Constrained choice in supply chain relationships: the effects of regulatory institutions

• Published date: 11 November 2019
• Date: 11 November 2019
• DOI: https://doi.org/10.1108/IJLM-01-2019-0030
• Pages: 1101-1123
• Author: Donna F. Davis,Beth Davis-Sramek,Susan L. Golicic,Teresa M. McCarthy-Byrne
• Subject Matter: Management science & operations

Constrained choice in supply

chain relationships: the effects of

regulatory institutions

Donna F. Davis

Department of Marketing, University of South Florida, Sarasota, Florida, USA

Beth Davis-Sramek

Department of Systems and Technology, College of Business,

Auburn University, Auburn, Alabama, USA

Susan L. Golicic

Colorado State University, Fort Collins, Colorado, USA, and

Teresa M. McCarthy-Byrne

Department of Global Supply Chain Management,

Bryant University, Smithfield, Rhode Island, USA

Abstract

Purpose –Utilizing a top-down approach of middle-range theorizing (MRT), the purpose of this paper is to

integrate relational exchange with institutional theory to examine how companies manage supply chain

relationships to achieve desired supply chain outcomes in industries characterized by varying degrees of

regulatory mandates that restrict the choice of supply chain partners. The authors identify this supply chain

relationship dynamic as constrained choice.

Design/methodology/approach –A moderated mediation model is tested using survey data from

producers in the US wine industry to investigate the effects of regulatory pressure on the ability of wine

producers to achieve operational coordination when responding to relational behaviors through either trust or

calculative commitment.

Findings –Results find that relational behaviors can improve operational coordination through two distinct

paths: trust or calculative commitment. With the moderating effect of regulatory pressure, relational

behaviors more effectively facilitate operational coordination through trust. Alternately, regulatory pressure

attenuates the mediated relationship through calculative commitment.

Research limitations/implications –The research introduces constrained choice dynamics into the

supply chain relationship literature via MRT. Integrating generative mechanisms from relational exchange

and institutional theories provides theoretical depth and context-specific knowledge about relationships that

operate in constrained choice situations.

Practical implications –Managers impacted by constrained choice should recognize that mechanisms

typically resulting in positive relationship outcomes may respond differently in the presence of regulatory

constraints. With greater regulatory pressure, efforts to enhance operational coordination are more effective

using relational mechanisms to build trust. When trust is diminished, calculative commitment can be effective

in achieving operational coordination, although extensive regulations make it more difficult.

Originality/value –Previous research traditionally assumes that managers are free to select suitable

trading partners that ensure mutually beneficial relationships. The research develops a middle-range theory

examining the constrained choice dynamic in relationships that are impacted to varying degrees by

regulatory institutions.

Keywords Supply chain relationships, Constrained choice, Moderated mediation modelling,

Middle range theory, Institutional theory, Relational exchange, Regulatory pressure

Paper type Research paper

Introduction

Many industries are characterized by strict regulatory compliance requirements that carry

with them significant supply chain implications. For instance, the Food and Drug

Administration has a rigorous validation process for medical device manufacturers.

The International Journal of

Logistics Management

Vol. 30 No. 4, 2019

pp. 1101-1123

© Emerald PublishingLimited

0957-4093

DOI 10.1108/IJLM-01-2019-0030

Received 25 January 2019

Revised 2 June 2019

Accepted 11 July 2019

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

1101

The effects of

regulatory

institutions

The time-consuming and expensive process is required for product approval and then again

when changes are made to the product or process. As such, changes cannot be implemented

without going through a long and intense formal approval process, making the ability to

switch suppliers very difficult (Ortiz et al., 2011). Other global industries, such as banking

and finance, pharma, medicine, tobacco, alcohol, firearms and defense all have supply chain

relationship constraints that stem from mandates created and enforced by regulatory

institutions (Grewal and Dharwadkar, 2002). We term this supply chain management and

logistics (SCML) phenomenon as “constrained choice,”reflecting a specific relationship

dynamic that can occur in highly regulated supply chains.

In a broad review of the SCML relationship research, we found a disconnect in the

literature. The research generally assumes, at least implicitly, that firms are free to establish

mutually beneficial relationships built on relational governance mechanisms (Lambert et al.,

1996). This overlooks industries and contexts in which firms are hampered in choosing

supply chain partners. This constraining dynamic from regulatory institutions can force

firms to maintain relationships that may not be conducive to effective relational governance,

thereby diminishing performance (Grewal and Dharwadkar, 2002; Bello et al., 2004;

Yaibuathet et al., 2008). Research has not addressed how these specific supply chain

relationships can be managed in order to achieve desired performance outcomes. Research

is also scant on how the nature of these relationships changes with varying degrees of

pressure emanating from regulatory institutions. Therefore, a critical step in the maturation

of the discipline is to develop more theoretical specificity about supply chain relationships

that are embedded in and influenced by regulatory institutions, which is a dimension of a

firm’s broader institutional context ( Jarzabkowski, 2008).

Another industry representative of constrained choice is the US alcoholic beverage

industry. It is one of the most highly regulated in the USA, with a rich history of regulatory

action. Federal,state, and local laws constrain the sale of alcohol and create additionalsupply

chain complexity. Distribution within the USA is particularly affected because of the “three-

tier system.”A vestige of the repeal of prohibition and ratification of the Twenty-First

Amendment in 1933, this system prevents vertical ownership of production,distribution and

retail. It also grants individual USstates broad authority to regulatethe sale and distribution

of alcohol (Miller,2017). Businesses selling alcoholin the USA must adhere to each state’sown

unique system of controlthrough extensive state (and sometimes municipal) regulations. For

producers in particular, the three-tiersystem creates constraining distribution mandates that,

to varying degrees, limit their choice of downstream supply chain customers.

Using the US wine industry as the backdrop to examine constrained choice relationship

dynamics, we ask the broad question, how do companies manage supply chain relationships

to achieve desired supply chain outcomes in industries characterized by varying degrees of

regulatory mandates that restrict the choice of supply chain partners? The nature of this

research lends itself to the top-down approach of middle-range theorizing (MRT) (Craighead

et al., 2016; Calantone et al., 2017; Stank et al., 2017; Davis-Sramek et al., 2019). We take a

pluralistic approach to contrast and integrate the “grand theories”of relational exchange to

examine the relationship dynamics (e.g. Macneil, 1980; Kaufmann and Dant, 1992; Morgan

and Hunt, 1994; Palmatier et al., 2007) and institutional theory to examine the influence of

regulatory pressure (e.g. DiMaggio and Powell, 1983; Grewal and Dharwadkar, 2002; Hofer

et al., 2011). Taking this MRT approach, we follow the prescriptive guidance offered by

Calantone et al. (2017) to test a complex moderated mediation chain leading to practical and

relevant insights about the nature of supply chain relationships with constrained choices

due to regulatory institutions (Schoenherr et al., 2014).

The research focuses specifically on how relational mechanisms (i.e. relational norms,

communication and opportunistic behavior by the custom er) facilitate operational

coordination through either trust or calculative commitment. In effect, we posit that wine

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