Our research interest is to understand how to achieve coordinated action in reverse distribution systems. For this reason, we have reviewed literature on reverse distribution systems, coordination of physical flows and coordination of commercial interests, and performance variables. Inthis chapter we draw on this theory as we develop a research model and an analytical framework.
The literature review on reverse distribution systems disclosed that they are somewhat different from forward systems. Inreverse distribution systems, products are collected and reprocessed rather than manufactured and delivered to the end-consumer. The principles of distribution, however, are found to apply to both 'directions'. Thus, our starting point is that the theories for coordinating forward distribution systems are readily applied to reverse distribution system that take back products at end-of-life.
The physical flows and commercial interests have been investigated within two different streams of research, namely the logistics and supply chain management literature, and the governance literature.Itis argued that these streams of research have, in fact, developed from the same starting point but have become disentangled and 'live their own lives' (Gripsrud 2004). Each area has been occupied with the identification ofhow to coordinate activities and transactions respectively, and to achieve high performing distribution systems. When flows are disentangled it is not obvious whether physical flows dominate commercial interests or vice versa. Our argument is that it is not sufficient to coordinate only one flow in a distribution system, which is what the distribution literature implies (Rosenbloom 1995). Our thesis is that each flow needs to be coordinated separately, and that positive performance effects result from fmding interaction patterns across the flows. Knowing that 'once upon a time' the flows were studied as one area provides us with a promising point of departure.
We develop a research model that reflects our theoretical argument and an analytical framework that guides the analysis of our study.
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4.1 The research model
The previous chapter discussed coordination mechanisms for physical flows and commercial interests. The physical movement of goods is coordinated with mechanisms that address interdependencies in activity structures. To realise the commercial interests of the parties involved in distribution systems, transactions need to be coordinated with a combination of governance mechanisms. How the coordination mechanisms for physical flows and commercial interests are combined are expected to influence the level of system performance.
The combination of coordination mechanisms constitutes the basis for achieving coordinated action, and the degree of coordinated action is dependent on how well the coordination mechanisms are adapted to the needs of the distribution system. As a concept, coordinated action in our model consists of integrated activities for the physical flows, aligned behavior for the commercial interests and system performance. We argue that there is an interaction effect between the coordination mechanisms for physical flows and commercial interests that influence system performance. We have developed a research model, as illustrated below, and our argument for the model follows.
• Hierarchical mechanisms
• Incentives
• Norms Aligned behavior
• Planning
• Standardization
• Mutual adjustment
Integrated activities
Figure 4.1: The components of coordinated action in distribution systems
Physical flows represent the activities necessary to move products across distribution systems.
For products to move from one location to another, they are dependent on the coordination of activities, and the type of interdependencies between the activities indicate the rules of coordination (cf. chapter 3.2.2). If the logic of the activity structures is serial
interdependencies, the coordination mechanism is planning. If the logic of the activity structures is pooled interdependencies, the coordination mechanism isstandardization. And, ifthe logic is reciprocal interdependencies, the coordination mechanism ismutual adjustment.
Coordination of physical flows across the distribution system aims at "making the flow of goods semiautomatic even though the successive units are autonomous" (Alderson 1954:23).
In this respect, it is not only a question of coordinating activities, but a matter of achieving integrated activities in distribution systems. A higher level of integrated activities are expected to secure higher performance compared to activities with a lower level of integration
For serial interdependencies, the output of one activity is the input to the next activity. To achieve integration, it is necessary for the output of one activity to occur at precisely the moment it is needed as the input for the next activity. An example of this is transport. The expectation is that some form of transport leaves a given location at a time which enables it to arrive at another location in due time with the right type of goods. In other words, activities have to be planned to coincide with departure and arrival times. For pooled interdependencies, activities are dependent on a third activity. Thus, the means to achieve integrated activities is to utilize the third activity. Again we take the transport example, where pooled interdependencies reflect capacity. In order to achieve efficient transportation, transport capacity needs to be filled and goods have to be coordinated to ensure that capacity is utilized.
The transport hasa standard capacity level and the volume of goods loaded is adapted to this capacity. For reciprocal interdependencies, the activities are mutually related. For integration to be achieved, the activities have to be executed at the same time. Staying with the transport example, reciprocal interdependencies are represented in terms of the combination of locations, transport scheduling and capacity. In order for the goods to move from one location to another, they are dependent on the way in which the sites, volume and transport are combined in the transport system. The elements of the systems need to be mutually adapted when the system is organized. Express-transport services provide an alternative example. Not knowing the exact transport needs, the transport companies have some available transport capacity that can be adjusted to the need of the customers when the exact transport commission is ordered.
Coordinating activities in physical flows are reflected in operations costs and customer service level.The performance is expected to increase with the level of integrated activities.
Consequently, integrated activities are expected to lead to minimization of operations costs in a distribution system because the flow of goods is routinized and relatively automatically 74
fIIIIlIysis
executed. In a physical flow with integrated activities, the need to attend to every transfer of goods is not necessary. Activity structures may, as we have seen, be coordinated in different manners. Thus, differently coordinated activity structures create different cost structures, and different customer service levels. The different coordination mechanisms, in this respect, lead to physical flows in distribution systems with a certain level of integrated activities, cost and customer service.
Integrated activities, as a means of achieving high performing physical flows, are in many ways what the logistics and supply chain management literature is all about. However, integration of activities in distribution systems is not straightforward because commercial interests are involved. We argue that the commercial interests between actors influence the physical flows and vice versa. We have drawn on governance literature to learn about coordination of commercial interests. Our argument is that the coordination mechanisms for physical flow and commercial interests need to interact in order to achieve superior optimum system performance. Before going into more detail on how we perceive this connection, we state our argument about the coordination of commercial interests.
The commercial interests are the exchanges that take place in distribution systems. In order to secure the coordination of commercial interests, it is necessary to implement governance mechanisms to guide exchanges. In the theory, we clarified thatcontracts guide exchanges in distribution systems, and that contracts need a mix of formal and informal governance mechanisms (Heide and John 1992, John 1984). The governance mechanisms constitute a combination ofhierarchical mechanisms, incentives andnorms. The governance mechanisms are a means to ensure aligned behavior of the commercial interests in the distribution system.
Itis necessary to align behavior because the distribution systems comprise a mix of interests.
The governance mechanisms seek to ensure that there are no conflicts of interests between the individual actors' self interests and the overall common interests of the distribution system.
On one side, the governance mechanisms aim to prevent actors from being tempted to seek self-interests that may conflict with the common interests and, thus, would be detrimental to the overall distribution system - i.e. behave opportunistically (Williamson 1985). On the other side, the governance mechanisms are a means of ensuring that the actors are motivated to contribute positively towards the common interests of the distribution system.
Hierarchical mechanisms create a formal relationship in the coordination of commercial interests in distribution systems. In distribution systems, formalization and centralization
FrØ/lU!H)ork for analysis
represent the hierarchical mechanisms (Klein 1989). Formalization establishes the rules of the relationship (Van de Ven 1976), and centralization establishes the locus of decision-making (Heide and John 1992, Van de Ven 1976). In this manner, the actors formally agree on how transactions are to be executed and who is entitled to make decisions. Itis reported that these hierarchical mechanisms align behavior in distribution systems (John 1984). However, at the same time, it is reported that these mechanisms may influence alignment of behavior negatively (John 1984).Itis therefore necessary to combine the mechanisms with incentives and norms (Dahlstrøm and Nygaard 1999, Heide and John 1992). The findings are different for the two dimensions, centralization and formalization, and it is argued that each dimension needs separate attention (Dwyer and Oh 1987). From the literature, there are indications of such combinations. Incentives are expected to be effective in aligning behavior in distribution systems where there is a centralized decision maker (Gilliland 2004), as these mechanisms are typically unilateral in nature (Heide 1994). Norms, on the other hand, are bilateral in nature (Heide 1994) and are expected to be effective in distribution systems where the centralized decision maker is dependent on cooperation from the other actors (Heide and John 1992).
Formalization is assumed to combine effectively with norms when it regulates complex or customized relationships (poppo and Zenger 2002). Incentives, however, combine effectively with formalization when it is difficult to disclose partner motivations (Dahlstrøm and Nygaard
1999).
Combining the governance mechanisms in an effective manner ensures aligned behavior in distribution systems and premium system performance. As with physical flows, it is expected that the coordination mechanisms ensure that transactions are executed according to the contract, and demand a minimum of amount of attention for every transfer. That is, it is not necessary to control every transaction for divergent diverging behavior. Performance as a result of effective coordination of commercial interests is reflected in transaction costs and transaction value. It reflects the extent to which divergent diverging behavior in the distribution system incurs higher transaction cost in comparison to an expectation.
Performance also reflects the opposite when diverging behavior in the distribution system generates greater value than what was expected.
The coordination mechanisms of physical flows and commercial interests in distribution systems are in place in order for the transfer of both goods and interests to be routinized and semiautomatic even though the actors in the flows are autonomous. The coordination mechanisms, therefore, contribute to coordinated action but in different ways. For physical 76
flows, the aim is to integrate activities, while for commercial interests, the aim is to align behavior. The performance variables reflect the extent to which the coordination mechanisms of distribution systems actually contribute to coordinated action.
Coordinated action of the distribution system is achieved when the flows contribute to an integrated whole (Alderson 1954). We therefore hypothesize that there are interaction effects when flows in distribution systems are viewed as 'a whole'. To achieve coordinated action in distribution systems, we argue that it is necessary to coordinate across the flows as well: The structuring of the activities in the physical flow is not unrelated to the type of governance mechanisms implemented to coordinate commercial interests and vice versa. If the interdependencies between activities are represented in terms of a serial, pooled or reciprocal logic, we expect that it is not irrelevant what type of governance mechanism that is implemented between the actors in the distribution system.Inthis respect, we expect that the coordination mechanisms for the flows adapt to each other in a systematic manner. For example, if activities are integrated by planning, the commercial interests would be expected to be governed by a particular combination of mechanisms. An example of where this discussion is reflected is the question of purchasing goods, where the contracts may be either ex-works (EXW) or delivery ex-quay (DEQil, which would result in a different activity structure for the physical flow. The contract influences the coordination of the activity structure, but it is not certain that such an activity structure provides the best performing physical flow. Likewise, if an activity structure is optimized, it is not certain that the actors are satisfied with the commercial interests in the distribution system. The interaction effect is included in our research model and, in our study, we explore how the coordination mechanisms are linked. The relationship between these two types of coordination mechanisms has not been studied previously (Gripsrud 2004). This development constitutes the main theoretical contribution ofthis study.
We therefore argue that the effect of coordinating across the flows is reflected specifically in system performance as some form ofsystem goal. Inthe literature on distribution systems, it is argued that organizations are involved in interorganizational relationships in order to attain goals that would be unattainable by organizations acting independently (Reve and Stem 1979).Inthis manner, we argue that distribution systems that are able to match coordination
31When goods are purchased ex-works the buyer controls the goods starting from the factory. When goods are purchased delivered ex-quay the goods are delivered to the retailer or sales-outlet by the manufacturer.
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