Matthias Wandfluh
email: mwandfluh@ethz.ch

Christian Schneider
email: cschneider@ethz.ch

Paul Schönsleben
email: pschoensleben@ethz.ch

Chinese SMEs' Sourcing Practices and their Impact on Western Suppliers

Keywords: Supply Chain Management, China, SME, Change of Supply Base

Whereas many countries are still suffering from the aftermath of the financial crisis, China's continuous economic growth offers an opportunity for Western companies to reach their growth targets. More and more, Western companies are starting to see Chinese companies not only as sourcing partners but also as potential customers (B2B). While internationally operating Chinese companies are used to purchasing goods from Western companies, for Chinese SMEs this process constitutes a huge challenge. By addressing buyer-supplier relationships from the point of view of Chinese SMEs as buyers, this paper approaches an often neglected topic. Based on an interview series conducted with representatives from Chinese companies, this paper discusses the sourcing behavior of Chinese SMEs and the change of supply base over time. The paper offers valuable insights for Western suppliers and Chinese buyers on how to build and improve their relationship and on how to strengthen their competitive position.

Introduction

The Chinese market is gaining enormous attention from internationally operating Western companies. Increasing cost pressure due to growing global competition encouraged Western companies to push sourcing components in low wage countries like China. However, industrial Western companies are starting to see Chinese companies not only as sourcing partners but also as potential customers (B2B). The evolving market potential in China is an opportunity for Western companies to compensate the often unsatisfactory growth of Western markets.

While most studies focus on raising export figures of China (see e.g. [START_REF] Wang | The internationalization process of Chinese SMEs: does globalizing wholesale markets play a role?[END_REF]), also import figures increased during the last years. Looking at specific commodities, the enormous potential of the Chinese market emerges (see figure 1). For mechanical and electrical products for example, the export volume increased by 15.8 percent annually between 2006 and 2011 whereas the import volume reached an annual increase of 12.9 percent. In the commodity of high and new technology products, the annual growth of import volume was 14.2 percent and thus even exceeded the annual growth of the export volume (14.0 percent).

Fig. 1. Import figures of Chinese companies by commodity 1

As these figures show, Chinese companies do not only export goods to Western countries, more and more especially in the area of high-tech products they also purchase goods from Western suppliers. This trend is not only caused by large international companies in China, also Chinese SMEs, representing more than 99% of the Chinese companies [START_REF] Singh | The competitiveness of SMEs in a globalized economy: Observations from China and India[END_REF], are increasing their import activities. Although official figures are sketchy and the definition of a SME in China is quite complex and depend on the industrial sector [START_REF] Cunningham | SMEs as motor of growth: A review of China's SMEs development in thirty years (1978-2008)[END_REF], Liu argues that up to 70 percent of all import and export activities are performed by SMEs [START_REF] Liu | Chinese SMEs: Successful Factors, Constraints and Future Prospects[END_REF]. Due to various problems as difficulties to access credits or limited technological and managerial capabilities [START_REF] Cunningham | SMEs as motor of growth: A review of China's SMEs development in thirty years (1978-2008)[END_REF], in comparison with larger companies they have other needs which in literature so far are often neglected. Apart from the fact that most studies mainly focus on large international companies, many studies have just analyzed the supply chains characterized by Western buyers and Asian suppliers (see e.g. [START_REF] Ruamsook | Sourcing from low-cost countries: Identifying sourcing issues and prioritizing impacts on logistics performance[END_REF][START_REF] Hall | When the dragon awakes: Internationalisation of SMEs in China and implications for Europe[END_REF][START_REF] Carter | How procurement managers view low cost countries and geographies: a perceptual mapping approach[END_REF]) or discussed entry strategies for Western companies going to China (see e.g. [START_REF] Meyer | Institutions, resources, and entry strategies in emerging economies[END_REF][START_REF] Johnson | Drivers of success for market entry into China and India[END_REF]). This exploratory study follows another approach and highlights the requirements and procedures of buyers of Chinese SMEs when purchasing from Western suppliers. For that purpose, this paper analyzes the sourcing processes of Chinese SMEs and characterizes the process of supplier substitution from Western to local suppliers.

Background and Research Questions

The sourcing process of a company strongly depends on its organizational setup. While in large, global companies the purchasing department may have different shapes, SMEs mostly have a central purchasing department and the responsibility lies in the hands of very few persons having limited knowledge, limited capacity and limited access to technology (see e.g. [START_REF] Singh | The competitiveness of SMEs in a globalized economy: Observations from China and India[END_REF][START_REF] Gunasekaran | Implications of organization and human behaviour on the implementation of CIM in SMEs: an empirical analysis[END_REF][START_REF] Vos | Developing strategic self-descriptions of SMEs[END_REF]). While previous studies focused on differences between different types of local suppliers [START_REF] Millington | Supplier performance and selection in China[END_REF] or on Chinese subsidiaries of Western companies as buyers [START_REF] Schneider | Enabling Manufacturing Competitiveness and Economic Sustainability[END_REF], there is to our best knowledge no information available on how sourcing processes in Chinese SMEs differ according to the location of their suppliers. Our first research question is therefore the following:

 R1: Do Chinese SMEs apply different sourcing processes when sourcing from local suppliers as compared to Western suppliers?

As important as the sourcing process is the composition of the supply base. The occurring performance improvement of local supplier especially regarding quality might result in a change of the supply base towards more local suppliers. Although this trend is well known in practice, in research there is hardly evidence on what are the drivers for this change. Especially how this trend appears in Chinese SMEs is not known. Therefore, our second research question is the following:

Methodology

The results of this paper are based on six exploratory case studies conducted with Chinese companies headquartered in the Shanghai area (see table 1). Ensuring the comparability of the observed cases, they all belong to the industry of mechanical and plant engineering. All companies purchase a wide range of products: from very simple ones to high-tech products. The chosen method of data collection are semistructured interviews. The interviews were carried out in summer 2011 with highranked executives of the respective company (CEOs or chiefs of purchasing/engineering). The case studies consist of two parts. The first part deals with the characteristics of Chinese SMEs as buyer, their specific requirements concerning procurement and their purchasing processes. The second part focuses on the selection of the supply base and the factors inducing change over time.

Results

In this section, the results of the case study research regarding the differences in sourcing processes for Western and local suppliers and the change of the supply base over time are presented. Furthermore, the impact for both, Western suppliers and Chinese SMEs as customers, is derived.

Chinese SME's Sourcing Processes

Compared to large, international companies, purchasers of Chinese SMEs have different needs. In addition to the restricted capacity (see table 1), limited know how and insufficient technology access, many interviewees argued that the main differences lie in high flexibility requirements. These constraints and requirements face different characteristics of Western and local suppliers affecting the sourcing processes on strategic as well as on operative level and leading to a separate sourcing process for Western and local suppliers. The most significant differences identified during our research are described in the following.

Strategic Sourcing

Before supplier negotiations start, the buyer has to identify possible suppliers. For Chinese SMEs it is hard to find new Western suppliers. Problems often mentioned are language barriers, long distances to possible suppliers and difficulties in identifying skills of possible suppliers. When searching for Western suppliers, Chinese SMEs mainly focus on internet searches, visited exhibitions and recommendations of peers.

The process is very similar to searching local suppliers. Once a possible supplier is identified, usually a supplier qualification takes place. Whereas Chinese suppliers are audited very properly, Western suppliers often are not visited at all. The most frequent argument for this circumstance is the high (travelling) costs associated with visiting Western supplier for qualification. If at all, Western suppliers are visited in the context of attending an exhibition or another event taking place in the same area. This is also valid for regular supplier audits, while local suppliers are visited regularly in a given period, Western suppliers in general are not audited at all as the buyer has more trust in the good quality. However, if the required quality is not reached, Chinese buyers do not hesitate to change the supplier. Compared with local suppliers, communication with Western suppliers proves more challenging. While several Western suppliers have local sales offices or even local production facilities, others can only be contacted by a third-party agency or through headquarter. This may cause long communication paths and thus little flexibility. Furthermore, this may result in difficulties because of different languages and cultures. Local offices simplify the communication; flexibility however hardly improves because most of the sales offices are guided by headquarters. The differences in communication are also reflected in the personal relationships to the suppliers, which are often closer and less formal to local suppliers as compared to Western suppliers. However, most of the interviewed companies argue that this strongly depends on the organizational setup of their supplier. For suppliers running a local office with local sales persons, the language and cultural barriers dissolve, leading to comparable types of communication and relationships. Especially for complex products needing additional consulting, the interviewed Chinese SMEs often see local support as a necessity in order to select right components and install them professionally. Close collaborations with local suppliers may also manifest in R&D collaborations. In contrary to most Western suppliers, local suppliers sometimes do not have their own R&D department. Depending on the complexity of the components and the available know how of the supplier, deeper R&D collaboration might be essential to enable the supplier to produce the product at the needed quality. On one hand this is seen as an additional burden compared to Western suppliers, however, it ensures the flexibility of local suppliers and the realization of product requirements.

Operative Sourcing

Looking at the operative level of sourcing, since most goods are delivered by sea freight the transportation lead time for Western suppliers is significantly higher than for local suppliers. More astonishing, the interviewees argued that also the production lead time of local suppliers is lower. The reason for this is seen in the higher flexibility of the local suppliers and the higher relevance of the Chinese SME as customer for these suppliers. Whereas Chinese SMEs usually deal with large international Western companies supplying many companies in various countries, local suppliers in the corresponding fields are in general smaller and thus buyers have more weight. Regarding supplier integration, the degree of integration for Western suppliers is significantly lower. From an ERP software point of view, the analyzed SMEs don't integrate the suppliers at all, also within their own company they use rather simple software tools. However, looking at other types of integration as for example sharing of production plans, forecasts and demand figures or customization of packaging, the local suppliers are better integrated into business processes and regular meetings with local suppliers strengthen this integration.

Differences are also seen in the process of problem solving. The interviewed persons indicated that problem solving with local suppliers is less formal and faster than with Western suppliers. This is only partly due to the fact that the distance between supplier and buyer is much longer. The basic attitude of the interviewees was that Western suppliers spent more time on clarifying the responsibilities than solving the problem. Although this statement is to be treated with caution, it says that local suppliers are in general faster in reacting to problems and tend to accept responsibility easier. However, once the problem is approached, they mentioned Western suppliers come up with more sustainable solutions.

Change of Supply Base

The analysis of the way Chinese SMEs evaluate the supplier performance has shown that, while Western suppliers perform better in the target area quality, local suppliers outperform in the areas delivery, flexibility and costs. If Western suppliers therefore are not able to improve in other target areas, the improving quality performance of local suppliers may result in change of the supply base over time. This trend was con-firmed by the interviewed Chinese SMEs. The factors influencing the change of supply base are discussed in the following. The study shows while for example at a new product launch the share of Western components comparatively high, it significantly decreases during the following years, Western supplier's components are more and more replaced by local substitutes (see figure 2a). The shape of the supply base curve depends on three impact factors: speed of adaptation ( ), initial share of Western Supplier's components ( ) and minimum share ( ). In order to sell more components, Western suppliers thus have the possibility to delay the speed of adaptation (

) or to increase the initial ( ) respectively the minimum share ( ) (see figures 2b, 2c, 2d).

Fig. 2. Adaptions of the change of supply base over time

The speed of adaptation depends on various factors. On one hand, the availability of local substitutes having the corresponding certifications respectively the time needed to deliver the components at similar quality are the main boundaries for a fast adaptation. Having a good relationship and collaboration with the Western supplier may decrease the pressure for a fast change. The initial share provided by Western suppliers strongly depends on product requirements and the availability of local substitutes. However, having already delivered components for previous products, Western suppliers initially are often preferred to local suppliers because of simpler product launches. Particularly for complex components needing additional consulting Western suppliers are favored. Quite often Western suppliers, although they are replaced for the initial product, receive again a delivery contract at new product launches. The availability of local suppliers and the competitiveness of Western suppliers (especially regarding price) compared to local suppliers influence the minimum share of Western supplier's components to a great extent. However, especially for high tech products, it is often the end customer defining specific core components and the corresponding manufacturer. While for many components Chinese SMEs can choose freely which supplier to select, the core components are bound to a (Western) supplier. For these core components Chinese SMEs as buyers and their customers are often willing to accept additional purchasing costs.

Western suppliers may pursue different strategies to fit the requirements of Chinese SMEs and to avoid being replaced by local suppliers. The most mentioned factor ensuring long term relationships was the availability of local contact persons speaking the same language. This also simplifies the purchasing processes as described in section 4.1 and facilitates communication to a great extent. In some cases change of supply base may not necessarily lead to reduced quantities delivered by Western suppliers. Although many components of Western suppliers are partly replaced over time, some interviewees argued that the overall growth in sales is higher than the replacement rate. For Western suppliers, this can result in increasing sales rate while the percentage share of components delivered decreases.

Conclusion

While many previous studies focused on how to source from China, this exploratory study analyzes the needs and the purchasing processes of Chinese SMEs as buyers and the resulting requirements for Western companies. By addressing buyer-supplier relationships from Chinese buyers' point of view, this paper approaches a so far often neglected topic and contributes to research as well as practice. The case studies show that purchasing processes for Western and local suppliers differ strongly. While the collaboration with local suppliers is closer and less formal, long distances as well as language and cultural barriers burden the relationship to Western suppliers. Whenever possible, Chinese SMEs prefer working with local contact persons. Especially when they purchase high tech components from Western suppliers, there might be a great need for additional consulting and support in selection and installation of components and product development.

Due to increasing cost pressure, Chinese SMEs are forced to decrease the purchasing costs. Particularly if Western suppliers are not competitive regarding price and if local substitutes are available, it is only a matter of time until the Western suppliers are replaced. In this study we characterized this trend and identified various factors influencing adaptation time, initial and minimal share of components provided by Western suppliers. Frequently mentioned factors were availability of local suppliers, product or customer requirements, consulting by supplier and relationship to suppliers. While some of these factors cannot be affected by the suppliers, others strongly depend on the supplier's adaptability.

The findings offer valuable insights for Western companies trying to attract Chinese customers and competing against Chinese suppliers. Focusing on Chinese SMEs, the paper discusses an increasingly important topic. The practical implications can be used by both parties as a reference on how to build and improve their relationship and on how to strengthen their competitive position. The findings should be used as a basis for further, more generalizable research extending the results to other (Asian) countries and to other industries.



  R2: How does the supply base of Chinese SMEs change over time and what are the drivers for this change?

Table 1 .

 1 Case study sample

	No. Years operating Turnover 2010 Employees (thereof in Sourcing)
	1	8	5 Mio. USD	22 (2)
	2	14	5 Mio. USD	40 (3)
	3	28	25 Mio. USD	50 (3)
	4	13	22 Mio. USD	260 (10)
	5	8	11 Mio. USD	80 (4)
	6	11	10 Mio. USD	40 (10 2 )

Data from "BRICS Joint Statistical Publications

2012"

Number of employees in management, including sourcing


Fang Yu
email: yufang@kaede.cs.kobe-u.ac.jp

Toshiya Kaihara
email: kaihara@kobe-u.ac.jp

Nobutada Fujii
email: nfujii@phoenix.kobe-u.ac.jp

Game theory based multi-attribute negotiation between MA and MSAs

Keywords: Multi-agent, supply chain, negotiation, game theory

This paper focuses on the multi-attribute negotiation between Manufacture Agent (MA) and Material Supplier Agent (MSA) of supply chain network (SCN). A modified two-stage negotiation protocol is proposed based on the two-stage negotiation protocol proposed in the previous work. The negotiation between MA and MSAs, where the quantity of the order of MA depends on the demand of Consumer Agent (CA), are discussed to decide the final supplier and the final strategies. The strategies of the negotiation are the wholesale price of the product, the quantity of the order, and the lead time. The final solution is solved by finding the Stackelberg equilibrium of MA-Stackelberg game. Numerical case is provided to illustrate the proposed protocol.

Introduction

A Supply Chain (SC) can be defined as a system consists of suppliers, manufacturers, distributors, retailers, and customers, where materials flow downstream from suppliers to customers and information flows in both directions [START_REF] Ganeshan | A taxonomic review of supply chain management research, a chapter of Quantitative models for supply chain management[END_REF]. Game theory is a powerful tool for analyzing situations in which the decisions of multiple agents affect each agent's payoff [START_REF] Cachon | Game theory in supply chain analysis, an invited chapter for the book "Supply Chain Analysis in the eBusiness Era[END_REF]. It has become a primary methodology used in supply chain network (SCN) related problems.

Related to the topic, a lot of researches have been done. Hall et al. [START_REF] Hall | Capacity allocation and scheduling in supply chains[END_REF] modeled the manufacturer's capacity allocation problem of the SC with a manufacturer and several distributors. [START_REF] Martinez-De-Albeniz | Competing for shelf space[END_REF] considered a profit-maximizing retailer using Stackelberg game and Nash equilibrium. A game theoretic model of a three-stage supply chain consisting of one retailer, one manufacturer and one subcontractor was developed to study ordering, wholesale pricing and lead-time decisions in [START_REF] Xiao | Ordering, wholesale pricing and lead-time decisions in a three-stage supply chain under demand uncertainty[END_REF]. Sinha et al. [START_REF] Sinha | Coordination and price competition in a duopoly common retailer supply chain[END_REF] analyzed the coordination and competition issues in a two-stage SC distribution system where two vendors compete to sell differentiated products through a common retailer in the same market. Xia [START_REF] Xia | Competitive strategies and market segmentation for suppliers with substitutable products[END_REF] studied the market competition and pricing strategies for suppliers in a SC with two competitive suppliers and multiple buyers. In the previous research, the single attribute negotiation between one Manufacture Agent (MA) and multiple Material Supplier Agents (MSA) has been discussed [START_REF] Yu | A Multi-agent based negotiation for SCN using game theory[END_REF]. It was assumed that the quantity of the order of MA was fixed. However, in the real market, the quantity of MA is not fixed and it related to the demand of Consumer Agent (CA). Thus, this research extends to the multi-attribute negotiation between one MA and multi-MSA, where the demand is based on the selling price of MA. In particular we focus on the situation of MA monopolies or oligopolies, as it is often the case in the trading business.

This paper is organized as follows: section 2 describes negotiation model and settings used in this research; section 3 describes the modified two-stage negotiation protocol; numerical example and analysis are given in section 4. In conclusion, the contributions and the directions of the future work are commented.

Model

All the used notations are shown as follows: This research considers the multi-attribute negotiation between one MA and multiple MSAs, where MA should determine the quantity of his order based on the demand of CA. The negotiations between one MA and multiple MSAs, where the order requested by MA is too large for MSA to complete independently, have been discussed in the previous work [START_REF] Yu | A Multi-agent based negotiation for SCN using game theory[END_REF]. It tried to find another way to resolve this problem which can maintain the integrity of the order. It assumed that the MSAs accepted only the orders which were able to fulfill independently, and tried to combine with the other MSAs as a coalition when the order was out of their abilities. Furthermore, it assumed that the quantity of the order of MA was fixed. However, in the real market, it must be related to the demand of CA. Thus, this research tries to extend the negotiation under fixed demand to the negotiation under the situation where the demand depends on the selling price of MA. Three main attributes considered in this research are the wholesale price of the product,the quantity of the order, and the lead time of the order. MA negotiates with the MSAs to reach agreements on the strategies of the three attributes. We assume that the demand of CA is in an additive form as [START_REF] Ganeshan | A taxonomic review of supply chain management research, a chapter of Quantitative models for supply chain management[END_REF], where a, b > 0. It depends on the selling price of MA. ps j [k] is the selling price of MA of the negotiation between SF j at k.

α M ax j ′ maximum percentage of profit of MSA j ′ β M ax maximum percentage profit of MA δ M LT,w concession function of lead time of MA δ M Q,w
D j [k] = a -bps j [k].
(1)

Negotiation Protocol

This research proposes a modified two-stage negotiation protocol based on the two-stage negotiation protocol proposed in [START_REF] Yu | A Multi-agent based negotiation for SCN using game theory[END_REF]: -Step 6: MSA checks whether he agrees to modify his strategy or not. If he agrees to modify, he adjusts his own strategy, if he does not agree, then the negotiation ends and fails to find an agreement.

Forecast
The flowchart of the modified two-stage negotiation is shown in Fig. 1. The processes in the left-hand side of the gray dash line are done by MA, and the processes in the right-hand side are done by MSA. The details of the negotiation protocol will be discussed in the following subsections.

Negotiation among MSAs

The negotiation among MSAs aims to find partners to establish a coalition when the order of MA is profitable but out of their abilities. It has been discussed in details in [START_REF] Yu | A Multi-agent based negotiation for SCN using game theory[END_REF][START_REF] Yu | Hierarchical-game based negotiation for supply chain network[END_REF]. The final coalition SF j of MSA j will be determined after the negotiation.

3.2 Negotiation between MA and SF j MA and SF j make their decisions sequentially in this part. They negotiate on the wholesale price, the quantity of the order, and the lead time. SF j wants to increase the wholesale price, quantity and lead time to improve his profit. However, MA wants to decrease the wholesale price to increase his profit. Therefore, the main point of this part is to find a balance between the profits of SF j and MA.

The negotiation between MA and SF j can be modeled as a Stackelberg game, where MA is indicated as a leader and SF j can be seen as a follower. In the formulation of a Stackelberg game, it is usually assumed that players' profit functions are common knowledge [START_REF] Lu | Supply-chain oriented robust parameter design[END_REF]. Thus, MA can use this common knowledge to construct SF j 's most profitable responses to all the possible decisions. Then, MA's profit function from corresponding decisions based on all the SF j 's responses can be explored. In the end, MA makes a decision which can maximize his profit. SF j then has a best response to matching the decision. We assume that both MA and SF j are rational, thus, they do not want to deviate from this set of decisions, which is called Stackelberg equilibrium in the game theory. The strategies of MA and SF j are determined in the following sections.

Determination of the strategies of MA From the analysis above, we can see that MA offers his strategies from low to high. The strategies of MA for SF j at round k are (Q

M j [k], w M j [k], LT M j [k]
), where:

w M j [k] = w M j [k -1] + P M A -w M j [k -1] (T N -kT S)/T S + δ M w,LT (LT S j [k -1]) (2)
δ M w,LT (LT S j [k -1]) =    θ wLT z , if LT S ij [k -1] ≤ x LT 1 θ wLT z-1 , if x LT z-1 < LT S ij [k -1] < x LT z 0, if LT S ij [k -1] ≥ x LT z (3)
Q M j [k] = D j [k] + δ M Q,w (w S j [k -1]) (4)
LT M j [k] = LT M j [k -1] + δ M LT,w (w S j [k -1]) (5) ps j [k] = w M j [k](1 + β Max ). (6)
At each round of negotiation, MA should determine strategies of all the three attributes. MA determines the value of the first attribute according to his preferential choice and we assume that MA in this research firstly determines his price. MA not only considers the concession which related to the remnant negotiation time at round k (the second item of ( 2)), but also takes the strategies of SF j at k -1 into account (the third item of ( 2)). He can increase certain amount of price if SF j can offer the product in shorter time. The quantity Q M j [k] of MA depends on the demand of CA(the first item of (4)) and the increment according to the price of SF j (the second item of ( 4)). If SF j can offer lower price, MA will increase the total amount to buy. The lead time LT M j [k] of MA related to the price of SF j (the second item of ( 5)). If SF j can offer lower price, MA will extend the lead time of his order. δ M w,LT is a piece-wise function as (3), it means when LT S j [k -1] belongs to the range (x LT z-1 , x LT z ), MA will give a concession of the price at the value of θ wLT z-1 . All the threshold values x LT z-1 of each segment and the related mapping values θ wLT z-1 are determined by himself. δ M Q,w and δ M LT,w have the same form as [START_REF] Hall | Capacity allocation and scheduling in supply chains[END_REF].

Determination of the strategies of SF j Each SF j tries to determine his strategies to maximize his profit. The higher value of the three attributes, the better. Thus, he replies his strategies from high to low. However, it is better to reach an agreement than does not reach an agreement. Thus, SF j should also take the strategies of MA into account and then decide his strategies. The strategies of SF j are defined as follows:

w S j [k] = w S j [k -1] - w S j [k -1] -P CI j (T N -kT S)/T S -δ S w,Q (Q M j [k]) -δ S w,LT (LT M j [k])(7) Q S j [k] = f Q (w S j [k]) ( 8
)
LT S j [k] = Q S j [k]/γ j (9) f Q (w S j [k]) =    θ max Q , if w S j [k] ≤ P CI j θ Q [k], if P CI j < w S j [k] < P CA j θ min Q , if w S j [k] ≥ P CA j (10) θ Q [k] = AC j - [ csj w S j [0]-cpi -AC j ]P CI j P CA j -P CI j + w S j [k] csj w S j [0]-cpj -AC j P CA j -P CI j . ( 11
)
SF j firstly decides his price according to the strategies of MA. ( 7) means SF j will give a discount if MA can increase the quantity of his order (the third item of ( 7)) or extend the lead time (the last item of ( 7)). The quantity [START_REF] Yu | A Multi-agent based negotiation for SCN using game theory[END_REF] and lead time [START_REF] Yu | Hierarchical-game based negotiation for supply chain network[END_REF] of SF j strongly depends on his productivity. Thus, all the three attributes constraint each other.

δ S w,Q (Q M j [k]) and δ S w,LT (LT M j [k]
) are also piecewise functions as (3) but has opposite tendency (threshold and related mapping values). θ Q [k] is used to determine the minimum quantity to ensure the order will be profitable (for each order, minimum setup cost is needed).

Determination of the final equilibrium MA has his own preferences for wholesale price, quantity and lead time and he is looking for the offer that best satisfies these preferences. Both MA and SF j want to maximize their profits by choosing their preferred strategies. The profits of MA at k, where he agrees with the strategy of SF j , is defined as:

π M j [k] = ps j [k]D j [k] + sgn(Q M j [k] -D j [k])(Q M j [k] -D j [k])sv -sgn(D j [k] -Q M j [k])(D j [k] -Q M j [k])cst -w M j [k]Q M j [k] - cf D j [k] Q M j [k] - hQ M j [k] 2 (12)
where sgn(x) equals to 1, if x > 0, otherwise it equals to 0. We can see that in this model MA is the leader and he has more decision power. Thus, the objective of the Stackelberg game is to find the equilibrium which can maximize the profit of MA. It can be transformed into finding the agreements on the strategies of the three attributes and so to maximize the profit of MA. However, the strategies must be accepted by SF j . Thus, the equilibrium of the negotiation between MA and SF j can be determined as the strategies

(Q M j [k], w M j [k], LT M j [k]
) of MA at k. Moreover, these final strategies must meet the following conditions:

max {π M j [k]} (13)
s.t. π SM j [k] ≥ π S j [k], if k < T N -1 (14) π SM j [k] > 0, if k=T N -1 (15)
Q M j [k] ≤ AC j [k] (16)
where ( 14)-( 15) are used for SF j to evaluate the acceptability of the strategies, and these mean that the order must be profitable for SF j . ( 16) means the order must be in ability of SF j . π SM j

[k] is the profit of SF j adopts the strategies of MA at k (as (2)-( 5)), π S j [k] is the profit of SF j adopts his own strategies at k (as ( 7)-( 9)). The agreement can be reached only if the profit of taking the strategies of MA is greater than the one of taking his own strategies. Finally, MA decides the final supplier which can maximize his profit based on the equilibrium acquired from (13)-( 16).

The characteristics of the proposed protocol are: -The agreement can be reached as long as ( 14)-( 16) are satisfied, no matter MA cannot reach an agreement with SF j on the wholesale price or not. -The agreement may not be reached even MA has reached an agreement with SF j on the wholesale price. -The attributes may not be monotone changing.

Numerical case and analysis

A numerical case is provided to illustrate the processes of the multi-attribute negotiation and how does the negotiation find the final equilibrium. Assume there is one MA and 5 MSA in SCN and all the used parameters are defined as Table 1.

Firstly, we discuss about the details of the multi-attribute negotiation between one MA and one SF j . We take the negotiation between MA and coalition {12} as an example. The fluctuations of three attributes are shown as Fig. 2. We can see that: -At k = 3, the profit of {12} takes the strategies of MA is greater than takes his own strategies (see the area marked by ellipse in Fig. 2(d), where π SM [3] > π S [START_REF] Hall | Capacity allocation and scheduling in supply chains[END_REF]), that means (14) is satisfied. However, the quantity of MA is also greater than the ability of {12} (see the quantity at k=3 of Fig. 2(b), where Q M [3] > AC [START_REF] Hall | Capacity allocation and scheduling in supply chains[END_REF]), that means (16) is not satisfied. Therefore, the agreement is not reached and the negotiation goes by. -At k = 18, MA reaches an agreement with {12} on the wholesale price (see the area marked by ellipse in Fig. 2(a)) and ( 14) is satisfied. However, (16) is still not satisfied because Q M [18] > AC[18] from Fig. 2(b). Therefore, the agreement is not reached and the negotiation goes by. -At k = 20, the wholesale price of MA keeps unchanging, but he makes a concession of his lead time (see the area marked by ellipse in Fig. 2(c)) and then ( 16) is satisfied (see the area marked by ellipse in Fig. 2(b), where

Q M [20] < AC[20]
). Therefore, both constraints ( 14) and ( 16) are satisfied.

Then we can get final equilibrium between MA and{12} is the strategies of MA at k = 20 where the strategies are (10.704, 4489, 16). What we should pay attention to are: 1) The equilibrium not always exists; 2) The order MA may become out of ability of SF j even it was in ability at the first time.

Similarly, we can get all the equilibriums and then MA decides the final supplier which can maximize his profit. In this case, the final supplier for MA is {32} with the final strategies (10.703, 6735, 16) and the profit equals to 25501.295.

Conclusion

The multi-attribute negotiation between MA and MSA, where the quantity of the order of MA depends on the demand of CA, was discussed in this paper. A modified two-stage negotiation protocol was proposed. MA-Stackelberg game was introduced to decide the final strategies by finding the Stackelberg equilibrium. A different criterion was proposed for MSA to decide whether accept the order or not. The strategies of MA at k was defined as final equilibrium if the constraints are satisfied. In this research, we only provided a method to find the equilibrium of multi-attribute negotiation. However, it cannot ensure the equilibrium always exists. There still exists the situation where the negotiation cannot find the equilibrium. For future work, we will take the dynamic coalition formation into account to improve the success rate of finding the equilibrium. Moreover, the performance of the proposed protocol will be discussed, including what effects will be caused by changing the parameter, what's the effect of the ability of MSA on the formation of the coalition.

Fig. 2 .

 2 Fig. 2. The fluctuation of the multi-attribute negotiation

  MA starts to negotiate with SF j . MA-Stackelberg game is introduced to find the final solution.-Step 5: MA checks whether an agreement is reached, if the agreement is reached, negotiation ends, if the agreement is not reached, then MA checks whether he agrees with the strategies or not. If he agrees with it, he asks the MSA to modify his strategy, if he does not agree with it, then he adjusts his own strategy and gives a response.

		Start MA			MSAs
		the			Evaluate the order
		demand of CA
		Determine the quantity of the order	Cooperative game based Can complete by itself? No	Yes
	Modify the order No	Broadcast the order Any MSA can fulfill?	Yes	coalition formation Final coalition determination Reject Exist such coalitions No the order Yes
	Adjust the		Stackelberg game	Adjust the
	strategy		based negotiation	strategy
	the strategy aggreement? Yes Reach an Does MA not Ask MSA modify agree? No Yes	End	No	modify? Agree to Yes
	First stage of the negotiation	Second stage of the negotiation

No Fig. 1. Flowchart of modified two-stage negotiation protocol Stage1: Negotiation among MSAs -Step 1: MA forecasts the demand of CA, determines the initial price, quantity

and lead time of the order which he wants to place, and then broadcasts the order to all the MSAs. -Step 2: MSAs evaluate the order and check whether the order can be finished by themselves. If they can do it, themselves will be determined as the final coalition SF j and fed back to MA; if they cannot do it, then they can negotiate with the other MSAs to build a coalition SF j and feed back to MA. A cooperative game is used for coalition formation. -Step 3: MA checks whether there exists any SF j can fulfill the order, if there exists, goes to the second stage, if there does not exist, then MA modifies the order and re-broadcasts the order.

Stage2: Negotiation between MA and SF j -Step 4:

Table 1 .

 1 Parameter settings and threshold values of the concession functions

		MSA (J=5)	MA
	γj ∼U(100,300) cpj ∼U(7,8)	α max =0.5 h M = 3	cst M = 5
	β min j	=0.2	β max j	=0.5	α min =0.3 psIn M i ∼U(13,14) cf M = 100
	h S j =3	csj ∼U(200,300) sv M = 2 a ∼U(1000,2000) b ∼U(0,100)


Anna Aminoff
email: anna.aminoff@aalto.fi

Kari Tanskanen
email: kari.tanskanen@aalto.fi

A Dyadic Study of Control in Buyer-Supplier Relationships

Keywords: Control, supply chain management, dyadic buyer-supplier relationship

Control of supply chains has been discussed in supply chain literature from various viewpoints. While previous studies have generally examined only buyer's perspectives of control, we expand on such previous research by comparing both the buyer's and supplier's views. In this paper our objective is to analyze why the control is distributed in a certain way in the buyer-supplier relationship, and how does the distribution of control affect the buyer-supplier relationship. We categorize the explanations for the distribution of control. We argue that control in the buyer-supplier relationship might look different from buyer's and suppliers' perspectives. We used a multiple case study methodology with six dyadic buyer-supplier relationships and conducted 43 interviews.

Introduction

Control of supply chains has been discussed in supply chain literature from various viewpoints. While previous studies (for example [START_REF] Jap | Control Mechanisms and the Relationship Life Cycle: Implications for Safeguarding Specific Investments and Developing Commitment[END_REF][START_REF] Heide | Do norms matter in marketing relationships[END_REF][START_REF] Mol | Outsourcing: Design, Process and Performance[END_REF][START_REF] Petersen | BUYER DEPENDENCY AND RELATIONAL CAPITAL FORMATION: THE MEDIATING EFFECTS OF SOCIALIZATION PROCESSES AND SUPPLIER INTEGRATION[END_REF]) have examined the control in buyer-supplier relationships, these studies have generally examined only buyer's perspectives of control. This research expands on such previous research by comparing both the buyer's and supplier's views of control. We adapted Heide and John's [START_REF] Heide | Do norms matter in marketing relationships[END_REF] approach to control. They use a term vertical control, and define it as the buyer's control over supplier's decisions. On the other words, the buyer has control or can decide over processes that would otherwise be part of supplier's domain in basic market transaction, Having the proportional nature of control in the dyadic relationship in mind, we aim at answering following research question: Why is control distributed in a certain way in the buyer-supplier relationship? In this research, we are using multiple case study methodology. We have six dyadic buyer-supplier relationships, two buyer companies and their three suppliers. We conducted totally 43 interviews.

Literature Review

TCA theory is most cited theory related to control and it is an integral part of both the buyer-supplier and channel research traditions (for example [START_REF] Heide | Do norms matter in marketing relationships[END_REF], [START_REF] Morgan | Relationship-Based Competitive Advantage: The Role of Relationship Marketing in Marketing Strategy[END_REF][START_REF] Morgan | The Commitment-Trust Theory of Relationship Marketing[END_REF]). According to TCA, one means by which a firm can safeguard specific assets in the absence of vertical integration is to acquire vertical control over the exchange partner based on mutual commitment [START_REF] Heide | Do norms matter in marketing relationships[END_REF], [START_REF] Williamson | The Economic Institutions of Capitalism; Firms, Markets, Relationalcontracting[END_REF][START_REF] Powell | Hybrid Organizational Arrangements: New Form or Transitional Development?[END_REF]. Heide and John [START_REF] Heide | Do norms matter in marketing relationships[END_REF] see that control is not desirable per se, but it is subject to efficiency considerations and deliberate choice. They also argue that the presence of specific assets only creates an incentive to establish a vertical control and does not in itself endow the firm with the ability to actually structure the relationship in the desired fashion. As decision control is a zero sum phenomenon [START_REF] Grossman | The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration[END_REF], an increase in decision control by other party necessarily comes at the other's expense, meaning that one party's ability to exercise decision control derives from other party's decision to relinquish it. The control relinquishment can either be voluntary strategic choice and efficiency considerations [START_REF] Heide | Do norms matter in marketing relationships[END_REF], [START_REF] Grossman | The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration[END_REF] or based on power. Heide and John [START_REF] Emerson | Power-Dependence Relations[END_REF] argue that suppliers won't transfer decision control to buyer without some insurance that the achieved control will not be abused.

Next we will discuss shortly about power in a relationship. We rely our approach of power to SET, more specifically to Emerson's power-dependence theory [START_REF] Emerson | Power-Dependence Relations[END_REF]. Emerson's lot quoted definition of power is: 'The power of actor A over actor B is the amount of resistance on the part of B which can be potentially overcome by B. [START_REF] Emerson | Power-Dependence Relations[END_REF](p. 32). Power is an attribute of a relationship, not an actor, which means that buying organization in not 'powerful' in general, but only with respect to a particular supplier. Most treatments of power emphasize the critical role of dependence. Emerson formulated relationship between power and dependence: 'the relative dependence between two actors in an exchange relationship determines their relative power [START_REF] Emerson | Power-Dependence Relations[END_REF]. He also provided a general conception of dependence: 'The dependence of actor A upon actor B is (1) directly proportional to A's motivational investment goals mediated by B, and (2) inversely proportional to the availability of those goals outside of the A-B relationship. This means that dependence is determined by two factors; the need for a resource, that other party posses and the availability of alternative sources. Power-dependency theory argues that a firm's investment in specific assets may constrain its ability to acquire vertical control, because the presence of specific assets represents conditions of interfirm dependence [START_REF] Heide | Do norms matter in marketing relationships[END_REF]. Prior studies have explored the nature of dependence and control in buyer-supplier relationships see for instance [START_REF] El-Ansary | Power Measurement in the Distribution Channel[END_REF], [START_REF] Provan | Interorganizational Dependence and Control as Predictors of Opportunism in Dealer-Supplier Relations[END_REF][START_REF] Frazier | Dealer Dependence Levels and Reciprocal Actions in a Channel of Distribution in a Developing Country[END_REF][START_REF] Buvik | Relationship duration and buyer influence in just-in-time relationships[END_REF].

Control has bee discussed in the context of supply chain management literature by multiple authors (see e.g., [START_REF] Heide | Do norms matter in marketing relationships[END_REF], [START_REF] Mol | Outsourcing: Design, Process and Performance[END_REF][START_REF] Petersen | BUYER DEPENDENCY AND RELATIONAL CAPITAL FORMATION: THE MEDIATING EFFECTS OF SOCIALIZATION PROCESSES AND SUPPLIER INTEGRATION[END_REF][START_REF] Zhao | The impact of power and relationship commitment on the integration between manufacturers and customers in a supply chain[END_REF], [START_REF] Provan | Interorganizational Dependence and Control as Predictors of Opportunism in Dealer-Supplier Relations[END_REF][START_REF] Frazier | Dealer Dependence Levels and Reciprocal Actions in a Channel of Distribution in a Developing Country[END_REF], [START_REF] Li | Formal control and social control in domestic and international buyer-supplier relationships[END_REF][START_REF] Youngdahl | Exploring new research frontiers in offshoring knowledge and service processes[END_REF][START_REF] Narasimhan | Lock-in situations in supply chains: A social exchange theoretic study of sourcing arrangements in buyer-supplier relationships[END_REF]). Many of the studies discuss the different control mechanisms, e.g. [START_REF] Jap | Control Mechanisms and the Relationship Life Cycle: Implications for Safeguarding Specific Investments and Developing Commitment[END_REF], [START_REF] Li | Formal control and social control in domestic and international buyer-supplier relationships[END_REF], [START_REF] Fryxell | After the Ink Dries: the Interaction of Trust and Control in Us-Based International Joint Ventures[END_REF]. Control mechanisms are structural arrangements deployed to regulate partners' behavior. Two categories of control mechanisms have been distinguished: (1) formal control, which rely primarily (but not exclusively) on explicit contracts and (2) social control (or relational forms), which primarily relies on informal means [START_REF] Li | Formal control and social control in domestic and international buyer-supplier relationships[END_REF], [START_REF] Dyer | The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea[END_REF][START_REF] Dyer | The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage[END_REF]. Most of the previous authors have adopted TCE as underlying paradigm, especially when discussing the antecedents that lead to the adoption of formal control [START_REF] Li | Formal control and social control in domestic and international buyer-supplier relationships[END_REF]. Formal control mechanisms enhance cooperation and decrease opportunistic behaviors, since explicit contracts detail the roles and responsibilities of the partners, determine the deliverable, and specify the processes necessary to resolve unforeseeable problems [START_REF] Rindfleisch | Transaction cost analysis: Past, present, and future applications[END_REF][START_REF] Argyres | Contract Design as a Firm Capability: an Integration of Learning and Transaction Cost Perspectives[END_REF]. Some authors suggest that formal control and social control mechanisms are substitutes [START_REF] Dyer | The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage[END_REF], [START_REF] Uzzi | Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness[END_REF] as others argue that formal and social control mechanisms are complementary [START_REF] Poppo | Do Formal Contracts and Relational Governance Function as Substitutes or Complements? Strategic Manage[END_REF], [START_REF] Mesquita | Untangling Safeguard and Production Coordination Effects in Long-Term Buyer-Supplier Relationships[END_REF].

Interfirm trust is a primary foundation for the use of social control [START_REF] Jap | Control Mechanisms and the Relationship Life Cycle: Implications for Safeguarding Specific Investments and Developing Commitment[END_REF]. Social control mechanisms usually take the form of joint problem solving, participatory decision making, thorough information exchange, and fulfillment of promises [START_REF] Fryxell | After the Ink Dries: the Interaction of Trust and Control in Us-Based International Joint Ventures[END_REF].

Our approach to control relies on those of previous authors, but also differs slightly from mainstream discussion. We adapted Heide and John's [START_REF] Heide | Do norms matter in marketing relationships[END_REF] approach to control. They use a terms vertical control, and define it as the buyer's control over supplier's decisions. On the other words, the buyer has control (or can decide) over processes that would otherwise be part of supplier's domain in basic market transaction, like supplier's production process and manufacturing technology, ongoing design and engineering changes, supplier's level of inventory, selection of supplier's subsuppliers and supplier's quality procedures. Our main interest doesn't lie in the control mechanisms as such, but more what are the antecedents and consequences of control distribution.

Method

In this study, we adopted multiple case study method. We examined the issue of interest through a dyadic study having the buyer-supplier relationship as the unit of analysis. We explored six relationships, which include two buyer companies and six suppliers. We chose dyadic case study, because case studies allow developing frameworks by using data collected through direct interaction with subjects of interest. In the research design and analysis we follow the principles of Eisenhardt [START_REF] Eisenhardt | Building Theories from Case Study Research[END_REF], and Yin [START_REF] Yin | Case Study Research: Design and Methods 4th Ed[END_REF]. We selected our cases based on two principles: theoretical sampling and access to data. We came up with two buyer companies and their three suppliers: one company was from the high-technology industry (OEM, a pseudonym), and another was from the pharmaceutical industry (PharCo, a pseudonym). We had multiple sources of data, which made the data rich; interviews, meetings with company representatives, documents and workshops. Having multiple respondents from different companies and utilizing multiple sources of data (interviews, company documents, and memos) put into practice the principle of data triangulation. Interviews were our main source of data, and we conducted totally 43 interviews, and one interview lasted from 45 min -2 hours.

The first buyer firm -OEM-is a large high technology equipment provider. All three suppliers selected in our study are also ranked in the top five of their respective industries worldwide. HiTecCo supplies OEM components that are technically demanding and critical for the performance of the end product. ContrMan is one of OEM's largest suppliers and it has several plants located near OEM's markets that create manufacturing capacity. CoCom is an original equipment manufacturer that is widely considered to be the technological leader in its field. PharCo is a European R&D-based pharmaceuticals and diagnostics company focused on the development of medicinal treatments and diagnostic tests for the global market. It is a relatively small player globally but well positioned within European markets. PacCo is a small local supplier of printed products and services for packages and advertisements. This firm has a long and stable relationship with PharCo. MedDev is a globally operated suppli-er of drug delivery, medical devices, and diagnostic disposables. MedDev became a major supplier for PharCo only a few years ago. BulkMf is a manufacturer of bulk actives for the pharmaceuticals industry. BulkMf is also a fairly new supplier for PharCo and is one of PharCo's first low-cost country suppliers.

Results

According to the advice of Yin [START_REF] Yin | Case Study Research: Design and Methods 4th Ed[END_REF] we conducted within-case analysis and, subsequently, cross-case analysis. The within and cross-case analyses show that the pattern of control, more specifically how control is distributed and why, is different across the six dyads. Here, we will discuss results of cross case analyses and elaborate findings over the cases. We will first make observations how the control is distributed in relationships. Next, we analyze the control distribution as follows. (1) Why it is distributed in certain way and we categorize these explanations. (2) Why the party is relinquishing the control and, [START_REF] Mol | Outsourcing: Design, Process and Performance[END_REF] what are the control mechanisms.

Table 1 shows the results of cross case analyses. Overall, in all the dyads, both the buyer and the supplier have influence over the explored processes and none of the processes are decided purely by the buyer or by the supplier. This finding supports the fact that all the sample relationships are collaborative and deep in nature. Also, this means that we can't distinguish relationships as 'buyer controls' or 'supplier controls', but it is more complicated than that. In all but one case (OEM-ContrMan), the supplier has more control than the buyer, or the control is balanced. In all case relationships of PharCo, the control is balanced between buyer and the supplier. In multiple cases, the distribution of control differ between product groups in a relationship. For example, in OEM-BulkMf relationship, the buyer wants to secure the availability of some product groups by deciding the suppliers buffer inventory levels, as in some product groups the supplier may decide. Based on our interviews, the buyers were mostly quite satisfied with how control was distributed and didn't feel they would need more control over suppliers' decisions. Also this reflects the fact that relationships are collaborative in nature. Generally, buyers would like to have more control on selection of supplier's subsuppliers. We explored, that there are incongruencies in all dyads, how the buyer and the supplier see the control is distributed in a relationship. For instance, in PharCo-PacCo relationship, PharCo and PacCo see the control distribution to be totally different in multiple processes. In this relationship, the buyer sets strong unilateral pressure to develop the supply chain. Over the course of the study, PharCo simultaneously placed more competitive pressure on PacCo and developed supply chain processes more effective from its own point of view, which decreased the efficiency of PacCo's operations. This unilateral pressure affects how the supplier sees the control and might create problems to the relationship.

We analyzed the antecedents for the control distribution. The table 1 shows how the control is distributed and why. We mapped different explanations for control distribution in sample relationships, and categorized them as follows: (1) Type of purchasing influences strongly control distribution, and there is often a 'natural' distribu tion of control. In contract manufacturing type of purchasing, for example in the relationship between OEM-ContrMan, the buyer generally has much control, especially over design and engineering changes. (2) Capabilities of partners: the partner with best capabilities decides / conducts the process. For instance, in OEM-HitecCo case, supplier mainly decides the production processes, but the buyer makes suggestions if it would like to have new technology. OEM sees that HitecCo has best capabilities in deciding the production process.

(3) Buyer wants to influence to specific needs that are important to the buyer. For instance, for OEM, issues related to environment and ethics are important and OEM controls that supplier takes these issues into consideration. Authority requirements belong to this category. For example, authorities require that PharCo must have control over suppliers' quality procedures. (4) Buyer wants to minimize the work and gives the control to the supplier, as in the case of consignment stock. As decision control is a zero sum phenomenon [START_REF] Grossman | The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration[END_REF], an increase in control by other party necessarily comes at the other's expense, meaning that one party's ability to exercise decision control derives from other party's decision to relinquish it. Heide and John [START_REF] Heide | Do norms matter in marketing relationships[END_REF] argue that suppliers won't transfer decision control to buyer without some insurance that the achieved control will not be abused. We analyzed why supplier (or buyer) relinquished control to the other party and identified following 'enablers' (see also table 2): (1) Trust, control relinquishment is a strategic choice. Partner relinquishes the control often due to efficiency considerations. When a trust is high in a relationship, one can trust the other party doesn't behave (2) Power, more powerful party can force the other party to relinquish the control. Many of the control mechanism used in our sample relationships are formal ones, written explicitly in contracts. Some mechanisms are related to relational norms, and are close to supplier development, as the buyer helps the supplier to develop processes. For example, PharCo has helped its suppliers to develop production processes. Also, buyer controls the supplier by having requirements for (ISO) standards and via auditing, also supplier's subsuppliers. Buyer might also specify the product that there is only one supplier, although it doesn't specify the 'name' of the supplier. Also, multiple control mechanisms can affect to one process. Many of the previous authors discuss about contracts as control mechanism (see for example, [START_REF] Jap | Control Mechanisms and the Relationship Life Cycle: Implications for Safeguarding Specific Investments and Developing Commitment[END_REF], [32], [36], [39]), but other explored mechanisms (helping the supplier to develop, standards) are mentioned more rarely.

Discussion and Conclusion

For the most part, previous studies have only examined the perspective of the buyer, and this study is one of the first to take a dyadic view. Traditionally, TCE has been adopted as a primary theoretical lens to explore the antecedents of control mechanisms in buyer-supplier cooperation, for example [START_REF] Heide | Do norms matter in marketing relationships[END_REF], [START_REF] Petersen | BUYER DEPENDENCY AND RELATIONAL CAPITAL FORMATION: THE MEDIATING EFFECTS OF SOCIALIZATION PROCESSES AND SUPPLIER INTEGRATION[END_REF], [START_REF] Provan | Interorganizational Dependence and Control as Predictors of Opportunism in Dealer-Supplier Relations[END_REF][START_REF] Frazier | Dealer Dependence Levels and Reciprocal Actions in a Channel of Distribution in a Developing Country[END_REF]. Our study provides empirical evidence that the approach of TCE, in which, control is used to safeguard specific assets, doesn't explain the control distribution in buyer-supplier relationships. Also, some previous authors, for example [START_REF] Poppo | Do Formal Contracts and Relational Governance Function as Substitutes or Complements? Strategic Manage[END_REF], have criticized TCEs approach to control and argue that transaction cost economics overstates the desirability of either integration or explicit contractual safeguards in exchange settings commonly labeled as hazardous. We found out that control is a complex concept. In most relationships, both buyer and supplier have control over processes, and the distribution of control may vary between product groups. It is not easy to determine, who controls the supply chain. We argue that control in the buyer-supplier relationship might look different from buyer's and suppliers' perspectives. One relevant explanation for these incongruencies in perceptions is the unilateral nature of the relationship, in where the buyer bases its action to the power. We categorized the explanations for control distribution and discussed the impact of power, trust and attractiveness. We argue that in bilateral relationships, trust enables the efficiency considerations of control distribution, and the partner who has best capabilities has the control over processes.

For business managers this paper gives new insights for managing the control in the supply chain. We note that business managers must consider how the other party sees the control, as there might be mismatches in perceptions. Managers also need to rethink the control in supply chains and analyze the explanations why the control is distributed in the way it is and if it is optimal for the supply chain. Also, we found out that a company can persuade the other party to relinquish the control by three ways unilateral power, award power by being more attractive business partner and/ or trust.

Table 1 .

 1 Results of cross-case analyses

	Relationship
	The company the answer concerns Buyer SupplierBuyer SupplierBuyer SupplierBuyer SupplierBuyer SupplierBuyer Supplier
	Power balance
	Specific assets	Med	High	Med	Med	Low	Med	High	High	Med	Low	Low	Low
	Perception of trust	High	High	High	High	High	High	High	High	High	High	ModerateHigh
	Average power
	Performance	Good	Good	Med	Med	Good	Med	Good	Med	Med	Med	Med	Low
	Control distribution 1) 2)
	A. Supplier's production
	processes and	1.4	2.0	2.5	2.3	2.2	2.3	2.5	2.0	2.8	3.7	1.3	1.0
	B. Ongoing design and
	engineering changes	3.2	4.0	3.3	3.3	5.8	6.7	3.5	7.0	5.5	6.2	2.5	1.0
	C. Supplier's level of
	inventory	2.8	3.0	2.7	4.0	3.0	6.0	3.5	2.0	1.5	2.5	3.3	1.0
	D. Selection of supplier's
	sub suppliers	2.0	1.5	2.5	2.7	5.4	6.3	2.5	1.0	2.3	2.6	2.3	3.0
	E. Supplier's quality control
	procedures	1.7	3.0	2.8	2.7	3.8	4.0	6.5	4.0	5.5	4.2	3.0	3.0
		Contracts,
	Control mechanisms
	Influence mechanisms:	Trust		Trust		Power		Power		Trust		Power
	Reasons for control distribution
	A. Supplier's production processes and manufacturing technology	partners Capabilities of	partners Capabilities of	Type of purchasing, partners Capabilities of	Capabilities of partners	Type of purchasing the partners Capabilities of	Capabilities of partners
	B. Ongoing design and engineering changes	Capabilites of partners, Type of purchasing	Capabilities of the partners, Type of purchasing	Type of purchasing, Capabilities of the partners	Capabilites of partners	Type of purchasing, Capabilities of partners	Capabilities of partners, Type of purchasing,
	C. Supplier's level of	Supply chain	Supply chain	Supply chain
	inventory (raw material,	efficiency,	efficiency,	efficiency,	Supply chain	Capabilities of	Supply chain
	semi finished and finished	minimize the	minimize the	minimize the	efficiency	partners		efficiency
	components)	effort of the	effort of the	effort of the
	D. Selection of supplier's sub suppliers	Buyer wants to influence to certain needs	Buyer wants to influence to certain needs	Type of purchasing Capabilities of the partners	Capabilities of partners, Buyer wants to influence to certain needs	Buyer wants to influence to certain needs	Capabilities of partners, Buyer wants to influence to certain needs
	E. Supplier's quality control procedures	Capabilities of partners	Capabilities of partners	Capabilities of partners	Buyer wants to influence to certain needs	Buyer wants to influence to certain needs	Buyer wants to influence to certain needs
	1) Vertical control measures the control buyer has achieved over particular supplier decisions
	2) Scale (1-7): 1= Entirely decided by the supplier, 7= entirely decided by the customer


Davide Aloini
email: davide.aloini@dsea.unipi.it

Riccardo Dulmin
email: riccardo.dulmin@dsea.unipi.it

Valeria Mininno
email: valeria.mininno@dsea.unipi.it

A Fuzzy Decision Support System for Drawing Directions from Purchasing Portfolio Models

Keywords: Decision support, Strategic Purchasing, Portfolio model, fuzzy logic, case study

des établissements d'enseignement et de recherche français ou étrangers, des laboratoires publics ou privés.

Introduction

The complexity of business decisions as concerning the definition of adequate purchasing strategies and the assessment of opportune Buyer-Supplier (B-S) relationships, does not allow for simple recommendations. In contrast with growing acceptance and usage of Purchasing Portfolio models [START_REF] Kraljic | Purchasing Must Become Supply Management[END_REF][START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF], a major and most severe criticism recently moved to their main rationale is the extreme simplification of the decision logic which is often based on just two basic dimensions [START_REF] Gelderman | Handling Measurement Issues and Strategic Directions in Kraljic's Purchasing Portfolio Model[END_REF][START_REF] Gelderman | Purchasing Portfolio Models: A Critique and Update[END_REF][START_REF] Gelderman | Managing the global supply base through purchasing portfolio management[END_REF]. By simplifying the issue of buyer-supplier relationships and other context-related dimensions, portfolio models fail to capture essential aspects, such as the impact of overall company business strategy, corporate purchasing policies, the context of networks (Dubois and Pedersen 2002), the interdependencies between products (Ritter 2000), and other relevant item features (e.g. product lifecycle) or the concern for a sustainable competitive advantage.

At the same time, purchasing portfolio models potentially suffer of arbitrariness and compensative processes due to related problems in item positioning. They are sensitive to the choice of the evaluation dimensions, factors and weights (Ramsay, 1996). Moreover, a large number of these variables are qualitative and need to be assessed subjectively by experts basing on their own experience or specific analysis of the business sectors.

This paper proposes a fuzzy-based decision model to define appropriate and feasible strategic purchasing directions and action plans. Combining these kind of analysis with additional information, as for example about the supply market (the relative contractual power), supplier capabilities, company purchasing policies, the paper suggests an integrated decision logic enhancing practitioners in refining recommendations which are drawn on the traditional portfolio models by [START_REF] Kraljic | Purchasing Must Become Supply Management[END_REF] and Olsen-Ellram (1997). Moreover, Fuzzy Set Theory is used in the Decision Support System in order to deal with the aggregation of different variables and often subjective information (e.g. linguistic variables vs numerical indicators, objective performance indexes vs subjective judgment) and to reproduce approximate, knowledge based and not-compensative reasoning.

Research objective

Purchasing portfolio approach is usually a three step process finalized to manage supplier relationships. The first step generally address a product-based classification of components (Kralijc 1983, Olsen and Ellram, 1997; Kamann and Van Nieulande 2010), the second regards the analysis of suppliers and buyer supplier relationships [START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF]Bensau, 1999;Caniel and Gelderman, 2007), the last step is decisional and draws on the propaedeutic information gathered to establish strategies and recommendations. In this paper, we refer to the most known O-E model [START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF] which goes through the following 3 steps (Nellore and Soderquist, 2000):

1. analysis of the products and their classification according to the difficulty of managing the purchase situation and the importance of the purchase similarly to Kraljic (1983); 2. analysis of the supplier relationships required to deliver the products according to the Relative Supplier Attractiveness and B-S Strength of the Relationship (Olsen and Ellram, 1997); and 3. development of action plans in order to match the product requirements with the supplier relationships.

To successfully accomplish this process, decision makers have to arrange the decision logic integrating all the required information at the right step. This includes an appropriate selection of the critical decision dimensions and variables of analysis; a correct operationalization of the selected variables, related measurement and data collection; an effective item positioning (classification of goods-services et/or B-S relationships); and finally the integration of additional or complementary information for action validity check and synthesis of recommendations.

In this perspective, portfolio models, have been mostly criticized by different authors and perspectives both for their measurement concerns, and for their limited ap-plicability in practice (Kamann 2000; Nellore and Soderquist, 2000; Dubois and Pedersen 2002).

The present work focuses on the last three previous activities: it integrates in an overall process K and O-E matrixes, it develops a fuzzy-based implementation of the O-E matrix [START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF] in order to deal with the problem of positing suppliers correctly starting from subjective judgments and weights; and finally, it validates and refines out coming recommendations suggesting additional information to be included in the decision process.

Methodology

Model architecture

The proposed decision model consists of two main stages (Fig. 1).

Fig. 1. A two stages (and five steps) decision logic

1. Firstly, it combines evidences of the current Buyer-Supplier relationships (according to a fuzzy implementation of the O-E matrix) with outputs from the analysis of purchasing items according to the Kraljic matrix (1983) perspective in order to define preliminary outputs (see step 1, 2, and 3 of O-E model). 2. In a second stage, instead, it completes the gathered information with additional considerations about specific company policies (e.g. localization: local vs global), purchasing item features (e.g. life cycle), and with other context related information about the purchasing situation (e.g. the relative contractual power between Buyer and Supplier, cross-supply level, level of shared investments on the suppliers/buyer side). This information is integrated into the decision model in order to provide a more effective and systematic validation of the outputs, and in case to refine recommendations basing on specific company contingencies to finally provide users with feasible and suitable action plans. In the steps 4 and 5, first the addition-al variables of analysis are selected and measured, and then preliminary outputs are refined accordingly by a fuzzy contingent validation.

In order to face with the related complexity and uncertainty which is distinctive in dealing with information often subjective in nature and up to the knowledge and experience of respondents, we considered fuzzy logic as potential useful and flexible way to deal with the measurement of variables and the item positioning, as well as to arrange a not-compensatory decision logic and support user during the process. Thus, we adopted fuzzy variables in order to set up the input data to the O-E matrix [START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF] and in order to define the related outputs. At this stage of the decision process, information about the purchasing situation (provided by Kraljic portfolio analysis) are added and taken into consideration within the Fuzzy Inferential System (FIS), in order to define preliminary directions. Fuzzy set theory is also adopted at the stage 2 to characterize the preliminary and final model outputs, the additional information here included and the overall decision logic.

Inputs, outputs and additional control variables

Inputs: Variables are defined according to Olsen and Ellram (1997) model. Two macro dimensions are adopted for each matrix as specified previously. A number of factors and sub-factors was assessed coherently in order to provide a complete measurement scale.

Outputs: The model presents a more analytic (multi-input-multi-output model) output structure in respect to the most traditional approaches. This is in order to offer practitioners better precisions and an easier interpretation of indications. Output variables (Table 1) are drawn, refined and completed accordingly the main directions provided by [START_REF] Olsen | A Portfolio Approach to Supplier Relationships[END_REF] and subsequent criticism (Kamann 2000; Nellore and Soderquist, 2000; Dubois and Pedersen 2002). Variables offer information about both strategic directions and macro actions to be implemented. Additional information (or control variables): Feasible and suitable actions should be evaluated in the light of some critical context-related information as for example that related to existing company constrains (budget, policies and other limitations to the supply base) or other influencing factors. This is particularly true when purchasing portfolio models are used to draw strategic directions at the Business Unit level since they usually need to be aligned with the Corporate directives.

In order to accomplish this last purpose, in the second decision step, the model integrates a number of variables (mostly subjective data) provided directly by the decision maker in order to validate the feasibility and suitability of preliminary directions. Specifically, two classes of information are considered: the first is related to "Corporate constrains", mainly budget and uniformity constrains (i.e. standardization and homogeneity in the supply process). These factors may limit investments (capital budget decisions), as well as influence criteria for the supplier selection process (the type of B-S relation, information exchange, integration level), and also impact on purchasing policies (sustainability, ethic, local/global and multi/single sourcing policies). The second class of information, instead, includes context-related factors which might limit the appropriateness and feasibility of proposed recommendations: the product life cycle stage, the level of current/shared investments (i.e. technology, specific asset, switching costs), the company resources currently allocated to the B-S relation, the company's network position, the level of cross supply. Details of selected variables are reported in table 2.

As an example, the product life cycle (plc) may affect and influence the out-coming strategic direction and action plans since the objectives of the B-S relations, the desirable performance, and also the available resource and risk change accordingly to the different plc-stages. Thus, an effective decision model should take into account this factor in order to provide really suitable recommendations.

4

Case study

Context

The method was developed and applied to the case of a multinational company in the Power-electronic market. In the case study we refer to a specific implementation of the presented decision model in order to demonstrate the applicability of the proposed approach. A team of experts from the Company and University was built to run the project. For the purpose of this work, we assumed that the analysis of the purchasing situation (through the Kraljic matrix) was previously and adequately performed coherently with the evaluation objectives, as also we hypothesize that the adopted measures and the data collection process have been appropriately carried out. As a consequence, the focus of the paper is limited to the investigation of the Buyer-Supplier relationships (by O-E matrix) and on the additional information to be included in the decision logic (rules) to draw feasible and suitable strategies and action plans.

Data collection

A highly qualified panel of academic experts and practitioners from the Sourcing and Purchasing functions was formed to select the most appropriate (and at the same time available) measures according to the OE dimensions, to define the relative weights, and to finally characterize the purchasing items/suppliers accordingly. Two questionnaires were assessed to obtain data. The first questionnaire addressed the importance scores of the selected attributes according to an AHP procedure while the second one was used for finding out the performance scores of suppliers. Respondents were asked to indicate the degree to which they agree with each statement on a 5point fuzzy linguistic scale. A Delphi-based process was also adopted in order to achieve convergence of the experts' judgments.

Company experts was also involved in the DSS assessment and setting as concerning the definition of FIS rules, and the final model validation mostly by semistructured interviews, focus group and observation on the field.

Model design

The FIS design usually goes through the following steps:

1.

Membership function design

In order to construct the fuzzy model, a number of semi-structured interviews was

held. An open-ended questionnaire was used to conduct the interviews, including a set of questions to discuss the fuzzy variables and define their labels (linguistic values) and determine the fuzzy ranges of each value label whereas data were not available. The model consists of input variables which attain the two main OE dimensions: Supplier Attractiveness and Strength of the Relationship. Some building factors are selected in collaboration with the company experts in order to assure data/knowledge availability to users and relevance of information into the company decision process. All the input variables are provided as 5-point linguistic scale by triangular fuzzy numbers. Then, factors are aggregated following a Ordered Weighted Average (OWA) procedure [START_REF] Yager | On Ordered Weighted Averaging Aggregation Operators in Multi-criteria Decisions[END_REF] considering weights which were defined by the Sourcing, Logistic and Quality managers according to a Delphi-AHP procedure [START_REF] Okoli | The Delphi method as a research tool: An example, design considerations and applications[END_REF]Saaty, 2006). An order relevant input to the model is the Item classification accordingly to Kraljic matrix, which is here modeled as a rule discriminator value (i.e. it modifies the rule base).

Preliminary outputs of the model as in Table 1 are modeled as a three level fuzzy scale. Specifically, they indicate to how extent the management should plan actions for strengthening the relation (high) or diversifying the supplier base (low); improving supplier attractiveness and/or performance; to how extend investing new assets/technology; allocating new resources into the relation; and also which is the time horizon of the relationship.

Control variables included in the second step of the decisional model are interpreted, as previously stated, as context-related variables or company constrains which may be due to the corporate policies and/or available budget (Table 4). They are modeled as 5-point linguistic scale by triangular fuzzy numbers as well.

Rule settings

In setting the decision rules of the FIS we used two common approaches in literature:

• Adopting a normalized or standard rule-base: firstly, we are here drawing on directions by the K and OE portfolio models. • Codifying the experience and intuition of experts: rules were derived from the managerial procedures, from interviews using a carefully designed questionnaire, or often observing an actions to deduce if-then type rules. In this case, the approach is used to further investigate suitability and validity of preliminary OE direction according to the additional information provided.

The FIS uses the Mamdani inference method, once all the screening heuristics have been identified, they have to be transformed into proper fuzzy IF-THEN rules. More than 100 rules were finally defined and implemented in a FIS by the support of the Matlab Fuzzy rules editor toolbox.

For a purpose of clarity and due to space limitation, here we just present how the model works for a specific combination purchasing item/supplier. Once input factors are defined and evaluated, the fuzzy OE matrix is assessed. Judgments were aggregated into a single fuzzy index by a ordered weighted average (OWA). As a result, this procedure allows to assign a supplier to more than a single quadrant in the matrix according to a different membership degree and a fuzzy borderline which make classification more flexible and less restrictive (Fig. 2). Preliminary outcomes are finally refined in a second step considering the company constrains. The decision logic and fuzzy rules were set similarly to the previous ones.

Validation and/or Sensitivity Analysis

Model validation is currently in progress so that the DSS is still under refinement and liable to modifications. Managers and senior buyers from the company implementation team were involved in the process in order to test the proper operation of the fuzzy systems. With the support of experts, the validation of a number of cases is programmed in order to check model Completeness, Consistency, Redundancy and Interaction.

Conclusion

The main result of this work was the development of a decision support system enhancing users to effectively integrate traditional purchasing portfolio approaches with additional strategic oriented priorities/information in defining purchasing directions and action plans. A fuzzy-based decision model is proposed and implemented. The decision process gets inputs from the Kraljic matrix and draws directives on the traditional OE portfolio model integrating additional information about the purchasing context (company strategy, supply market, etc) to validate feasibility and suitability. The fuzzy DSS is applied to a demonstrative case study of an American multinational company operating in the field of Electric Power Systems and Alternative Energy Systems.

The DSS particularly helps decision makers in facing a number of common issues affecting the use of portfolio approaches, e.g. the Olsen-Ellram matrix, as such as:

• To deal with the assessment of subjective variables in order to get a correct and not arbitrary positioning of suppliers; • To define appropriate rules for drawing feasible and suitable strategic directions and actions plans keeping into account additional information about strategic priorities or company policies.

6

Main references (complete reference list available on request to authors)

Fig. 2 .

 2 Fig. 2. Positioning on the fuzzy O-E matrix

Table 1 .

 1 O-E Matrix Outputs

	(adapted from: Olsen and Ellram, 1997)
	O-E directions
	1. Strengthen the relationship
	(or diversify)
	2. Improve supplier attractiveness
	and/or relation performance
	3. Resource (allocation) level
	4. Investment level
	5. Timing horizon (short/long term)

Table 2 .

 2 Additional Information

	Additional/context
	information
	1. Budget constrains
	2.Uniformity constrains (Global vs
	local purchasing; single vs multi
	sourcing; Sustainability/Ethic; other
	purchasing policies)
	3. Life cycle stage
	4. Concurrent/shared investments
	5. Allocated resource
	6. Cross-supply level