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Governance modes in supply Governance

modes in
chains and financial performance supply chains

at buyer, supplier and dyadic

levels: the positive impact of
power balance Received 22 March 2020
Revised 15 September 2020
12 October 2020
Leonardo Marques, Paulo Lontra, Peter Wanke and Accepted 3 April 2021
Jorge Junio Moreira Antunes
Coppead, Universidade Federal do Rio de Janeiro, Rio de Janeiro, Brazil

Abstract
Purpose – This study analyzes whether power in the supply chain, based on governance modes and network
centrality, explain financial performance at different levels of analysis: buyers, suppliers and dyads.
Design/methodology/approach – The study employs a dual macro-micro lens based on global value chain
(i.e. market, modular, relational and captive governance modes) and social network analysis (network
centrality) to assess the impact of power (im)balance onto financial performance. Different from previous
research, this study adopts information reliability techniques – such as information entropy – to differentiate
the weights of distinct financial performance metrics in terms of the maximal entropy principle. This principle
states that the probability distribution that best represents the current state of knowledge given prior data is
the one with largest entropy. These weights are used in TOPSIS analysis.
Findings – Results offer insightful reflections to SCM research. We show that buyers outperform suppliers
due to power asymmetry. We ground our findings both analyzing across governance modes and comparing
network centrality. We show that market and modular governances (where power balance prevails)
outperform relational and captive modes at the dyadic level – thus inferring that in the long run these
governance modes may lead to financially healthier supply chains.
Originality/value – This study advances SCM research by exploring the impact of governance modes and
network centrality on performance at both firm and dyadic levels while employing an innovative combination
of secondary data and robust set of techniques including TOPSIS, WASPAS and information entropy.
Keywords Power, Global value chain, Governance mode, Network centrality, Dyadic financial performance,
TOPSIS, Information entropy
Paper type Research paper

1. Introduction
The supply chain management (SCM) literature has long praised the benefits of collaboration
and its resulting impact on performance, but most research has been limitedly based on
individual firms’ performance, either from the buyer or the supplier perspective, in most cases
focusing on the former (Frohlich and Westbrook, 2001; Paulraj and Chen, 2007). Hence, there
is a lack of studies looking at dyadic performance that can reflect results that could not be
achieved by either firm alone (Whipple et al., 2015). Despite the call for further investigation of
how SCM can impact performance beyond the firm level (Zheng et al., 2007), we identify a
research gap concerning whether supply-chain governance modes can lead to different
dyadic performance results.
Governance in supply chains is often characterized by concentration of power within a
small set of buying firms (Gereffi et al., 2005). The food sector is particularly representative of
this context, being described as a “supply funnel,” where large buying firms are at the center
of the funnel, channeling food products from a globally dispersed supply base to an even Benchmarking: An International
Journal
wider base of end-consumers (Gereffi and Lee, 2012). Conversely, in other supply chains there © Emerald Publishing Limited
1463-5771
is a power symmetry between buying firms and suppliers, such as in the steel industry DOI 10.1108/BIJ-03-2020-0114
BIJ (Sturgeon et al., 2008). The global value chain (GVC) literature offers a typology that varies
according to the power symmetry between buyers and suppliers, and the resulting level of
explicit coordination in the supply chain, that is buying firm’s control over the supply base.
Although GVC has been suggested as a promising lens to study SCM, in particular when
addressing power, there is still scant literature exploring this path (Gereffi and Lee, 2012;
Touboulic and Walker, 2015b).
Besides exploring the GVC lens to assess power (a)symmetry, research has also suggested
this macro-analysis can be triangulated with the micro-analysis, for example using firm size
as a proxy for power (Golini et al., 2016). We expand on this notion by adopting network
centrality, based on social network analysis, as a complementary angle to assess power of a
firm within a supply chain (Kim et al., 2011). In doing so, we advance on the analysis of power
in supply chains, as well as its impact onto performance. The objective of this study is
therefore to answer the research question: what is the impact of power in supply chains to
financial performance at both individual firm and dyadic levels?
Data analysis covers different types of dyads, varying on the level of explicit coordination
(i.e. governance modes in GVC terminology). The study is based on four industry sectors in
Brazil that exhibit varying levels of explicit coordination. Literature often suggests that
powerful firms improve their performance in the expense of weaker ones, particularly
exploring financial conditions such as working capital and liquidity (Virolainen et al., 2017).
The GVC literature indicates that power can shape the distribution of profits and risks in a
supply chain (Gereffi and Lee, 2012). We complement the GVC analysis with social network
analysis to look at network centrality of each firm. Therefore, this research fills a literature
gap by addressing the issues of supply chain governance and power on dyadic financial
performance.
This study also differs from previous ones on the methodological aspect. Its
innovations are threefold. First, information entropy is used as a cornerstone tool to
handle epistemic uncertainty with respect to the different financial performance metrics
(Pele et al., 2017) that are used to build a single financial performance index based on the
technique for order preference by similarity to ideal solution (TOPSIS). TOPSIS uses
information entropy scores as the financial metric weights, so that maximal
heterogeneity can shed more light over the phenomenon under study. Second, we
calculate a benchmarking (minimal overall performance variance) of the supply chain
given current performances of buyers, suppliers and their dyad. The benchmarking
results from weighted aggregate sum-product assessment (WASPAS) to analyze whether
individual performance asymmetries may jeopardize dyadic performance. Third, the
impact of governance modes on financial performance indexes is assessed by means of
robust regression and clustering approaches, where results are controlled by the
centrality degree (computed using social network analysis) as well as by the group of
analysis – buyer, supplier, dyad or overall – and their governance mode – market,
modular, relational and captive. By triangulating governance modes and network
centrality, we offer a robust assessment of power (a)symmetry in supply chains.
Combined set of techniques allows us to compare and contrast financial results at both the
individual and dyadic levels to expose the conditions that lead to better financial
performance of the supply chan. Our study shows that buyers outperform suppliers
across governance modes. In particular, results suggest that market and modular
governance outperform relational and captive at the dyadic level – thus inferring that in
the long run these governance modes may lead to financially healthier supply chains.
The remainder of this paper is organized in four sections. First, we provide a discussion of
the literature concerning GVC, dyadic financial performance and power in supply chains.
Then, we describe the study’s methodology. Next, we offer the results and discussion. Finally,
we conclude with implications, limitations and future research opportunities.
2. Literature review Governance
This literature review begins by reviewing global value chain and social network analysis as modes in
complementary lenses to discuss power in the supply chain. Then, we review supply chain
finance and dyadic financial performance – a low praised yet under-researched dimension in
supply chains
the SCM literature. Finally, we propose global value chain and social network analysis as a
means to help triangulate the effects of power onto financial performance in supply chains.

2.1 Macro-analysis of power: the global value chain framework

Global value chain (GVC) is a theoretical framework developed to explain value appropriation
and the dynamics of geographical configuration of supply chains (Gereffi et al., 2005; Gereffi
and Lee, 2012; Sturgeon et al., 2008). In an increasingly fragmented business environment, in
which firms often decide to outsource key activities, the GVC framework tries to offer a better
assessment of how supply chains are governed. The GVC framework (Figure 1) proposes
market and hierarchy the as the two extremes of a governance mode continuum. In between
the two poles, the GVC framework offers three alternative governance modes, namely
modular, relational and captive (Gereffi and Lee, 2012). These intermediate modes reflect
power asymmetries between buyers and suppliers according to three variables: (1) the
complexity of transactions, (2) the ability to codify transactions and (3) the capabilities in the
supply network, which then define the degree of explicit coordination in the supply chain
(Gereffi et al., 2005).
Therefore, the GVC framework proposes five available governance modes. The left side of
the framework represents low levels of complexity, therefore higher ability to codify
transactions and ultimately an equilibrium between buyers and suppliers, configuring the
market mode. When moving from left to right, complexity increases, the ability to codify
transactions increases, and buyers respond to this by exploring the lack of capabilities within
the supply base and increasing explicit coordination to form buyer-driven supply chains
(Gereffi et al., 2005). A modular governance mode represents higher levels of coordination and

Market Modular Relational Captive Hierarchy

End Use Customers Lead Lead Integrated

Firm Firm
Lead Firm
Firm

Price Turn-key Relational

Supplier
Chains

Supplier
Value

Component and Component and

Suppliers Material Material Captive
Materials Suppliers Suppliers Suppliers

Degree of Explicit Coordination

High
Low
Degree of Power Asymmetry Figure 1.
Five global value chain
governance modes
Source(s): Gereffi et al., 2005
BIJ power in the hand of the buying firm than the pure market. The automotive sector has been
characterized as modular governance. The relational governance reflects an intermediate
level of coordination. The garment sector has been pictured as an exemplar of relational
governance, although under certain conditions shoe production has been displayed as
captive (Lim and Phillips, 2008; Vasconcellos et al., 2015). Next in line is the captive
governance mode, reflecting full coordination by the buying firm (Sturgeon et al., 2008). The
food sector has been described as an exemplar of the captive governance mode (Gereffi and
Lee, 2012). Finally, the fifth governance mode is full verticalization, that is hierarchy. When
studying buyer–supplier relationships such as the present study, one needs to focus on the
first four types, thus excluding hierarchy where it ceases to exist in a buyer–supplier
relationship.
GVC represents an industry sector (macro) analysis (Gereffi et al., 2005), which reflects an
institutional perspective where industry level factors influence coordination and power
asymmetry between buyers and suppliers. Such factors include industry life cycle and entry
barriers (Hern
andez and Pedersen, 2017). Despite a call for further exploration of the GVC
framework within SCM research in 2012 (Gereffi and Lee, 2012), followed by a renewed call in
2016 (Golini et al., 2016) little empirical work has been produced so far. Studies investigating
supply chains through the GVC framework have emphasized power asymmetry between
buyers and suppliers, global dispersion and the challenges of advancing sustainability across
the extended supply chain (Asgary and Li, 2014; Clarke and Boersma, 2017; Lim and Phillips,
2008; Wahl and Bull, 2013). Another branch of studies has discussed how the position along
the value chain affects performance (Vasconcellos et al., 2015; Yang and Singh, 2014).
Unarguably, the different GVC governance modes can have different impacts for the
members of the supply chain (Buckley and Strange, 2015).
In particular, we highlight that governance modes (i.e. degrees of explicit coordination and
power asymmetry) may affect financial performance (Terpend and Ashenbaum, 2012). When
holding increased explicit coordination and power, buyers can improve financial
performance by taking advantage over their suppliers (Touboulic et al., 2014).
Nevertheless, there is still little knowledge regarding the ways in which such power
asymmetry affects financial performance across the individual-levels (buyers and suppliers)
and the dyadic-level. Moreover, and most importantly, previous research shows that the
supplier network position can attenuate the impact of buyer power (Terpend and
Ashenbaum, 2012). This means that supply network characteristics can counter-balance
industry-level effects (characterized by the GVC governance modes). In other words, the
macro-analysis of the industry sector alone, may not explain power and financial
performance. Therefore, there is a need to complement the GVC analysis with a micro
perspective of power, and for this, we resort to social network analysis.

2.2 Micro-analysis of power: social network analysis

Social network analysis (SNA) has been increasingly adopted as a tool to map interactions in
a supply network to discuss the micro perspective of buyer–supplier relationships such as
knowledge sharing and coordination mechanisms (Marques et al., 2020). In particular, SNA
offers a toolkit to map power in the supply chain through the analysis of how central the firm
is in the given network (Kim et al., 2011; Yan et al., 2015). SNA can help look at power
imbalance in terms of how a given supply chain actor (e.g. a buyer) establishes its network of
influence (Kim et al., 2011).
Previous research has shown that buyers exert power to control their suppliers; however,
the supplier network position can attenuate the impact of buyer power onto the supplier
(Terpend and Ashenbaum, 2012). Supplier exploration of their supply network can offer
subtle ways to navigate despite power imbalance. Suppliers can, for example, explore their
social networks in terms of prestige, trust and social relations to mitigate the financial
unbalance resulting from power imbalance (Lu et al., 2018). Within this context, SNA can Governance
serve as a tool to map supplier position within the network and the consequences of such modes in
network position (Yan et al., 2015).
Despite extensive research mapping the positive effects of power to buyers (Terpend and
supply chains
Ashenbaum, 2012), as well as the negative effects for suppliers and the detrimental effects of
power imbalance to supply chain collaboration (Lu et al., 2018; Mora-Monge et al., 2019), there
is little understanding regarding the financial dimension of such consequences for buyers,
suppliers and the combined dyads.
A recent review by Hern
andez and Pedersen (2017) has highlighted the complementary
influence of macro (extrinsic) and micro (intrinsic) perspectives on collaboration and
performance (Hern
andez and Pedersen, 2017). In addition, the study by Golini et al. (2016)
empirically discusses the benefits of bridging GVC and SCM in order to bridge the industry
(macro) and supply chain levels of analysis. Their study complements GVC governance
modes with firm size as a proxy for the micro-influence of power in collaborative buyer–
supplier practices (Golini et al., 2016). In this study, we posit that the centrality of a firm within
its supply network (network centrality) can offer a better proxy of the power of such a firm to
influence governance than firm size (Kim et al., 2011). Therefore, the micro-analysis of
network centrality alone may not explain power and financial performance.
Power in a supply chain can result instead of the blend of macro-influences at the industry
level that affect all firms operating in the industry sector, as well as from the (micro) “web of
power relations” between participant firms in the supply chain (Pilbeam et al., 2012).
Such power influence in the supply chain can influence financial performance. In order words,
power asymmetry can define who captures greater value in the supply chain, and help a given
firm to favor its individual performance in detriment of the performance at the dyad level
(Gelsomino et al., 2016). Within this context, supply chain finance has emerged as the analysis
of financial performance across different supply chain actors.

2.3 Performance at the dyadic level: supply chain finance

SCM research has long suggested benefits when supply chain members adopt a collaborative
approach (Chen and Paulraj, 2004; Frohlich and Westbrook, 2001) and ultimately, prioritize
the performance beyond the firm level (Mentzer et al., 2001). Yet, the operationalization of
dyadic performance has been limited, and most studies still consider only the buying firm’s
perspective. In addition, there is scarcity of empirical evidence regarding whether different
approaches to governing suppliers can produce different results for the buyer, the supplier
and the dyad (Yang and Singh, 2014). Even more importantly, which governance conditions
of buyers related to their suppliers can improve performance at the dyadic level instead of
maximizing firm-level performance.
Instead of capturing dyadic performance, studies tend to focus on the impact of SCM to an
individual firm: either the buyer or the supplier. For example, studies have discussed whether
the position of a firm within a supply chain affects its individual performance (Schmidt et al.,
2017) or how buying firms can influence supplier performance (Terpend and Krause, 2015). In
brief, the relationships between individual-firm performance and dyadic performance are
under-researched within SCM. Moreover, the operationalization of dyadic performance has
been scantly explored, and most studies still resort to firm-level performance (Gelsomino
et al., 2016). We contend that buying firms that fail to track not only their individual
performance, but also results at the dyadic level may jeopardize the long-term sustainability
of their business (Touboulic and Walker, 2015a).
The recent emergent of the research stream of supply chain finance (SCF) has renewed
attention towards the need of looking at finance flows from the perspective of the dyad,
balancing the needs of buyers and suppliers, aiming the improvement of the relationship. SCF
BIJ is defined as “the inter-company optimization of financing as well as the integration of
financing processes with customers, suppliers, and services providers in order to increase the
value of all participating companies” (Pfohl and Gomm, 2009). The literature review by
Gelsomino et al. (2016) shows that SCF initiatives usually address firms’ payables, inventory
and receivables, such as the practice of reverse factoring, when buyers help suppliers’ cash
flow. Other solutions may include for example inventory shifting and asset financing.
Ultimately, these initiatives aim to improve mitigate working capital imbalance, as working
capital imbalance enhances supply chain bankruptcy risk (Xu et al., 2010) and supply chain
cash inflow risk (Tsai, 2008), hence aiming to improve financial performance at the
dyadic level.

2.4 The effects of power imbalance to financial performance: a dual macro-micro lens
Despite the clear usefulness of the GVC lens to discuss power (im)balance and its implications
to SCF, we found no study taking the GVC lens to discuss the impact of collaboration (or lack
of) onto SCF and financial performance contrasting individual and dyadic levels. Similarly,
although network position has been identified as key to understanding governance and
finance flows in supply chains (Lu et al., 2018; Pilbeam et al., 2012; Terpend and Ashenbaum,
2012), we found no study capturing performance differences between firms and dyads in
supply chains based on network position.
In this study, we triangulate the macro-analysis of power based on GVC governance
modes and the micro-analysis of power based on network centrality in the supply chain to
infer the impact of power imbalance onto financial performance, contrasting results across
the supplier, the buyer and the dyadic levels.

3. Methodology
3.1 Assigning governance modes to the industry sector
Four industry sectors were chosen to represent the GVC governance modes, excluding the
hierarchy governance, that is vertically integrated firms. The choices were based on previous
GVC research that link industry sectors and governance modes (Lim and Phillips, 2008;
Vasconcellos et al., 2015). Despite the fact that there is heterogeneity within any industry
sector, we have adopted previous research typology to ground this study. We explain the
match between governance mode and industry sector moving along Figure 1 from left
(market governance) to right (captive governance).
To represent the market governance, Gereffi et al. (2005) characterize commodity sectors as
exemplars of arm’s length market relationships between buyers and suppliers. Hence, the
representative of this governance mode is a commodity sector, more specifically the steel
industry.
Sturgeon et al. (2008) point out that originally, Japanese car manufacturer’s suppliers used
to adopt the captive governance, and American manufacturers adopted the market
governance, but in recent decades manufacturers in both countries have shifted towards the
“middle” of Figure 1 – that is the modular governance. Currently, the automotive sector has
homogeneously shifted to modular sourcing, where key suppliers represent product
categories instead of specific raw materials. Therefore, the automotive sector is the chosen
representative of the modular governance.
To represent the relational governance, the garment sector was chosen. According to
Gereffi et al. (2005), the apparel industry is progressing in codifying capacity, along with
supplier capabilities, which means that some companies may shift to modular governance,
but historically relational governance has prevailed. Moreover, in developing economies such
as Brazil, buyer power is still predominant in the garment sector.
 Finally, for the captive governance, the food sector –specifically the poultry production Governance
was chosen. According to Gereffi et al. (2005), in this sector leading buying firms exert modes in
significant control over chicken farmers, who depend on big meat players to access the
market and to have the necessary inputs for production. In summary:
supply chains
(1) Market governance: Steel sector
(2) Modular governance: Automotive sector
(3) Relational governance: Garment sector
(4) Captive governance: Food sector, specifically the poultry production
Moreover, we have concentrated data collection in one specific country to isolate institutional
effects that could affect industry sectors. All four chosen industries are based in Brazil. Brazil
is a country particularly challenged by two main barriers regarding the implementation of
best purchasing and SCM practices. First, there are significant infrastructural barriers such
as geographic dispersion, limited logistics capacity for long distances and excessive
bureaucracy, all of reduce the country’s competitiveness when compared to other countries
(Arvis et al., 2014). Second, and most importantly, on the cultural dimension research shows
that the decision-making processes in Brazilian firms are mostly influenced by high power
distance, which reflects both in terms of power from management over workers, and in terms
of power from buyers over suppliers (Chu and Wood Jr., 2008; Vasconcellos et al., 2015). Third
and most importantly, Brazil is a suitable choice because it holds both (1) a developed market
of suppliers in all four industries, and (2) a reasonable array of publicly listed companies in all
four sectors in order to allow access to secondary data regarding financial performance.
In this study, we have collected data to form 128 dyadic relationships from the four chosen
industry sectors based on publicly available information. Dyadic selection was based on
publicly listed companies in order to access data needed for the study. The firms participating
in the 128 dyads were thus classified according to the following classification: market–buyer,
market–supplier, modular–buyer, modular–supplier, relational–buyer, relational–supplier,
captive–buyer and captive–supplier. The first word of each category is according to the GVC
governance mode. The second word refers to the position of the firm in the dyad scheme, that
is buyer or supplier. The relation of industry governance mode, sector and activity of each
considered businesses are presented in Table 1. The only exception relates to the captive–
suppliers as small farmers’ information is not publicly available. Therefore, the information
about this group was based on a research released by the Brazilian Company of Agricultural
Research (EMBRAPA, in Portuguese). This is the research institute of the Brazilian
Agricultural Ministry, which studies the working capital requirements of small chicken
farmers from the south region of Brazil (Martins et al., 2007).

3.2 Data sources

This empirical study is based on secondary data, based on at least two advantages. First,
secondary data can be more objective and free from contamination by respondents’
perceptions or memory, as secondary data already exists and was produced or captured for a
purpose other than the research at hand (Calantone and Vickery, 2010). Second, secondary
data has allowed the measurement of the financial performance of four different sectors that
lessen human effort, supported by computer technology.
The analysis is based on secondary data published by respective firms on quarterly
reports and compiled from the Economatica database. It was accessed in the months of May
2017 and June 2017. To ensure validity, reliability and comparability of data, the compiled
data follow International Financial Reporting Standards (IFRS). Although some of the
companies may have overseas foreign operations, these enterprises are considered Brazilian
BIJ Market Modular Relational Captive
Steel Automotive Garment Chicken
Steel Steel Yarn/ Meat
industry products Auto parts Automaker Fabric Garment Farmers industry
(Supplier) (Buyer) (Supplier) (Buyer) (Supplier) (Buyer) (Supplier) (Buyer)

Vale Gerdau Fras-Le Minas Cedro Hering Small Brasil

Maquinas Farmers Foods
Ferbasa CSN Marcopolo WLM Ind Coteminas Alpargatas JBS
CSN Fibam Riosulense Metal Leve Dohler Cambuci Mafrig
Gerdau Pan Iochp- Ind. Grendene Excelsior
Atlantica Maxiom Cataguases
Magels Shulz Karsten Grazziotin Minerva
Ind
Tekno Plascar Pettenati Guararapes
Tupy Santanense Le Lis
Blanc
Springs
Teka
Table 1. Tex
Firms, industry sector, Renault
governance type and Note(s): Appendix provides the acronym list that denote firms and the network diagram for each industry
supply chain position sectors/governance mode

due to stock exchange listing. The samples were taken considering financial positions
disclosed for the first quarter of 2017, that is 31 March 2017. The WACC of each company was
taken from the Bloomberg Database, accessed on June of 2017, and it is estimated by equity’s
Beta. Data from Economatica comprised: revenues, inventory, cost of goods sold (COGS),
receivable, payables, current assets and current liabilities.
The acting fields of each company comprised in the sample were retrieved from each
company’s own official website. The categorization used to classify the activity is based on
the categorization used by the Brazilian Exchange and is available at: http://www.
bmfbovespa.com.br/pt_br/produtos/listados-a-vista-e-derivativos/renda-variavel/empresas-
listadas.htm.

3.3 Measuring financial performance

In this study, we focus on financial metrics or indicators to assess finance performance at the
levels of buyers, suppliers and dyads. Due to epistemic uncertainty, information entropy is
used as the weighting criterion for each one of the indicators when computing a single
financial performance index per group. We also focus on the minimal financial performance
variance of the dyad that ensures power symmetry so that long-run performance of the
supply chain is favored (Touboulic and Walker, 2015a). The idea is to assess the relative
importance of these different tiers of analysis in achieving homogenous performance. Metrics
include inventory, payables term, receivables term, cost of capital and cash liquidity.
Literature suggests that an important metric connecting accounting and logistics is the
cash-to-cash (C2C) cycle (Hofmann and Kotzab, 2010; Randall and Farris, 2009). On the
accounting side, the C2C cycle helps to measure the liquidity and value of the company, as
shorter cash conversion cycles result in higher present value of net cash flows (Farris II and
Hutchison, 2003). To understand why the C2C cycle depends on the firm’s supply chain, it is
necessary to understand its components. The C2C cycle consists of days-in-inventory, days-
in-receivables and days-in-payables. These three factors are time-related, and are affected by
production lead time, credit period of receivables and payables and payment patterns due to Governance
trade discounts (Tsai, 2008). “The optimum liquidity position for a firm is an on-going trade-off modes in
between financial decision to shorten the C2C cycle (which decreases minimum liquidity
required) and operational decisions (which can length the cash conversion cycle and therefore,
supply chains
increase minimum liquidity required)” (Farris II and Hutchison, 2002, p. 292).
C2C cycle is the main indicator for working capital imbalance. If two related firms show
significant discrepancy in the C2C cycle, it may indicate an opportunity to improve working
capital management. However, as the C2C cycle is a broad measurement, a deeper analysis is
necessary to identify the issues. To identify high investment is inventory, it is necessary to
analyze the relation between current and quick ratio, as well as the days of inventory
outstanding (DIO). The short payable and long receivable term are related, in a similar way, to
the days of payables outstanding (DPO) and days of sales outstanding (DSO). The liquidity is
measured by the liquidity ratios, that is current ratio and quick ratio. Finally, the cost of
capital is analyzed through the weighted average cost of capital (WACC). If two related firms
hold significant WACC difference, this indicates that there may be opportunities for SCF
initiatives.
Firms typically work to improve working capital management and set internal goals such
as extending payable days, reducing sales outstanding and reducing inventory. This is a way
to free capital tied up in non-productive stocks (Farris and Hutchison, 2002). Therefore, it is
expected that firms that holds more power to improve its working capital necessities at its
suppliers and buyers’ expense (cf. Figure 2).
The C2C cycle can breakdown in three main components: order-to-cash cycle, which links
the sales side to the operational activity; forecast-to-fulfill cycle, which is linked to the
forecasting, warehousing, order processing and production planning activity and purchase-
to-pay cycle, which concentrates on the supply and purchasing side of the firm. Therefore, the
C2C cycle presents itself as a proper measurement of working capital performance and is
calculated as the following expressions (Hofmann and Kotzab, 2010):
Accounts Receivables
DSO ¼ 3 365 (1)
Revenue
Inventory
DIO ¼ 3 365 (2)
Cost of Goods Sold

Figure 2.
Single-firm perspective
on the C2C cycle
Source(s): Hofmann and Kotzab (2010)
 Accounts Payable
BIJ DPO ¼ 3 365 (3)
Cost of Goods Sold
C2C ¼ DSO þ DIO  DPO (4)
C2CDyad ¼ C2CSupplier þ C2CBuyer (5)

where the remaining acronyms are defined as it follows: Days of Sales Outstanding (DSO),
Days of Inventory Outstanding (DIO), Days of Payables Outstanding (DPO), Cash-To-Cash
Cycle (C2C) and Dyadic Cash-To-Cash Cycle (DC2C).
Liquidity is commonly measured by ratios such as the current ratio and the quick ratio.
These ratios, although static in time, can give a punctual assessment of firm’s ability to cope
with its obligations through liquidation of assets, and it can by calculated by the following
expressions (Farris and Hutchison, 2002):
current assets
CR ¼ (6)
current liabilities
current assets  inventories
QR ¼ (7)
current liabilities
where the remaining acronyms are defined as follows: Current Ratio (CR) and Quick
Ratio (QR).
By considering the sub-cycles and the liquidity ratios we expect to have a clearer
understanding if there is any imbalance in the management of working capital, if there are
opportunities to explore the difference in capital costs, if it is possible to manage inventory
better and if there are opportunities to reduce the chain’s financial risks.

3.4 Data analysis

This section presents the methods used to analyze performance (j) at different groups of
analysis (k) – buyers, suppliers and dyads – for each one of the units (i). The phenomena under
study – the impact of governance modes on financial performance – is embedded within
epistemic uncertainty, rooted in bounded rationality that limits the capacity of each actor to
process information regarding other supply chain partners (Carter and Rogers, 2008; Dooley
and Van de Ven, 1999). Therefore, the principle of maximal entropy is applied when
computing the financial performance indexes for each unit i within each group k based on the
respective set of j performance metrics.
The maximal entropy principle states that the probability distribution that best
represents the current state of knowledge given prior data is the one with largest entropy.
Putting into other words, this principle limits the decision-maker
s choice from all the possible
different probability distributions that might express the current state of knowledge. It is the
cornerstone of information theory, providing a constructive criterion for setting up
probability distributions on the basis of partial knowledge, while enabling a type of statistical
inference which is called the maximum entropy estimate. This will be the system with the
largest remaining uncertainty – that is heterogeneity or dispersion – where no extra biases or
uncalled assumptions can enter into the analysis (Teixeira et al., 2019). Therefore, by
assigning maximal entropy weights into TOPSIS performance computations based on
alternative SCM financial performance indexes, this research assures that computed ranked
and scores at supplier, buyer and dyad levels are bias-free. This means that their
distributional profiles contain the maximal possible heterogeneity or dispersion level,
working as a robust or worst-case scenario against eventual unconsidered assumptions in
this research.
 Putting into other words, information entropy enters the TOPSIS model for each ijk triplet Governance
as a cornerstone for measuring performance. According to Aye et al. (2018) and Andrade et al. modes in
(2020), performance is often assessed with multi-criteria decision making (MCDM) methods
like TOPSIS, which develop cardinal or scale metrics on positive and negative ideal solutions
supply chains
that are obtained through linear combinations of the original criteria. Putting into simpler
wording, these combinations are formed by the best achieved values for the positive criteria
and the worst achieved values for negative criteria, in a way that best and worst (i.e. positive
and negative ideal, respectively) limits for possible achievable performance are determined.
TOPSIS measures performance in qualitative terms, using cardinal distances (scores) from
ideal solutions while simultaneously presenting an ordinal ranking of them. These authors
also state that TOPSIS amongst the plethora of existing MCDM models is the one with high
resemblance with consecrated non-parametric and parametric efficiency measurement
methods, such as Data Envelopment Analysis and Stochastic Frontier Analysis, respectively.
Considering that dyadic performance is usually conceptualized as a win-win collaborative
initiative (Paulraj and Chen, 2007), the minimal overall financial performance variance is
computed using WASPAS, so that the relative importance of each group k in assuring
performance homogeneity can be identified. Robust regression and clustering techniques aim
at discriminating performance. It is noteworthy that, as long as bargaining power is an
important source of performance asymmetry in supply chains (Touboulic et al., 2014), the
centrality degrees for participants (derived from social network analysis) are also considered
as control variables.
Next, we explore in which ways this study has operationalized the key concepts of
information entropy, TOPSIS, WASPAS, social network analysis and robust regression.
Information entropy. Information entropy can be conceptualized as a measure of
uncertainty, which is a probabilistic concept (Basurto-Flores et al., 2018). Depending on the
entropy characteristics, the randomness and dispersion produced by a dyadic performance
index can be determined by calculating the information entropy for each original dyadic
performance indicator under each group (buyer, supplier and dyad) computed using TOPSIS.
The greater the value of the information entropy, the greater the randomness or the
dispersion within each group and, therefore, the greater the heterogeneity produced (N
~ez
un
et al., 1996). In this paper, information entropy is used to analyze the buyer, supplier and dyad
distributions of original dyadic performance indicators. Through this approach, a novel
assessment is established in estimating the inherent heterogeneity of a given locus of analysis
with respect to each final dyadic performance indicator. There are some concepts based on
the following considerations during the computational steps.
In step 1, it is assumed that there are j original SC financial performance indicators,
ranging from 1. . .n, related to i units (1. . .m), within each group k. These elements make up
the decision-making matrix Dij(k) for each financial performance indicator j of each company
i under group k as follows:
2 3
d11ðkÞ d12ðkÞ . . . d1nðkÞ
6 d21ðkÞ d22ðkÞ . . . d2nðkÞ 7
DijðkÞ ¼ 6
4 ...
7 (8)
... ... ... 5
dm1ðkÞ dm2ðkÞ . . . dmnðkÞ

In step 2, the matrix Dij(k) is transformed into a decision-making matrix Rij(k) by

normalization to obtain the weight of2 each
r11ðkÞ SC financial
r12ðkÞ
3
. . . performance
r1nðkÞ indicator:
6 r21ðkÞ r22ðkÞ . . . r2nðkÞ 7
RijðkÞ ¼ 6
4...
7 (9)
... ... ...5
rm1ðkÞ rm2ðkÞ . . . rmnðkÞ
BIJ Along this line, the sum of each column element equals 1, or in other words the decision-
making matrix Rij(k) satisfies the equation:
Xm
i¼1
rijðkÞ ¼ 1; k ¼ 1; 2; 3 (10)

In step 3, the column vectors ðA1 ; A2    An Þ of the normalized decision-making matrix Rij(k),
namely the SC financial performance indicators (r1jðkÞ, r2jðkÞ. . . r3jðkÞ), are treated as a
probabilistic distribution of information. Therefore, the information entropy EijðkÞ of the jth
financial performance indicator obtained from the kth group is defined as:
1 Xm
EijðkÞ ¼ − rijðkÞ ln rijðkÞ ; k ¼ 1; 2; 3 for all j (11)
ln m i¼1

where 0 ≤ EijðkÞ ≤ 1 and 1 signifies maximal entropy.

TOPSIS. TOPSIS is a flexible multi-criterion decision-making (MCDM) technique where
weights are exogenously defined by decision makers (Barros and Wanke, 2015; Feng and
Wang, 2001). Its importance rank is computed simultaneously considering the shortest and
the farthest distances of a given unit to what are called, respectively, positive- and negative-
ideal solutions built upon several distinct SC financial performance indicators (Ertugrul and
Karakasoglu, 2009; Hwang and Yoon, 1981).
TOPSIS departs from an assessment k matrices formed of m units and n financial
indicators, with the intersection of each unit and financial indicator given as xij (Barros and
Wanke, 2015). Hence, one gets a matrix ðxij½k Þmxn, k 5 1,2,3. This matrix ðxij½k Þmxn should
be firstly normalized from a regulated matrix R* ¼ ðrij½k Þ through the square root of the sum
of the scores. qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Xm ffi
rij½k ¼ ðxij½k Þ= x 2
i¼1 ij½k
; i ¼ 1 . . . m and j ¼ 1 . . . n (12)

After normalization, the weighted normalized decision matrix should be calculated,

observing Eq. (12), by multiplying the normalized information entropies by the normalized
criteria matrix obtained through the financial indicator-unit data matrix by Eq. (13).
W ¼ ðEj½k rij½k Þmxn (13)
Pn
where Ej is information entropy attributed to SC financial indicator j and j¼1 Ej ¼ 1.
Considering the weighting criteria, the non-ideal solution ðAneg ½k Þ and the ideal solution
ðApos ½k Þ are defined observing Eqs. (14) and (15):
Aneg ½k ¼ f < minðEj½k rij½k ji ¼ 1 . . . mÞjj ∈ Jþ >; < maxðEj½k rij½k ji ¼ 1 . . . mÞjj ∈ J− > g
¼ fαnegj½k jj ¼ 1 . . . ng
(14)
Apos ½k ¼ f< maxðEj½k rij½k ji ¼ 1 . . . mjj ∈ Jþ >; < minðEj½k rij½k ji ¼ 1 . . . mjj ∈ J− > g
¼ fαposj½k jj ¼ 1 . . . ng (15)
The ideal solution comprises all best scores for each SC financial indicator, while the non-ideal
solution is formed by the worst scores attained for the very same indicator. In Eqs. (14) and
(15), Jþ and J− represent, respectively, the set of indicators that should be maximized for
better dyadic performance and those that should be minimized for the sake of the same
objective.
Given the best and the worst alternatives, the distance Dneg i½k between a given unit i and
the negative-ideal solution Aneg ½k is calculated using Eq. (16):
 qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Governance
Xn
Dnegi½k ¼ ðEj½k rij½k  αnegj Þ2 ; i ¼ 1 . . . m (16) modes in
j¼1
supply chains
and the distance Dipos between a given dyad i and the positive-ideal solution Apos is computed
by observing Eq. (17).
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
Xn
Dposi½k ¼ j¼1
ðEj½k rij½k  αposj Þ2 ; i ¼ 1::m (17)

where Dneg i[k] and Dipos i[k] are the distances measured in the Euclidean space considered from
a given unit i to the negative- and posited-ideal solutions yielded by the j dyadic performance
indicators under consideration at each k group in this research.
WASPAS. The WASPAS method was introduced by Zavadskas et al. (2012). This model is
applied here to allow a simultaneous treatment of the respective buyer, supplier and dyad
performance indexes with the purpose of investigating the relative importance of each group
in attaining minimal financial performance variance, thus mitigating performance
asymmetry in the supply chain. The decision matrix X is formed by k groups of SC
financial performance indexes (buyer, supplier, and dyad) and i distinct units. In fact,
WASPAS consists of two MCDM methods. The first method is the weighted sum model
(WSM) and the second one is the weighted product model (WPM). Under the WSM, the
relative importance Y of the ith unit is calculated by the following the equation:
ð1Þ
Xn
Yi ¼ k¼1
xik yk (18)

where yk represents the weight assigned to the kth SC financial performance index. For the
computation of the total relative importance of the ith unit, WPM is applied as follows:
ð2Þ
Yn
Yi ¼ k¼1
ðxik Þyk (19)

Eq. (20) shows how to compute the weighted aggregation of additive and multiplicative
methods presented in Eqs. (18) and (19), where λ is the weight assigned to WSM
ð1Þ ð2Þ
Xn Yn
Yi ¼ λYi þ ð1  λÞYi ¼ λ k¼1 xik yk þ ð1  λÞ k¼1 ðxik Þyk (20)

The non-linear programming model used to find the benchmarking financial performance
index with minimal variance is presented in model (21), where Y is the column-vector of Yi
(i 5 1. . .m):
Min½VarðYÞ
Xn
s:t y ¼1
k¼1 k
(21)

0 ≤ yk ≤ 1; for all k 0 ≤ λ ≤ 1
Social network analysis (SNA). SNA has been increasingly suggested as key to advance
understanding of SCM, but empirical work is still limited (Marques, 2019). Moreover, this
technique allows the use of centrality measures as a proxy for power in supply chains (Kim
et al., 2011) that is key to triangulate with the analysis of the governance modes. While the latter
assigns power to buyers based on industry sector contextual elements, the former assigns
power to buyers and suppliers based on their specific position within the supply network. Put
together, analysis of governance modes and centrality measures can reassure findings related
to how power helps in explaining financial performance. In the SNA in this study, the vertices
(V) represent the total number of buyers and suppliers. The arcs (A) represent the connections
BIJ between buyers and suppliers. The degree centrality (DC) represents an attribute of centrality
that measures how many arcs a specific vertex has (Eq. 22). In this research, the degree of
centrality measures how many supplier alternatives each buyer has.
DcðvÞ ¼ degreeðvÞ (22)

Robust Regression. The impacts of the respective control variables over the dyadic financial
performance indexes – computed at the buyer, supplier, dyad and benchmarking (i.e. minimal
variance) levels – are tested by a robust regression approach. In this approach, Tobit (Wanke
et al., 2016a), Simplex (Barros et al., 2017) and Beta (Wanke et al., 2016b) regressions are
combined by means of stochastic non-linear programming and bootstrapping so that
variance of the robust regression residuals is minimal. The underlying idea is that a robust
regression approach should reflect an adequate distributional assumption mix with respect
to the dependent variable and, therefore, to distributional shape of the financial performance
indexes, which range between 0 and 1, and are related to the explanatory variable set by the
following linear model with main and secondary effects (Eq. 23):
FPIi ¼ b1i T þ b2i L þ b3i TL þ b4i Bc þ b5i Sc þ Ri (23)

where:
i is an index that denotes the regression assumption;
“FPI” is a pooled column-vector of financial performance indexes for different groups/
levels of analysis: buyer, supplier, dyad and benchmarking;
“T” is a vector of dummy variables representing the main effects of the SC governance
mode – market, modular, relational and captive, this last is the reference category;
“L” is a vector of dummy variables representing the main effects of the level of analysis –
buyer, supplier, dyad and benchmarking, this last is the reference category;
“TL” is a vector of dummy variables representing the secondary effects derived from the
interaction between SC governance mode and groups or levels of analysis – marketing–
buyer, market–supplier etc., where captive-benchmarking is the reference category;
“Bc” is a column-vector containing the respective buyer centrality score;
“Sc” is a column-vector containing the respective supplier centrality score;
b1i ; b2i ; b3i ; b4i ; b5i are the regression coefficients;
“R” is a column-vector of residuals.
The non-linear stochastic optimization problem for solving this robust regression by the
combination of Simplex, Beta and Tobit bootstrapped regressions is presented in a model (Eq.
24), where wi represents the weight, ranging from 0 to 1, assigned to the ith regression
assumption. Precisely to the vectors of the residuals of the Tobit regression ðRi; i¼1 Þ, Beta
regression ðRi; i¼2 Þ and Simplex regression ðRi; i¼3 Þ. This model optimizes the values of w so
that the sum variances and co-variances of the combined residuals is minimal. All regressions
were bootstrapped and combined 100 times, thus allowing the draw of a distributional profile
of w with respect to the best prediction mix for the supply chain financial performance
indexes. Min½Varðw1 Ri þ w2 R2 þ w3 R3 þ w1 w2 R1 R2 þ w1 w3 R1 R3 þ w2 w3 R2 R3 Þ
Xn
s:t i¼1
wi ¼ 1
 0 ≤ wi ≤ 1; for all i (24)
Governance
Models (21) and (24) were solved using the differential evolution technique according to modes in
Thangaraj et al. (2010), Mullen et al. (2011), Ardia et al. (2011) and Mullen et al. (2011). supply chains
Robust Cluster Analysis. Robust cluster analysis is focused on grouping variables into sets
having similarity with each other. In literature, a large variety of clustering methods is found,
each having certain advantages but also certain drawbacks. While many classification
methods have been proposed, there is no consensus on which methods are more suitable for a
given dataset (Freytag et al., 2018). It is important to comprehensively compare distinct
methods in terms of their explanatory power and stability. In this research, a systematic
comparison of several well-known clustering methods available in the R language is
performed over the dataset previously discussed. R is one of the most commonly used
programming languages for business analytics and economics. Well-known similarity and
stability metrics to find out not only the best clustering model but also the best number of
clusters are employed. Hence, clustering results are compared against each other yielding a
robust approach (Rodriguez et al., 2019). To evaluate the similarity of different clustering
solutions, two different metrics routinely applied in the field of clustering are employed: the
adjusted Rand index (ARI) and the normalized mutual information (NMI) (Studholme et al.,
1999). Both share as advantages: bounded ranges, no assumptions regarding cluster and
symmetry.

4. Data analysis and discussion

4.1 Descriptive statistics
Table 2 presents the descriptive statistics for the financial performance indicators obtained at
the buyer and the supplier levels, while Table 3 presents the financial indicators at the dyadic
level, as well as control variables. It is noteworthy that supplier’s financial performance
indicators are more dispersed than the buyer’s, with the exception of QR, DSO and DIO. This
indicates that suppliers are consistently strangled by higher inventory levels and longer
receivable days than their buyers; but also suggests that supplier financial performance is
much more scattered and heterogeneous when compared to buyers. This may result from
higher bargaining power of buyers, reflecting their capability of shifting suppliers more
easily (Paulraj and Chen, 2007). At the dyad level, both buyers and suppliers present higher
dispersion levels, particularly with respect to supplier DPO. Again, higher bargaining power
from buyers, weakened suppliers in terms of working capital and low value added of the
items sold may explain this scenario.
Table 4 depicts the information entropy levels for each financial performance indicator for
buyers, suppliers and dyads. These entropy levels were also the cornerstones for computing
the weights of each financial performance indicator, by means of data transformation,
assuring their summation up to one. It is noteworthy that, as regards TOPSIS weights,
supplier financial performance is less impacted by revenue, receivables, C2C and WACC
indicators; while buyer financial performance is less impacted by inventory levels, COGS,
assets, liabilities, DSO, DIO, DPO, QR and CR. This suggests a faster turnover for buyers in
comparison to suppliers, as a consequence of higher weighted average cost of capital. At the
dyad level, one can easily note that TOPSIS weights are more homogeneous in comparison to
their respective counterparts. This possibly results from the fact that pooling buyers and
suppliers help compensating their intrinsic performance heterogeneity.

4.2 Analysis across groups

The distribution of performance at the four levels of analysis – buyer, supplier, dyad and
benchmarking (minimal variance), is presented in Figure 3.
BIJ Buyer
Variables Min Max Mean SD CV

Revenue 54931.000 28785756.000 2221672.401 4117282.763 1.853

Inventory 8610.000 2938568.000 354306.036 562540.104 1.588
COGS 66772.000 22389681.000 1552564.094 3154588.003 2.032
Receivables 19126.000 8744252.000 433279.450 870329.420 2.009
Payables 7973.000 6094303.000 354876.971 818466.125 2.306
CUR assets 25224.000 19063769.000 1399031.444 2332010.307 1.667
CUR liabilities 17481.000 15691679.000 910338.291 2155056.879 2.367
DSO 11.647 196.576 90.864 46.239 0.509
DIO 18.251 330.965 104.585 74.897 0.716
DPO 14.013 257.289 75.133 64.797 0.862
C2C 20.220 349.522 120.316 74.405 0.618
CR 0.451 9.521 2.755 2.283 0.829
QR 0.251 8.599 2.163 2.084 0.963
WACC 12.230 16.490 14.457 1.196 0.083
Variables Supplier
Min Max Mean SD CV
Revenue 85914.000 46423815.000 3093116.146 9702470.306 3.137
Inventory 12877.000 3982365.000 426999.202 905316.695 2.120
COGS 61063.000 29662707.000 2127173.853 6186831.506 2.908
Receivables 16351.000 27227118.000 1514969.393 5741269.835 3.790
Payables 0.000 6742874.000 419052.308 1416603.158 3.380
CUR assets 30850.000 46443308.000 2935994.494 9801715.500 3.338
CUR liabilities 46899.000 29900800.000 2005539.403 6255811.389 3.119
DSO 15.000 214.069 95.871 44.206 0.461
DIO 43.058 229.970 105.153 52.176 0.496
Table 2. DPO 0.000 1059.041 121.707 251.841 2.069
Financial performance C2C 920.006 349.522 79.317 270.916 3.416
indicators at buyer and CR 0.032 6.310 1.664 1.539 0.925
supplier levels or QR 0.025 4.021 1.111 1.054 0.949
groups WACC 0.000 16.204 12.433 4.177 0.336

Variables Min Max Mean SD CV

Dyad level C2C Dyad 940.225 576.619 199.633 281.737 1.411

B C2C CT 0.611 1.356 0.415 0.320 0.771
B DSO CT 0.493 1.425 0.334 0.251 0.750
B DIO CT 1.938 4.623 0.407 0.579 1.423
B DPO CT 3.967 2.873 0.326 0.611 1.874
S C2C CT 0.356 1.611 0.585 0.320 0.547
S DSO CT 2.211 2.296 0.351 0.375 1.069
S DIO CT 3.700 2.363 0.410 0.520 1.267
Table 3. S DPO CT 4.131 6.469 0.176 0.983 5.571
Financial performance Buyer.Centrality 1.000 10.000 8.313 2.547 0.306
indicators at the dyad Control Supplier.Centrality 3.000 8.000 6.875 1.889 0.275
level or group and SC type Market 17.188% Modular 16.406%
control variables Relational 62.500% Captive 3.906%

Comparison of TOPSIS scores across groups, with respect to financial performance, reveals a
strong heterogeneity manifested not only in terms of their medians but also in terms of
dispersion, suggesting a trade-off between locus of analysis and financial performance. It can
be noted that, by far, suppliers constitute the most dispersed group in terms of financial Governance
performance. On the other hand, dyads are less dispersed, indicating that, thus far, modes in
governance modes in Brazil served to set grounds on the expected ranges for financial
performance variation within the scope of buyer–supplier relationships. Nevertheless, results
supply chains
also indicate that performance is higher at the supplier and buyer levels and much lower at
the dyad level, also suggesting that collaborative initiatives still lack maturity and synergies
are not being fully apprehended to the extent where both buyers and suppliers mutually
benefit from the arrangements made at the dyad level.
Minimal attainable benchmarking performance variance scenario presents a slightly
improvement over the dyad level, although still far behind the financial performance levels of
buyers and suppliers. This means that if best practices were spread across all firms in the
sample, dyadic performance would improve, but there are extrinsic (sector) and intrinsic
(firm) conditions preventing the dyad level to outperform the individual performance.
Table 5 reports on the optimal weights for the model (Eq. 21). Results suggest that
benchmarking performance (overall minimal variance) can be modeled as a linear
combination of individual performance at the buyer, supplier and the dyad levels, with
dyads and buyers responding to more than 90% of this outcome. These results corroborate
Hofmann and Kotzab (2010), where the single-firm perspective on the C2C cycle should be
coordinated in terms of DSO, DIO and DPO at the dyad-level, with marginal improvements to
be obtained at the buyer level (in terms of WACC and C2C, for instance) and at the supplier
level (in terms of liabilities and inventories, for instance).
While buyer, dyad and supplier performances are not significantly correlated to each
other, the benchmarking performance is significantly correlated with them (cf. Table 6). This
is reflected in the isotonic regression results (cf. Appendix Figure A2). Performance at buyer,

TOPSIS weights Information entropy

Indicators Supplier Buyer Supplier Buyer

Revenue 0.0493 0.0610 0.6261 0.8108

Inventory 0.0779 0.0748 0.9883 0.9934
COGS 0.0780 0.0750 0.9900 0.9961
Receivables 0.0409 0.0613 0.5190 0.8140
Payables 0.0780 0.0750 0.9900 0.9970
CUR assets 0.0780 0.0751 0.9900 0.9973
CUR liabilities 0.0780 0.0750 0.9900 0.9964
DSO 0.0763 0.0722 0.9686 0.9598
DIO 0.0769 0.0738 0.9761 0.9807
DPO 0.0777 0.0737 0.9862 0.9791
C2C 0.0735 0.0743 0.9333 0.9869
CR 0.0722 0.0688 0.9166 0.9134
QR 0.0717 0.0679 0.9098 0.9021
WACC 0.0714 0.0721 0.9055 0.9582
Variable Dyad
C2C Dyad 0.1076 0.9578
B C2C CT 0.1107 0.9860
B DSO CT 0.1112 0.9901
B DIO CT 0.1120 0.9972
B DPO CT 0.1119 0.9960
S C2C CT 0.1111 0.9890 Table 4.
S DSO CT 0.1120 0.9971 Information entropy
S DIO CT 0.1115 0.9924 levels and TOPSIS
S DPO CT 0.1120 0.9971 weights
BIJ

Figure 3.
Distribution of the
financial performance
indexes per level of
analysis
Note(s): The blue line “Overall” is the benchmarking

Table 5.
WASPAS optimal
results for minimal Weights for the FPI at each SC level
performance variance Buyer Supplier Dyad Lambda
(benchmarking level of
analysis) 0.1750 0.0870 0.7380 1.0000

supplier and dyad levels does not present a clear linear relationship against each other. Also,
the isotonic regressions resemble an unbalanced series of staircases. These results suggest
that different governance modes may be possibly affecting the fine-tuning synchronization of
financial performance indexes as proposed in the work of Hofmann and Kotzab (2010). These
issues are addressed next.

4.3 Analysis across governance modes

Regarding the distributional fits for the pooled financial performance indexes, Figure 4
depicts the respective Gaussian, Simplex and Beta adjustments for the unconditional inverse
cumulative distribution of original scores, obtained by pooling the performance for each
group or level of analysis. It is not possible to affirm, at first sight, however, whether a specific
distribution is preferable to the other. This suggests that combining a mix of multiple

Buyer Supplier Dyad Benchmarking

Table 6. Buyer 1 (0)

Performance (FPI) Supplier 0.049 (0.584) 1 (0)
Spearman-rank Dyad 0.026 (0.773) 0.046 (0.609) 1 (0)
correlation test Benchmarking 0.463 (0) 0.338 (0) 0.688 (0) 1 (0)
 Governance
modes in
supply chains

Figure 4.
Unconditional inverse
cumulative
distributions for the
pooled
performance (FPIs)

regression approaches could be a sound approach. In fact, results for the Kullback–Leibler
(KL) divergence presented in Table 7 and for the unconditional distributions presented in
Figure 4 indicate that differences among distributional assumptions are negligible.
The results for the stochastic non-linear optimization on the 100 bootstrapped Tobit,
Simplex and Beta regression residuals are presented in Figure 5. These results yield an
almost even split between the weights assigned for Tobit, Simplex and Beta regressions.
These results also highlight the importance of combining different distributional
assumptions in terms of residual minimization.
The robust regression results are presented in Figure 6. Readers should note that,
whenever the distribution of the bootstrapped coefficients for the control variables cross the
horizontal solid line that marks zero in each graph, the respective control variable should be
interpreted as not significant. It is worth noting that none of the governance mode types
exerts, individually, significant impact on performance at different levels of analysis. There
are, however, a number of significant interactions between governance modes and the level of
analysis, especially with respect to suppliers. Market, modular and relational governance
modes can significantly improve performance at different levels of analysis – buyer, supplier
and dyad – in comparison to captive modes. It is interesting to note, however, that buyers
tend to significantly improve performance regardless of the supply chain governance mode
(interactions were found to be non-significant). The ruling implication of these results is that
Table 7.
KL divergence results
for distributional
Beta fit Simplex fit Gaussian fit assumptions for the
pooled
0.0511 0.0565 0.0778 performance (FPIs)
BIJ

Figure 5.
Distribution of optimal
values of w for each
regression approach
(pooled FPI is the
dependent variable)

Figure 6.
Combined
bootstrapped
regression results for
contextual variables –
efficiency scores Note(s): Reference category stands for captive-benchmarking dyadic performance, with information
entropy as the weights for each group or level
suppliers, per se, cannot produce a positive impact on performance. One possible explanation Governance
for this phenomena is the possible asymmetric impact that bargaining power of buyers and modes in
suppliers (proxied by the degree centrality) strives on the improvement of performance at
different SC levels (Whipple et al., 2015). While the bargaining power of buyers plays a
supply chains
relevant role in improving performance, regardless of the governance type, the same is not
verified with respect to the bargaining power of suppliers. It seems that SC governance modes
in Brazil, so far, are serving as a countervailing force for the bargaining power of suppliers. In
fact, supplier centrality is less dispersed than buyer centrality (cf. Table 3).
Results suggest that SC synergy is scarce, possibly driven by excessive power imbalance
(Touboulic et al., 2014; Vasconcellos et al., 2015). Moreover, they confirm previous research
stating that Brazilian firms still have a long way to go in terms of implementing SCM
practices (Machline, 2011). Findings also confirm research suggesting that management
decision processes in Brazil are often hierarchical (Chu and Wood Jr., 2008), which can explain
the lack of synergy and dyadic performance. From the supplier perspective and taking the
captive governance as the reference, market, modular and relational governance yield better
performance for all participants. This is an important result as it shows that the captive
approach can be detrimental to dyadic performance. In other words, power imbalance may
negatively impact all members of the SC. These results not only confirm previous research
showing that captive governance is detrimental to suppliers (Vasconcellos et al., 2015) but
also shed additional light by showing that it is also detrimental to dyadic performance.
In the final and most important step of the analysis, we identify how governance can
explain performance via the robust clustering approach. Results are presented in Table 8,
which indicate that most methods found that two clusters provide the best grouping scheme;
and Figure 7,which illustrates the clustering results for the k-Means method (k 5 2). This
method was chosen for the sake of simplicity and ease of interpretability.
Cluster 1 is formed by the best dyads, which can be found under market (steel industry)
and modular (automotive industry) governance modes, as well as lower individual
performance/bargaining power (both buyers and suppliers). This suggests that power
balance, which is present in market and modular governance modes, leads to healthier dyadic
relationships accompanied by sub-optimal individual performance. On the other hand,
Cluster 2 bundles the best individual performance/higher bargaining power (again, for both
buyers and suppliers) with the poorest dyadic performance under relational (garment
industry) mode. By the same token, the power structured embedded in relational governance
seems to align with better individual performance and worse dyadic performance.

Methods # Clusters Value index Methods # Clusters Value index

KL 2 141.95 Ball 3 411.70

CH 2 867.72 PtBiserial 2 0.82
Hartigan 4 747.68 McClain 2 0.26
CCC 2 48.79 Dunn 2 0.27
Scott 4 1957.00 Hubert 0 0.00
Marriot 3 3.61Eþ21 SDindex 2 0.96
TrCovW 4 1984.01 Dindex 0 0.00
TraceW 3 39.33 SDbw 4 0.22
Friedman 4 158.84
Rubin 3 0.88 Summary
Cindex 2 0.27 Number of clusters Number of Methods
DB 2 0.75 2 11 Table 8.
Silhouette 2 0.63 3 5 Results for robust
Ratkowsky 3 0.29 4 4 cluster analysis
BIJ

Figure 7.
Results for k-means
clustering (k 5 2).
Scales are normalized
(0–1) for
interpretability

5. Conclusions
5.1 Theoretical implications
The objective of this study was to answer the research question: what is the impact of power in
supply chains to financial performance at both individual firm and dyadic levels? Ultimately, the
objective was to advance the understanding of dyadic performance, a long-praised goal of the
purchasing and SCM discipline yet little researched and scantly operationalized. We posit
that only dyadic performance operationalization can truly direct decision-making processes
in supply chains towards effective collaboration (Whipple et al., 2015).
Our study shows that supply chain synergy is scarce, possibly driven by excessive power
imbalance (Touboulic et al., 2014; Vasconcellos et al., 2015). All governance modes indicate
better individual performance as compared to dyadic performance. Buyers tend to
outperform suppliers across all governance modes. The implication of these results is that
suppliers, per se, cannot produce a positive impact on performance. One possible explanation
for this phenomena is the possible asymmetric impact that bargaining power of buyers and
suppliers (proxied by the network centrality). This result is in line with previous research
showing that supplier network position can attenuate buyer power (Terpend and
Ashenbaum, 2012), but not enough to produce a positive outcome.
Across governance modes, we show that captive governance, which has been posited as
the most detrimental for suppliers, also has a negative impact on the dyadic level
(Vasconcellos et al., 2015). Therefore, both the GVC (macro) lens and the SNA (micro) lens
(based on network centrality) corroborate that in the presence of higher power imbalance,
individual performance prevails over dyadic performance. In other words, local (firm-level)
financial optimization in detriment of global (dyadic-level) financial optimization. By
triangulating the GVC and SNA lenses, our study advances on previous research blending
GVC and SCM as complementary levels of analysis (Golini et al., 2016; Hern
andez and
Pedersen, 2017).
 Moreover, previous research has long suggested that market-based relationships are Governance
challenging for buying firms, as they have no power to control conditions in the supply chain, modes in
such as imposing prices and implementing private regulation and standards tends (Wahl and
Bull, 2013). Our study shows that despite a possible lack of control and a higher dispersion of
supply chains
results, firms employing market or modular governance are predominant in the synergetic
dyads identified in our study. This suggests that such governance modes offer the most
adequate condition for top performance at the dyadic level due to power balance across
participant firms. We also respond to a call for studies for SCM studies in emerging
economies, such as Brazil (Zheng et al., 2007). We show that despite the cultural tradition of
power distance and hierarchical relationships (Chu and Wood Jr., 2008), top-performing
dyads are based on power balance.

5.2 Managerial implications

For the Brazilian market, we draw attention to the limited number of dyads performing better
than their individual parts in a sample of over 100 dyads. Brazilian purchasing managers
should reflect on the benefits of establishing either market or modular approaches to
governance for the long-term SC benefit. Nevertheless, these results are in line with other
empirical studies capturing multi-country data that also showed that companies engaging in
true collaboration and benefiting from superior performance are still the minority (Frohlich
and Westbrook, 2001).
Results also indicate that financial performance indexes are higher at the supplier and
buyer levels and lower at the dyad level, which reflects a lack of maturity at the dyad level in
Brazilian firms as long as synergies are not being apprehended. This suggests purchasing
and SC managers that in the long-run, if dyadic performance is overseen, individual (buyer)
performance may be short-lived.

5.3 Limitations and future research

Scant SCM research has captured dyadic financial performance based on objective data.
Although there are limits to the generalization of findings based on the empirical evidence in
our study, it sets the ground for future studies in this direction. Our study has three
limitations that are worth highlighting.
First, the match of industry sector and governance mode was attributed according to the main
focal activity in each industry sector. This needs to be noted as a firm may participate in several
sectors, and could possibly maintain different relationships across these sectors. For example, one
firm may have its main business unit running within a market-based sector, whilst one of its
business units may operate through a modular governance mode. As it was not possible to
separate the financial data, in this example, this firm would be classified as market governance.
Furthermore, all the firms acting in a specific sector have been classified with the same
governance mode, for example all the dyads in the steel industry have been classified as market
governance, although the degree of power balance of each dyad may vary. Future studies could
include primary data to confirm governance modes or to capture financial data of specific
business units, therefore more clearly assigning the adequate governance mode to each dyad.
Despite the labor-intensive nature of such a study, the potential contribution would outdo the
effort.
Second, the scope of four industry sectors in one specific country limits generalization. On the
one side, the positive angle of this choice is that it acts as a control variable to avoid exogenous
country-level effects. On the other hand, future studies could analyze data from other countries
and expand the generalization power of the findings. In the long-run, a meta-analysis could
combine multiple studies matching governance modes and dyadic performance yet covering
different counties to provide a deeper understanding of this relationship.
BIJ Finally, future studies could expand the level of analysis from the dyad to the triad (Choi
and Wu, 2009). Financial measures comprising the buying firm, the direct supplier and the
sub-supplier could shed further light on which governance mechanisms can produce better
results at the level of the supply chain. In such a way, future research could contribute to the
discussion of how to operationalize dyadic performance hence avoid discussing SCM based
on firm-level performance.

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Corresponding author
Leonardo Marques can be contacted at: leo.marques@coppead.ufrj.br
BIJ Appendix
The firms are identified by their acronyms in Tables A1–A4. The acronyms are given according to each
equity ticker, as used by the Brazilian stock market.

Market (steel)
Steel industry Acronym Steel products Acronym

Vale VALE Gerdau GGBR

Ferbasa FESA CSN CSNA
CSN CSNA Fibam FBMC
Table A1. Gerdau GGBR PanAtlantica PATI
Market governance Mangels Ind MGEL
acronyms Tekno TKNO

Modular (automotive)
Auto parts Acronym Automaker Acronym

Fras-Le FRAS Minas Maquinas MMAQ

Marcopolo POMO WLM Ind SGAS
Riosulense RSUL Metal Leve LEVE
Iochp-Maxiom MYPK
Table A2. Shulz SHUL
Modular governance Plascar PLAS
acronyms Tupy TUPY

Relational (garment)
Yarn and fabric Acronym Garment Acronym

Cedro CEDO Hering HGTX

Coteminas CTNM Alpargatas ALPA
Dohler DOHL Cambuci CAMB
Ind. Cataguases CATA Grendene GRND
Karsten CTKA Grazziotin CGRA
Pettenati PTNT Guararapes GUAR
Santanense CTSA Le Lis Blanc LLIS
Table A3. Springs SGPS Lojas Marisa AMAR
Relational governance Teka TEKA
acronyms Tex Renault TXRX

Captive (poultry)
Meat industry Acronym

Brasil foods BRFS

JBS JBSS
Table A4. Mafrig MRFG
Captive governance Excelsior BAUH
acronyms Minerva BEEF
 Governance
modes in
supply chains

Figure A1.
Network diagram for
each industry sector/
governance mode:
Market/Steel (top-left);
Captive/Poultry (top-
right); Relational/
Garment (bottom-left);
Modular/Automotive
(bottom-right)
BIJ

Figure A2.
Isotonic regression
results