Copyright is owned by the Author of the thesis. Permission is given for a copy to be downloaded by an individual for the purpose of research and private study only. The thesis may not be reproduced elsewhere without the permission of the Author. Purchaser-supplier Relationship in Third Party Procurement: A Case Study in Chinese Automotive Industry Luying Liu A thesis presented fulfillment of the requirements for the degree of Master in Logistics and Supply Chain Management at Massey University, Palmerston North, New Zealand, 2015 I Abstract The purpose of the research is to evaluate the role of third party procurement (3PP) in supply chain. The relationship between third party purchasers and suppliers will be explored and some suggestions will be proposed to improve the relationship. The research will focus on Chinese automotive industry, so a typical third party procurement provider in this industry will be analyzed as a case study. Data will be collected mainly through interviews among the third party purchasers and their suppliers, and the data will be analyzed and interpreted in a qualitative method. Studies have shown that outsourcing is getting more and more popular. 3PP is inevitably involved when it comes to procurement outsourcing. Due to the professional services from the third party procurement providers, not only the supply chain efficiency can be improved, but also the client firms can gain benefits from the value they create. However, 3PP also has disadvantages. It is necessary for enterprises to identify these pros and cons before outsourcing procurement. In addition, the relationship between third party purchasers and suppliers should also be paid attention. In this research, this kind of relationship will be explored and put forward some suggestions to improve the relationship and increase satisfaction of both sides. II Acknowledgments Firstly, I would like to thank my supervisor Pro. Paul Childerhouse and Walter Glass for their patient guidance. I appreciate their invaluable suggestions on my thesis writing. Without their help, I could not have completed this thesis. I am glad to acknowledge their support and encouragement through the entire process. I am also grateful to those who participated in the interviews. Thanks for their voluntary participation. Their answers are very important to my research result. I could not have finished my research without their support. Finally, I want to give my special thank to my family. Thanks for their unconditional support and constant encouragement on my study. III Table of Contents ABTRACTS...............................................................................................................................I ACKNOWLEDGMENTS..........................................................................,............................II TABLE OF CONTENTS.......................................................................................................III LIST OF TABLES..................................................................................................................VI LIST OF FIGURES..............................................................................................................VII CHAPTER 1 INTRODUCTION.............................................................................................1 1.1 RESEARCH TOPIC................................................................................................................1 1.2 GENERAL 3PP BACKGROUND IN CHINA.......................................................................1 1.3 RESEARCH QUESTIONS/ OBJECTIVE..............................................................................2 1.4 THE IMPORTANCE OF THE RESEARCH..........................................................................2 1.5 SCOPE OF BOUNDARIES OF THE RESEARCH................................................................4 1.6 RESEARCH METHOD OVERVIEW....................................................................................5 1.7 POTENTIAL CONTRIBUTION TO KNOWLEDGE............................................................5 1.8 RESEARCH LIMITATIONS..................................................................................................6 1.9 FLOW AND CONTENTS OF REMAINING CHAPTERS...................................................6 CHAPTER 2 LITERATURE REVIEW........................................................................................7 2.1 INRTODUCTION...................................................................................................................7 2.2 PROCUREMENT IN CHINESE AUTOMOTIVE INDUSTRY............................................7 2.3 OUTSOURCING.....................................................................................................................9 2.4 THIRD PARTY PROCUREMENT (3PP)..............................................................................9 2.5 PURCHASER-SUPPLIER RELATIONSHIP MANAGEMENT.........................................11 2.6 SUPPLIERS SELECTION AND ASSESSMENT................................................................13 2.7 CONCEPTUAL MODEL......................................................................................................14 2.8 RESEARCH GAP..................................................................................................................17 2.9 SUMMARY...........................................................................................................................18 CHAPTER 3 RESEARCH MOTHOD........................................................................................19 3.1 RESEARCH QUESTIONS....................................................................................................19 IV 3.2 ONTOLOGICAL AND EPISTEMOLOGICAL PERSPECTIVES......................................19 3.2.1Ontological Perspectives..................................................................................................20 3.2.2 Epistemological Perspectives........................................................................................21 3.3 APPRAISAL OF ALTERNATIVE RESEARCH MOTHODOLOGIES...........................23 3.4 RESEARCH DESIGN CONSIDERATIONS.....................................................................25 3.5 DATA COLLECTION........................................................................................................27 3.5.1 Case...............................................................................................................................27 3.5.2 Data Types....................................................................................................................28 3.5.3 Interviews......................................................................................................................29 3.6 DATA ANALYSIS..............................................................................................................30 3.7 RELIABILITY AND VALIDITY.......................................................................................31 3.8 ETHICAL CONSIDERATIONS.........................................................................................32 3.9 CONCLUSION....................................................................................................................34 CHAPTER 4 DATA ANALYSIS..................................................................................................35 4.1 INTRODUCTION...............................................................................................................35 4.2 OVERVIEW OF DATA COLLECTED, SAMPLE COVERAGE.....................................35 4.2.1 Company Background...................................................................................................35 4.2.2 Interviewees Samples....................................................................................................37 4.3 VISUAL DISPLAYS SUMMARIZING EMPIRICAL DATA...........................................39 4.3.1 Procurement Flow.........................................................................................................39 4.3.2 Supplier Development Process.....................................................................................44 4.3.3 Supplier Selection Process........................................................................................... 46 4.3.4 Purchasers’ Working Performance Evaluation.............................................................48 4.3.5 Suppliers Performance Evaluation................................................................................51 4.4 SYSTHESES OF QUALITATIVE DATA..........................................................................53 4.5 EXPLANATION OF THE MAJOR FINDINGS................................................................55 4.5.1 3PP’s Recognition and Development Trend in China..................................................55 4.5.2 Major Conflicts in Relationship Establishment and Maintenance................................57 4.5.3 Differences Between the Suppliers Recommended by Clients and Those Selected from Market by Purchasers Themselves...............................................................................59 V 4.5.4 Behaviours That Make Purchasers/ Suppliers dissatisfied............................................60 4.6 ANALYSIS OF CONCEPTUAL MODEL IN LIGHT OF DATA.........................................61 4.6.1 Advantages And Disadvantages of 3PP........................................................................64 4.6.2 Purchaser-supplier Relationship.....................................................................................69 CHAPTER 5 DISCUSSION..........................................................................................................72 5.1 COTTELATION OF FINDING WITH PREVIOUS LITERATURE.................................72 5.2 MANAGERIAL/ POLICY IMPLICATIONS BASED ON CONCEPTUAL MODEL.....73 5.2.1 Principle of Procurement Outsourcing............................................................................73 5.2.2 Get Support from Client Firms While Establishing Relationship with supplier.............74 5.2.3 Find a Balance between the Interests Conflicts for Relationship Maintenance..............75 5.2.4Evaluate Supplier Performance Quantitatively and Qualitatively.....................75 5.2.5 Adjust Behaviours to Win the Respect and Trusts..........................................................76 CHAPTER 6 CONCLUSION.......................................................................................................81 6.1 SUCCINCT ANSWER TO THE RESEARCH QUESTIONS..............................................81 6.2 ORIGINAL CONCLUSION..................................................................................................82 6.3 LIMITATIONS......................................................................................................................83 6.4 FURTHER RESEARCH........................................................................................................83 REFERENCES...............................................................................................................................85 APPENDICES................................................................................................................................92 APPENDIX A: INFORMED CONSENT....................................................................................92 APPENDIX B: INTERVIEW QUESTIONS( PURCHASER PART)........................................94 APPENDIX C: INTERVIEW QUESTIONS (SUPPLIER PART).............................................96 VI List of Tables Table 2.1 Procurement Leverage Effect on Profit.........................................................7 Table 3.1 Differences between Objectivism and Constructions..................................20 Table 3.2 Differences between Positivism and Interpretivism.....................................22 Table 3.3 Fundamental Differences between Quantitative and Qualitative Research.24 Table 3.4 Design Considerations.................................................................................27 Table 4.1 Purchasers Samples......................................................................................38 Table 4.2 Suppliers Samples........................................................................................39 Table 4.3 Workload Evaluation....................................................................................49 Table 4.4 Work Efficiency Evaluation.........................................................................49 Table 4.5 Work Quality Evaluation.............................................................................50 Table 4.6 Supplier Performance Evaluation Criteria...................................................52 VII List of Figures Figure 1.1 Scope and Boundaries of the Research.........................................................4 Figure 2.1 The Emergence of Third Party Procurement..............................................11 Figure 2.2 Three Aspects of Supplier Management.....................................................14 Figure 2.3 The Impact of Pros and Cons of 3PP on Supply Chain Efficiency and Added Value for Customers.......................................................................15 Figure 2.4 The Factors Influencing Purchaser-suppliers Relationship in 3PP............15 Figure 3.1 Three Analysis Steps in Qualitative Research............................................30 Figure 4.1 The Main Businesses of Company X.........................................................36 Figure 4.2 Work Flow of Company X.........................................................................36 Figure 4.3 Procurement Flow of Company X..............................................................40 Figure 4.4 New Suppliers Development Flow.............................................................45 Figure 4.5 Potential Supplier Selection Flow...............................................................47 Figure 4.6 Major Conflicts in Purchaser-supplier Relationship...................................57 Figure 4.7 Purchaser-supplier Satisfaction Model.......................................................76