)

low level of trust (Korczynski, 1996)

in sum, low satisfaction of the trading parties

Introduction

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Governance mechanisms of the inter-firm relationships based on transactional / short-term arrangements

These elements reduce the global efficiency of the supply chain and may inhibit company competitiveness

(Dainty et al. 2001; Cox, Thompson, 1997)

The management of the buyer-supplier relationship represents a critical aspect for construction companies in terms of reduced company competitiveness

CSR/ethical practices: The lever to reinforce the contractor-subcontractor relationship

(Barnett, 2007; Carter, 2000; Kadefors, 2004; Orlitzky et al., 2003)

Introduction

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Research gap Identification of indicators that capture CSR issues that are specific for

construction companies (e.g. GRI, 2008; BITC, 2007). These indicators mainly focus on traditional CSR areas of interest

(e.g.health and safety, equal opportunity, eco-compatibility of products and processes), and only marginally consider the buyer-supplier relationship.

Aims1. To identify CSR/ethical practices that address the buyer-supplier

relationship and that are perceived to be relevant by managers of construction companies;

2. To explore the adoption of such practices by EU construction companies;3. To investigate the link between the adoption of such CSR practices and

the strengthening of the buyer-supplier relationship.

Research Gap and Aims

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Step 1Systematic review

of the literature

Methodology

Step 2Multiple dyadic

case study

Step 3Survey on EU

construction firms

COMPLETED

COMPLETED

ON GOING

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STEP 1: Systematic review of the literature

• Construction industry (15 papers revised)• CSR practices in the buyer supplier relationship (12 papers revised)• CSR and company performance (30 papers revised)• Total of 57 papers revised

Methodology

Identification of a pool of 20 unethical/questionable practices (UP) pursued by the buyer in the relationship with its suppliers

Classified in three phases of the contractor-subcontractor relationships: (Hinze and Tracey,

1994)

1. Bidding and entering sub-contract agreement2. Work execution and sub-contract administration3. Penalty management and project close-out

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STEP 2: Multiple dyadic case study

• Dyadic study of governance relationships between three Italian general contractors and two suppliers for each organization involved

• Theoretical sampling: cooperative vs non-cooperative firms

• Development of a semi-structured questionnaire.

• Face to face interviews with two top managers for each general contractor and with two suppliers for each general contractor.

Methodology

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Methodology

STEP 3: Survey on EU construction firms

1. Development of a structured questionnaire2. Development of a database of European construction companies that

represent the population of the survey: 1091 companies selectedSelection criteria:a) be a construction company (NACE code 41, 42, 43); b) have a turnover of more than 150 M€; c) operating in the EU 15 countries + Hungary;d) Company selection: Amadeus database.

3. Survey on companies (dyadic approach)4. Analysis of the data collected by using multivariate statistical techniques

(e.g. exploratory factor analyses, OLS regression models, structural equations modelling).

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STEP 1: Systematic review of the literature

Phase 1: Bidding and entering subcontract agreements

Preliminary findings

1. Writing specifications that favour a particular supplier2. Invent a second source of supply to gain competitive advantage3. Over-estimating the demand to gain advantages4. …

Phase 2: Work execution and subcontract administration1. Exaggerating the seriousness of a problem to gain concessions2. Making disparaging remarks about sub-contractors, their products, their

performance3. …

Phase 3: Penalty management and project closeout1. Use penalty deduction systematically, as it was a profit centre.2. Charge the supplier for delay in task execution, even though the

delay could have been originated by someone else.3. …

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Case studies: company interviews

Multiple Case Study

G.C. AS.A-1: Electrical and Mechanical plants

S.A-2: Painting, Flooring, and similar

G.C. BS.B-1: Prefabricated pillars and beams

S.B-2: Electrical and Mechanical plants

G.C. CS.C-1: Formed steel for reinforced concrete

S.C-2: Applied geotechnics

(Interviews: 2)

(Interviews: 2)

(Interviews: 2)

(Interviews: 2)

(Interviews: 1)

(Interviews: 1)

(Interviews: 1)

(Interviews: 1)

(Interviews: 1)

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Drivers of supplier’s strategic importance

• Economic impact on buyer’s business (Magnitude of buyer’s annual expense)

• Supply technical content and impact on safety

• Impact on final customer’s satisfaction

Multiple Case Study (II)

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Findings (I)

Phase Practices Frequency Ethical contentBidding/

Supplier SelectionInvent a second

source of supply to gain advantage / Solicit quotations

from suppliers with little chances

High Low to Moderate

Over-estimating the demand

High Low

Reveal confidential information on

quotations

Moderate Moderate

Writing specifications that

favor certain suppliers

Occasional Relatively High

Barbieri P., Longo M. and Mura M.

Phase Practices Frequency Ethical content

Work Execution

Exaggerating the seriousness of

problems to gain concessions

High Moderate

Making disparaging remarks about supplier

Low Relatively High

Subcontract Administration

Penalty management highly case-specific

Potentially High

Findings(II)

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Findings(III): Analysis of dyads

• Occurrence and seriousness of questionable practices: LOW

Dyad 1

Strategic value: HighUncertainty: HighSupplier performance: Very HighSupplier satisfaction: Very HighBuyer Satisfaction: Very High

Dyad 2

Strategic value: Relatively HighUncertainty: LowSupplier performance: Relatively HighSupplier satisfaction: HighBuyer Satisfaction: Relatively High

•Collaboration•Cordial agreement on unexpected contingencies•Compensations

•Predictability Contract •Limitations to (potential) unethical conducts

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Findings(IV): Analysis of dyads

• Occurrence and seriousness of questionable practices: LOW

Dyad 3

Strategic value: LowUncertainty: Relatively lowSupplier performance: Relatively LowSupplier satisfaction: ModerateBuyer Satisfaction: Relatively Low

•High pressure on price•Difficulties in achieving commitment

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Findings(V): Analysis of dyads

• Occurrence and seriousness of questionable practices: RELATIVELY HIGHER

Dyad 4•Uncertainty: Low•Supplier bargaining power: Relatively High

•Contract clauses for supplier protection•Cost of negotiation•Performance is moderately high, but rigid•Buyer’s satisfaction: moderate

Dyad 5•Uncertainty: Relatively High•Criticality in bidding phase

•Supplier risk esposure•Supplier performance: High•Buyer satisfaction: High•Importance of proper attitude in work execution

Dyad 6

•Uncertainty: High•Several criticalities

•Average supplier perfomance, but frequent disputes•Buyer satisfaction: moderate•Supplier satisfaction: Relatively low

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Main Findings

• Low occurrence/seriousness of questionable practices for strategic suppliers are associated to high performance, and relatively higher reciprocal satisfaction – particularly under higher uncertainty

• Low occurrence/seriousness of questionable practices for non-strategic suppliers help relationship maintenance

•Higher occurrence/seriousness of questionable practices lead to context-specific impacts on supplier performance, however: - Degree of conflictuality tends to increase in the dyad; - Suppliers can require protective contract clauses that increase negotatiation costs and rigidness of the relationship; - Degree of mutual satisfaction is generally lower

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The proposed model

Model

Supplier’s Performance

1. Flexibility2. Quality3. Reliability 4. Economic performance.

TrustCommitment

Buyer’s CSR

Practices

( + )

( – )

( + )

( + )

Dominance of price as variable of

supplier selection

Supplier satisfaction

Buyer satisfaction

( – )

( + )Supplier’s strategic

value

( + )

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Survey on BUYERS

Identification of relevant CSR practices adopted by EU construction companies

Development of CSR indicators in the area of: Buyer-supplier relationship Environment Health & Safety Human Rights

Screening of CSR attitude of construction companies at the EU level

Expected Results (I)

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Survey on BUYERS and on SUPPLIERS (Dyadic approach)

• Quantitative analyses of the effect that the adoption of CSR practices has on:1. Supplier performance2. Strengthening of the buyer-supplier relationship (governance

mechanisms, trust, collaboration …)3. Buyer performance

• Analysis of the role played by specific contextual factors like: supplier’s strategic relevance; management of disputes; project modifications; pressure on price/bargaining power

Expected Results (II)