The impact of sustainable public procurement on supplier management — The case of French public hospitals

Industrial Marketing Management 41 (2012) 573–580

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Industrial Marketing Management

The impact of sustainable public procurement on supplier management — The case of French public hospitals Gwenaëlle Oruezabala a,⁎, Jean-Charles Rico b a b

Université de Poitiers, Institut d'Administration des Entreprises (IAE), Department of Marketing & Strategy, Rue Guillaume VII Le Troubadour, 86000 Poitiers, France Université de La Rochelle, Institut de Gestion, Department of Marketing, France

a r t i c l e

i n f o

Article history: Received 26 April 2011 Received in revised form 19 February 2012 Accepted 28 February 2012 Available online 5 May 2012 Keywords: Sustainability Procurement Contracts Agreements Hospitals

a b s t r a c t In the public sector, procurement managers are now required to comply with new sustainable regulations and to look for suppliers able to provide a sustainable offering. Stating that contracts can only frame part of the interaction and that parties often turn to more negotiated agreements, we investigate whether sustainable expectations within public hospitals could impact supplier management and imply rearrangements between public buyers and private providers. Data were collected from fifteen French hospitals through semistructured interviews. Findings first highlight the sustainable expectations of public buyers from global key providers, and, second, that sustainable procurement does impact the relationship by creating new rules. Building on these results, managerial implications are suggested. © 2012 Elsevier Inc. All rights reserved.

1. Introduction Sustainability defined as business simultaneously achieving three inter-linked goals – economic prosperity, environmental protection and social equity (Elkington, 2002) – has become a major topic within the field of industrial marketing. The topic of sustainable procurement is often linked to the wide terminology of “green supply chain management” (Bai & Sarkis, 2010, p. 1201). As Sarkis, Quinghua, and Kee-hung (2011) recall, the original goal of sustainable procurement in the early 20th century supply management literature was to avoid waste and that was not for environmental reasons but for economic ones. Later on, the concept evolved towards “green purchasing” including environmental awareness (Björklund, 2011; Chen, 2005; Min & Galle, 1997, 2001; Robey, 2009). From this perspective, a significant number of publications debate about how and why firms are launching “greener” procurement processes (Bai & Sarkis, 2010; Carter & Rogers, 2008; Handfield, Walton, Sroufe, & Melnyk, 2002; Koplin, Seuring, & Mesterharm, 2007; Sarkis, 2003; Sarkis et al., 2011). However, little is known about public procurement practices where few empirical studies have been conducted (Walker, Di Sisto, & McBain, 2008). The pressure exerted by external constituencies on organizations to conform with a set of expectations in order to gain legitimacy and thus secure access to vital resources has nevertheless long been accepted within the public sector (Beckert, 1999; ⁎ Corresponding author. E-mail addresses: [email protected] (G. Oruezabala), [email protected] (J.-C. Rico). 0019-8501/$ – see front matter © 2012 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2012.04.004

Crossan, Lane, & White, 1999). The legal framework on Sustainable Public Procurement (SPP) is applied in France through laws, decrees and government guidelines. In particular, the purpose of the ordinance (No. 2005-649), passed in 2006, was to set up the Public Procurement Contracts Code (PPCC). This legal instrument provides, on the one hand, legitimacy to public purchasers to include sustainable development rules in their demands, and, on the other hand, the opportunity for providers to become aware of markets through public Web sites, allowing them to prepare their response. At their level, French public hospitals implement the European Union Directive on public procurement (2004/18/EC) whose purpose is to encourage open and transparent competition delivered through competitive tendering throughout the European Union. This new regulation requires rearranging the interactions between public purchasers and private providers. Moreover, it has been demonstrated that business actors do not simply comply with sustainable orientation, but rather with elaborate responses impacting the creation of new rules (Heide & John, 1992; Veal & Mouzas, 2011). In our study, we investigate the new sustainable procurement expectations, from the buyers' point of view, within the French public healthcare sector, which is facing additional environmental requirements. Our research objective is to examine the impact of sustainable public procurement on supplier management. The specific research question we want to address is “What are the implications of sustainable regulation on public buyers' expectations, and consequently what kind of new agreements does it imply?” Our analysis is supported by two streams of literature: the first one concerning sustainable procurement (Sharma, Gopalkrishnan, Mehrothra, & Krishnan,

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2010; Sinding, 2001; Walker & Brammer, 2009), and the second one dealing with implicit and explicit relationships in a “norms-based” legal framework (Macneil, 2000; Mouzas & Ford, 2012; Nee, 1998). The aim of this paper is to report on our interpretation of the data collected among fifteen French public hospitals. We have structured the paper so that we first briefly review the current state-of-the-art on sustainable public procurement and on contracting. We learn from these crossed viewpoints that new rules, such as umbrella agreements and relational norms, are developed by parties in order to address the new environmental regulations. This serves as the foundation for our design of qualitative investigation conducted with public procurement actors, as described in Section 2. We then present our findings around five themes, and demonstrate that new expectations generate rearrangements within the interactions between public buyers and private suppliers. We finally conclude by discussing the results with regard to possible managerial implications of the elements of renegotiation. 2. Sustainable procurement coping with public contracting Previous academic work demonstrates that new regulations do impact business interactions (Ford & Mouzas, 2010; Veal & Mouzas, 2011; Walker et al., 2008) and that all kind of agreements between companies – formal contracts as implicit arrangements – might be affected by new rules. As a strategic approach to acquiring the organization's current and future needs through effective management of the supply base (Monczka, Handfield, Giunipero, & Patterson, 2008), the procurement process is duly impacted by the new sustainable requirements. First, we report on the links between sustainability and purchasing decisions. We identify that the concern for sustainable topic raises further issues regarding agreements between public buyers and private providers. Second, we refer to the literature on agreements and contracts as a framework to new business orientations. 2.1. The sustainable procurement concern Sustainable procurement can be defined as the pursuit of sustainable development objectives through the purchasing and supply process (Walker, Spencer, Miemczyk, & Johnsen, 2010). It then can be understood as the efforts of an organization to achieve or simply improve performance of buying activities in three ways: environmentally, socially and economically. Firstly, it has long been argued that the purchasing function is a key actor, which is socially responsible, with an environmental concern in its supply processes and strategies (Drumwright, 1994). In an extensive literature review on the integration of sustainable criteria in procurement, Seuring and Müller (2008) demonstrate that environmental concerns are much more prevalent than social ones, representing 75% of articles. Drivers of environmental concerns are to be found in the pressure of governments and other stakeholders in influencing sustainable decisions of organizations. Internal and external drivers of environmental supply management have even been identified, including organizational factors, regulation, customers, competitors and society (Walker et al., 2008). Surprisingly, suppliers are not listed as a driver of sustainable orientation. Regarding internal drivers, Sharma et al. (2010) identify three major strategies in the achievement of environmental sustainability objectives: reduction of surplus supply of products, reduction of reverse supply and internal marketing in order to convince other departments. Nevertheless, the authors state constraints to environmental supply projects: internal barriers such as cost and lack of legitimacy, and external ones like poor supplier commitment and industrial specificities. Their findings suggest that interfaces able to search for and promote environmentally friendly products and services are playing a key role in the supply chain for achieving sustainability objectives.

Secondly, the social dimension of sustainability has been explored through the identification of non-economic criteria contributing to socially responsible buying or SRB (Maignan, Hillebrand, & MacAlister, 2002). The authors show that, related to the corporate responsibility, the trend toward socially sustainable purchasing aims to incorporate in the buying process criteria such as controlling the supplier ethical business practices or developing safe working equipment for employees. For example, the procurement process might be impacted through incentives to purchase recyclable or reusable materials (Sarkis, 2003). From a third perspective, many researchers have worked on the economic dimension addressing the question of the value expected from sustainable procurement. Authors have convincingly argued that environmentally responsible strategies can contribute to competitive advantage and superior financial performance (Engardio, 2007; Esty & Winston, 2006; Savitz & Weber, 2006; Sharma et al., 2010). From this overview of sustainable development objectives linked to purchasing decisions, we notice that few publications argue that business can simultaneously achieve the three interlinked goals of economic prosperity, environmental protection and social equity (Elkington, 2002). All academic work listed above is supported empirically in the private sector. To our knowledge, there is no study in the public sector. Yet, in terms of regulations, the Agenda 21 sustainable development rules have been adopted for twenty years now and in the public sector, their implementation is entrusted to the “Comité 21”. Its mission is to create conditions for exchange and partnerships between actors on a territorial scale. Within the French public hospitals, the procurement function1 has then been asked to manage relationships with suppliers able to provide sustainable solutions. The complexity of an organization like a hospital, embedded in a network of stakeholders – government, local authorities, patients, medical staff, consultants, etc. – requires a dynamic relational view. From this perspective, the type of interface used in the relationship – actors and resources – has direct consequences on the way interaction is activated (Araujo, Dubois, & Gadde, 1999, Ford & Mouzas, 2010). Public procurement processes are becoming standardized and institutionalized. The public buyers' mission can be divided into three main tasks, namely, the expression of needs, the procurement stage itself (implementation of the formal rules of competition set by the sustainable public procurement code (SPP) and by the public procurement contracts code (PPCC)) and the monitoring of markets throughout the duration of the relationship. This raises the issue of the interpretation and integration of legal procedures within previous agreements and contracts between public purchasers and private providers. 2.2. Public procurement contracting The split toward more sustainable purchasing operations can be described as the efforts made by hospitals to include environmental, economic and social dimensions in their arrangements with providers. Foerstl, Reuter, Hartmann, and Blome (2010) identify supplier sustainability risks and suggest integrating sustainability risk management in supplier management processes. This can be done through contracts. As an insight, Sarkis (2003) argues that the selection of ISO 14000certified suppliers is preferred in order to lower the environmental risk. In the same idea, Chen (2005) posits that more and more firms have begun to voluntarily adopt ISO 14001 as a tool for continuous improvements to meet the goals of sustainability. Hence, it appears that a major focus for hospitals would be to define the form of contracts to suit the efficiency of the sustainable orientation. They will have to decide the length of the commitment, and the type of norms regulating the interaction with suppliers — relational norms (Macneil, 1980, 2000), formal contracts (Mellewigt, Madhok, & Weibel, 2007; Poppo & Zenger, 1 The procurement function in hospitals is associated with different denominations. We use the terms of public purchaser, public buyer, and procurement administrator interchangeably.

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2002) or written umbrella agreements (Mouzas & Furmston, 2008; Mouzas & Ford, 2012). First, the norms-based approach developed by Macneil (1980, 2000) asserts that all contracts contain a relational element and that all exchanges are, to some extent, relational. Macneil (1980) originally defined relational norms in terms of expectations of mutual interests prescribing control mechanisms to enhance the well-being of the relationship as a whole. Thus, in the relational contract theory, norms play a significant role in structuring efficient relationships. From a second perspective, many authors discuss the idea that relational exchange arrangements could be viewed as substitutes or complements for complex contracts. On the one hand, the increasing complexity of interaction might lead business partners to maintain implicit agreements in order to remain flexible. Formal contracts in their dual role of controlling and coordinating operations are then considered too binding. On the other hand, some argue that formal contracts and relational governance can function as complements (Jap & Ganesan, 2000; Mellewigt et al., 2007; Poppo & Zenger, 2002). Thirdly, expectations of both parties can be manifested through implicit or explicit demands. From this point of view, the focus is brought on objectives, resources, rights and obligations (Mayrhofer & Ivens, 2009). The authors argue that determinants such as specificity of investments, environmental uncertainty, reciprocity and long-term orientation have a positive influence on supplier effective adjustment to the client demands. A shift toward “umbrella agreements” could then transform implicit norms, already embedded in customs, into explicit norms for interaction (Mouzas & Ford, 2006). Public hospital purchasers required to contract with private providers are introducing various “private sector” management techniques to achieve the efficiency of the relationships (Brignall & Modell, 2000). These authors posit that “The greater the institutional pressures associated with contracting between purchasers and the focal provider organization, the greater the managerial emphasis on and integration between measures of resource utilization, quality and competitiveness within the focal organization” (page 299). Suppliers' management can therefore be considered as a strategic trigger of public procurement contracting. However, at the operational level, the identification of the actors concerned with sustainable procurement is not easy. With a dual purpose of securing legal procedures and economic efficiency, a major reorganization has been initiated for some years now. Call for tenders are coordinated through commissions likely to guarantee the principles of neutrality, objectivity and complete independence. In most public hospitals, these commissions are set up with regard to the purchasing nature, such as for example “goods and medical equipment”, “services”, “goods and equipment other than medical”, “public works”, or “maintenance markets”. Considering that sustainability requires new arrangements between public purchasers and providers, one could consider that relational contracts arise “de facto” in the healthcare public sector, resulting from the setup of collaborative relationship and control mechanisms. According to the relational contracting theory, three dimensions of relational norms have been identified: flexibility, information exchange and solidarity (Heide & John, 1992). The authors used the term “flexibility” to denote the willingness of actors to adapt the previous agreements to new environmental conditions. From the supplier's point of view, it is “the assurance that the relationship will be subject to good-faith modification” (Heide & John, 1992, p 35). In the healthcare field, flexibility might represent the expectation of finding more sustainable related products and operations from the buyer's perspective. Information exchange, defining “the bilateral expectation that parties will proactively provide useful information to the partner” (Heide & John, 1992, p 35) is clearly implemented in the new tendering procedures prescribed by the public procurement contract code. Finally, solidarity defined by Heide and John (1992, p 36) as “a bilateral expectation that a high value is placed on the relationship” illustrates the initial idea of sustainable development. It

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was viewed by founders as “the development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987), and it was supposed to lead to sustainable organizations by delivering economic, social and environmental benefits—the triple bottom line suggested by Norman and MacDonald (2004). In line with the relational contract theory, Mouzas and Blois (2008) underline that contractual arrangements that are not based on genuine consent are usually not sustainable over time because they fail to maximize the value created through exchanges. Nevertheless, the authors also suggest that umbrella agreements allow the readjustment of joint consent over time, which increases the value creation. Being considered as mutually perceived expectations within a shared system of conventions (Mouzas & Ford, 2009; Mouzas & Furmston, 2008), umbrella agreements could then include sustainable values, for example, with regard to environmental respect, less packaging, less surplus (Sharma et al., 2010). Some of the shared conventions can be regarded as general binding conditions, such as statutes or standards, meaning that the rules contained in the agreements are legally enforceable. The above developments led us to wonder how sustainability is perceived and applied by the main actors of public procurement, and whether sustainable supply management could impact providers' responses. We highlight our research design in the following section. 3. Research methodology We adopted a qualitative approach, since it is recommended to explore a phenomenon about which little is known. The objective is to gain further understanding about the implications of sustainable purchasing on supplier management. 3.1. Research method At this early stage of investigation into our research question, theory review did not allow us to identify directly the appropriate themes and questions for purchasing managers. In addition, we needed operational data about the structure and organization of hospitals before beginning the empirical stage of the research. Consequently, we decided to run indepth interviews with three experts in order to gain some operational insight on our research questions and sample design. These experts were respectively (1) the head of purchasing in health institution; (2) a health consultant; and (3) the top executive of a national health purchasing association, thus allowing us to bring together an internal and external vision of the question. Interviews were relatively unstructured, and focusing on (a) the history of sustainable purchasing (SP) in hospitals; (b) the current situation of SP in French hospitals; (c) the role of the purchasing function in this process; (d) the consequences of SP for hospitals; (e) the impact of SP on the buyer–seller relationships; and (f) operational data about structure and organization of hospitals. Interviews provided us with sound insights on the SP process and its implications, which then led to the final interview guide for hospitals. 3.2. Interview guide Expert interviews proved to be crucial with respect to how to design the interview guide. Key elements can be summarized as follows: - Sustainable purchasing (SP) is a recent concern in the healthcare field. Its meaning and operational content may be very different from one hospital to another. As a result, it is probably necessary to ascertain what interviewees actually talk about. - The maturity of the SP process is very different among hospitals, depending on size, regional authorities and the history of each institution. - The purchasing function faces many internal and external stakeholders with different interests. As an interface department, it is

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asked to satisfy these different “customers” (patients, surgeons, local authorities, etc.). Expectations from providers also depend on these requirements. - Cost/benefit ratio of SP can hardly be evaluated so far, so perceived risk is maximum for purchasing managers committed to greener purchasing. This, too, is likely to influence supplier relationships. - Consequences on supplier base management can already be assumed, but need to be confirmed. All in all, experts stressed the highly exploratory nature of our research question. It clearly seemed impossible to interview managers directly about the consequences of SP on supplier management. We decided to focus the interview guide on sustainable purchasing process (Appendix A) with a view to interpreting ex post the consequences on supplier management. 3.3. Sampling procedure With respect to expert interviews, selected hospitals should represent both small and big structures to allow a sound insight on the current process of sustainable purchasing. They should be located in the same administrative area, to avoid bias due to different regional policies. One of the experts allowed us to contact hospitals being part of a health purchasing association. Out of 28 prospected hospitals, 15 accepted to participate (Appendix B). We needed to identify the right informants inside the buying center of selected hospitals. Respondents should be in charge of purchasing process for one or several families of products. In addition, we should avoid situations where purchasing decision has been centralized at the regional scale for cost reasons. A growing number of commodities are managed this way. We absolutely needed to interview managers in charge of the overall process, including both economic and “green” aspects. Another problem was about the official title of our contacts, which proved to be different from one hospital to another: purchasing manager, head of economic services, head of logistics and economics. Position of interviewees can be seen in Appendix B. 3.4. Analysis and interpretation Interviews were audiotaped and verbatim fully transcribed. For template analysis, we assume an exploratory position as we explore a phenomenon with different interpretations. As far as we know, no categorization has been validated in literature, concerning implications of sustainable purchasing on supplier's management. Then, we could not use preliminary codes decided upon a priori. Verbatim was content-analyzed with open coding (Strauss & Corbin, 1998). Both authors coded verbatim separately. An additional researcher was also asked to carry out open coding. As resulting coding was divergent for a few categories of findings, collective final analysis allowed us to improve our interpretation. Final coding of verbatim clearly derives from author's interpretation. As we intend to focus on managerial implications of sustainable purchasing on supplier management, we only present key-results, also supported by verbatim extracts (Appendix C). 4. Findings and interpretations Template analysis allowed us to highlight the main implications of sustainable procurement process on supplier management. Final coding provides us with five main themes related to expectations from providers. In the following, each of them is examined and its consequences in terms of rearrangements with providers are briefly highlighted. They will be discussed later. In addition, the analysis is supported by verbatim extracts. Major ideas in each theme are presented in Appendix C, where frequencies are mentioned.

4.1. Environmental requirements For more than a decade, Corporate Socially Responsible (CSR) policies in hospitals have mainly focused on the environmental side. Purchasing administrators still consider this aspect first, some of them not even mentioning social and economic dimensions. Environmental actions allow high visibility and evaluation in the short term, which proves to be essential in a social and political context where tangible results must be delivered to both internal (top executives, end user services, finance department) and external stakeholders (local and central public authorities, consumer associations). A special focus has been put on energetic balance lately, inducing purchasing executives to evaluate more strictly overall consumption along the supply chain. Not only direct performance of equipment and commodities, but also global energetic balance from suppliers plants to after-use recycling: “From 2010, we analyze the environmental performance of any equipment or material we buy. In the future, we will need additional information to evaluate global performance, from conception to recycling”. (Respondent No. 1) It appeared that technical data about direct environmental balance of products and equipments are easily available from providers, allowing purchasers to introduce quantitative “green” criteria in product evaluation. Sustainable criteria are valued from 5% to 20% of global decision, depending on hospitals and categories of products and services. However, it is much harder for purchasing managers to obtain complete information about the overall performance of supplier offering across the whole lifecycle, including social and environmental dimensions. Since objective and direct measurements are almost impossible, new forms of cooperation and interactions with providers will probably be needed to improve knowledge and evaluation of “CSR” indicators. 4.2. Supplier base reduction Hospitals are used to ordering almost every day, each administrative or medical entity being in charge of its own purchasing process. Sustainability concerns and economic restrictions, supported by better coordination in procurement, urge public health institutions to achieve significant savings by grouping orders, which means improved information systems, and also gives priority to global providers. Interviewees also insisted on the necessity to reduce the number of referenced suppliers, thus focusing on fewer key suppliers. Savings along the supply chain due to higher volumes are the key driver of these developments. Another reason stems from the possibility of negotiating better financial conditions: “Both hospital executives and regional health authorities are urged to be more efficient in the ordering process. This will probably lead us to focus on bigger suppliers, and also to improve our logistics.” (No. 2) This result is important because it demonstrates that the optimization of suppliers' panels is now seen as a driver of environmental supply management, which had not been detected by previous academic work. So, in the future, the key supplier must be a big one with a wide range of products and services and increased adaptability. In addition, better coordination between providers and hospitals will be needed to improve supply chain efficiency. General ordering procedures should be defined (minimum quantities, delivery conditions, etc.) each year, but health activities can hardly be predicted with any precision. Then, beyond the framework arrangements, day-to-day interactions with providers could be of critical importance when it comes to adjusting logistics to short-term demands. 4.3. Need for continuous innovation Purchasing managers increasingly need high-performance solutions (on the environmental side especially) to comply with new

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sustainability standards. They highly depend on the providers' capacity to conceive and implement green solutions in the short and mid-term: “Sustainability is a challenging issue for us. Since it is very complex and we don't have time enough for it, we need to rely on some leading providers. They should anticipate our needs and propose new solutions.” (No. 9) In the early stages of their procurement process, they also need accurate information about the technical aspects in order to define specifications properly in accordance with internal needs of customer services, and external expectations from public authorities. Interviews also highlighted their leading role in the sustainable procurement process, both as project managers and internal consultants. But, at the same time, they confess having little expertise, thus being challenged by other departments. As evidence, they absolutely need to ground their sustainable procurement activities in a few providers with top technical and innovation skills. From an operational perspective, formal procedures could allow purchasers to meet some of their expectations: for instance, some providers propose technical support from an extranet, ensuring a response to hospitals within two days. Beyond short-term arrangements, however, global contracts with first rank providers will be needed so as to boost green innovation. 4.4. Legitimacy of purchasing function As mentioned above, purchasing executives often face internal oppositions when trying to implement greener solutions, especially with medical services whose legitimacy is unchallenged, given they deliver final service to patients. Moreover, pressure from public health authorities is growing, both for economic and sustainabilityrelated reasons. In this early stage of “sustainable healthcare” (not only in France) whose business model is yet to be defined, external experts are also frequently called upon, either by health authorities or by hospital top executives. In this context, procurement department makes claims for closer partnerships with top providers to enforce internal and external legitimacy: “We have to sell sustainability to other services first, or else it can't work. One problem is that we often miss knowledge and competencies about it. In many cases, we absolutely need strong support from providers (…). For example, complete information about durability or energetic performance of new “green” products (…). Sometimes, it may be very helpful for us that leading providers participate in some internal meetings as advocates for our “green” propositions.” (No. 11) Beyond the informational role of providers, most informants insist on their relational skills. Trust and cooperation are put forward as key drivers of their long-term relationships with sustainability-oriented providers. Since their legitimacy is challenged by internal and external health actors, they must rely on high-value suppliers, ensuring unfailing support. 4.5. Need for T.C.O. approach There is no consensus among respondents on the problem of the marginal cost of green products and services, and response depends on time horizon, categories of procurement and ways of defining global cost. However, a majority of respondents must admit that they have no time and/or no appropriate knowledge to evaluate overall cost and finally the return on investment (R.O.I.) of green procurement. Considering both budget cuts and higher direct costs of green supplies, this raises a major problem for the purchasing function:

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“In most cases, we guess that sustainable solutions are profitable in the long term, but how to prove it? It is very hard for us to evaluate any cost, from production to delivery, use and final recycling. So we ask our suppliers for precise elements, but, in general, we only get partial responses.” (No. 14) One thing is sure: they actually miss financial elements when negotiating with providers, other hospital departments or public authorities. Sustainability-oriented suppliers are needed (see Section 4.2), who know how to market sustainable solutions with sound positioning in terms of T.C.O. These strategic expectations from hospital purchasers will probably require relationships to develop further with their providers, both formally and informally. The formal definition and measuring of T.C.O. will be necessary in order to make it clear for all stakeholders in the purchasing process. But this is not enough, especially for new products or services with high innovation, which can hardly be compared with existing solutions. In this situation, global costs are just impossible to evaluate. Therefore, general guidelines should also define the global frame of hospital–supplier relationships, allowing purchasing managers to ensure that adapted solutions are proposed. 5. Discussion and implications One major teaching is undoubtedly that the purchasing function is severely challenged by internal and external stakeholders, since sustainability is growing more strategic in hospital management. As a result, both the level and the nature of expectations from providers are changing. In this early stage of sustainable public procurement, new rules already seem to emerge between suppliers and hospitals (Veal & Mouzas, 2011). First of all, sourcing policy tends to focus on fewer key suppliers with “green” skills. Supplier base management is then confirmed to be of strategic importance (Monczka et al., 2008) but this economic goal of suppliers' base reduction deteriorates sustainable performance by eliminating local small-sized providers and by increasing logistic costs. The paradox comes from the focus on the environmental dimension, as described in the literature (Seuring & Müller, 2008). The first reason probably lies in the prevalence of environmental expectations of the French government. We assume that the second reason is related to the visibility of environmental measures, which allows buyers to justify short term decisions related to sustainability. Some of the emerging expectations we found are likely to be fulfilled through formal contracts (Mellewigt et al., 2007), for instance, when higher energetic performance is required for medical equipment, or when lower frequency in ordering and delivery is needed. The T.C.O. approach can also be framed within formal contracts when complexity is low, for example, with commodities. Other expectations from our study seem much harder to contractualize, especially when the procurement function needs strong support from suppliers over time in order to gain increased legitimacy from internal and external stakeholders. Purchasers need to be certain that they can rely on trustworthy and benevolent providers, especially when requiring accurate information or organizational support for negotiating sustainable objectives with hospital authorities. In this context, relational norms will probably be the right framework (Macneil, 2000). Most expectations highlighted in our study probably need both formal contracts and relational norms between suppliers and hospital purchasers. Green requirements proved to be grounded both on objective, technical specifications and on the quality of interactions with suppliers. Beyond this dual regulation, the sustainable public procurement process will probably need to turn implicit norms into explicit norms (Mouzas & Ford, 2012). For instance, formal rules could usefully frame the objectives of future product innovation in terms of environmental impact, value creation for end users (patients) or economic sustainability of hospitals. Other rules could define the way the T.C.O. vision should

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be implemented during the global purchasing process, and afterwards along the product lifecycle. In the mid-term, the efficiency of sustainable procurement will strongly depend on the capacity of both parties to achieve a set of shared expectations, allowing to regulate sustainability-related interactions over time. On the academic level, our first contribution allows to strengthen the understanding of sustainable procurement implementation. As described in the literature (Sharma et al., 2010), we confirm that obstacles are both internal (opposition from other services) and external (cuts in budgets, poor expertise from suppliers). In terms of competitive advantage due to environmentally responsible strategy (Engardio, 2007; Esty & Winston, 2006; Savitz & Weber, 2006), we could not find however any confirmation in our study. Probably, effects of sustainable purchasing can hardly be evaluated in this early stage of the process. Our second academic contribution focuses on the role of contracts. Beyond formal procurement contracts, relational norms proved to be of strategic importance in order to structure efficient relationships over time. Although we did not investigate which dimensions of relational norms prevail, flexibility, information exchange and solidarity (Heide & John, 1992) seem to play a critical role in sustainable supplier–public buyer relationships. In addition, relational adjustments can hardly replace formal specifications, as sustainability related requirements become more complex. As suggested in the literature, formal contracts and relational governance are complements more than substitutes (Jap & Ganesan, 2000; Mellewigt et al., 2007; Poppo & Zenger, 2002). Finally, our results clearly show that purchasing managers need to rely on key suppliers with shared values and expectations with respect to sustainability. Umbrella agreements formalizing these priorities could allow both parties to ensure that formal contracts be sustainable over time (Mouzas & Blois, 2008), aiming at more value creation through “green” innovation. On the managerial level, we demonstrate that sustainability has become a main concern among public purchasers. The first verified element is that the environmental dimension prevails. The economic dimension is cited to a lesser extent and very little is known about the social orientation. So, many questions still need to be addressed. What about social conditions along the supply chain? What about economic value of “green” products and services for hospitals? It is probably time to integrate these dimensions better into sustainability scorings. These questions could be addressed in a future study. Our second confirmation deals with the reality of supplier base reduction whose environmentally and socially negative effects should be evaluated. Purchasers increasingly need formal contracts with accurate information about the environmental, social and economic dimensions of products and services along the overall supply chain, from conception to recycling. Relevant criteria should be defined, and then incorporated all through the purchasing process, from initial specifications of needs to final contracts with providers. Consequently, scoring used for purchasing decision should be improved to define precisely the relative importance of sustainability related criteria. Some academic work has started to explore this topic. Handfield et al. (2002) for example use of the Analytical Hierarchy Process (AHP) as a decision support model to help managers understand the trade-offs between environmental dimensions. Our study has confirmed that these sustainability-related criteria might serve as adjustment variables based on the procurement process. Beyond formal contracts, re-definition of the relational mode with providers is on the agenda. Purchasers clearly feel that formal contracts are far from enough to address new challenges of sustainable procurement. They need new arrangements with providers, defining the right values and expectations to be shared over time to achieve sustainability. It is about time to frame umbrella agreements with this objective, beginning with a few strategic providers. This task is of course connected to formal contracts, trying to find a compromise between long-term cooperation rules and lower prices over time.

6. Limits and future research The first limit is connected with the exploratory stage of our investigation. Existing constructs could not be found for sustainable procurement and its implications for supplier management. Then, the semi-structured protocol was probably appropriate, but external validity of our research can of course be challenged. Another limitation lies in the choice of interviewees. The buying center extends far beyond the purchasing function, especially for sustainable buying that raises strategic questions. Linked to this, we made no distinction according to the nature of products and services involved into the buying process, although requirements may differ according to environmental stake, lifecycle (equipment versus commodities), global amount and technical complexity. Finally, our investigation is reporting on data collected at a single moment in the early stages of the emergent topic for public hospitals, thus not allowing a global vision of the process. Further research could usefully be extended in four different directions. First, data could be collected from other geographical areas to be more representative, because local authority policy, private partnerships and localization of providers may impact the orientation and content of sustainable hospitals purchasing strategies. Second, a quantitative validation of the emerging links between sustainable procurement and supplier management will be on the agenda. Third, a categorized analysis, detailed with regard to the nature of purchases (strategic equipment for the hospital, current drugs procurement and all medical supplies, renewal of furniture and other non-medical equipment) could highlight how sustainable requirements contribute to design new expectations from providers. Lastly, our ambition is to achieve a longitudinal empirical survey to sort out how new rules and new forms of contracts within the public buyer–private provider relationships are implemented. 7. Concluding remarks This paper has attempted to provide an exploratory perspective on sustainable procurement within the public sector. The relevance of this topic is justified by the legal context requiring since 2006 the integration of sustainability in the public supply management. Recognizing the environmental focus due to institutional pressures, raising the paradox of deteriorated economic performance and noting that the social dimension is not taken into account, this paper calls for deeper empirical work. It should take the form of longitudinal case studies to track differing paths of sustainable procurement development in hospitals of all size, and their effects through time on contracts illustrating the complex interrelationships between public purchasers and private providers. Appendix A. Semi-structured interview template

(a) Acceptance of “sustainable development” and “sustainable procurement” 1. Meaning of “sustainable development” in the healthcare field? Implications? 2. Meaning of “sustainable procurement” in their activity? Implications? 3. Who is involved in sustainable procurement, inside and outside the hospital? (b) Origin and motivations of sustainable procurement in their organization 4. Who did impulse the evolution? Inside and/or outside actors and institutions? 5. Which motivations? (c) Evolution in recent years and current situation 6. In supplier management? 7. In relationships with other external actors in your business network (private or public)? 8. In the role and organization of your purchasing department? 9. In the relationships between the Purchasing Department and other services in the hospital? 10. In the service to end users (patients)? 11. In purchasing costs? 12. In the environmental field?

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Appendix A (continued) (d) Consequently, the perceived balance between costs and benefits of sustainable procurement 12. In terms of resources? 13. In terms of technical and relational quality of service to patients? 14. In terms of relationship quality with suppliers? 15. In terms of economic and financial efficiency of procurement process? 16. In terms of relationships with other actors outside the hospital? 17. In terms of the position of your service with respect to other departments? (e) The future of sustainable supply management 18. Related to supplier management and purchasing process? 19. Related to the role of your department in the hospital? 20. Related to other aspects?

Appendix B. Sample of hospitals and interviewees

Hospital

Number of beds

INTERVIEWEE

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1061 450 1616 849 218 475 450 1173 472 460 426 723 1251 171 1500

Head of economic services and logistics Purchasing manager Head of purchasing and logistics Purchasing manager Head of purchasing and logistics Head of purchasing Head of purchasing and maintenance Purchasing manager Head of purchasing Purchasing manager Head of economic services and logistics Head of technical services and purchasing Head of purchasing and sustainable development Head of economic services and logistics Head of economic services

Appendix C. Key findings in terms of supplier management implications

Theme

Items (frequency)

Environmental requirements

First priority: to minimize environmental impact (9) Urgency to improve energetic balance (9) Growing role of green criteria within call for tenders (7) Supplier base reduction Objective to reduce drastically the number of orderings (8) Evolution toward reduced supplier base (7) Decreasing role of small suppliers (6) Need for continuous Growing dependence on supplier innovation (6) innovation Growing dependence on supplier knowledge (6) Leading role of procurement function in the “green process”(5) Internal consulting role of procurement function (5) Need for more expertise to challenge green stakes (4) Legitimacy of purchasing Risk of growing dependence on other internal depts. function (6) High pressure from public authorities (9) Growing role of external experts (6) Lack of liable experts (6) Need for T.C.O.* Significant marginal cost of green purchasing (5) approach No time enough to evaluate R.O.I. (6) Strategic importance of measuring financial impacts (5) *T.C.O.: total cost of ownership.

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Gwenaëlle Oruezabala is Associate Professor in Marketing at the Marketing and Strategy Department at the University School of Management (IAE) of Poitiers, France. Her current areas of research are in BtoB marketing and she has special interest in supplier relationship management, global sourcing, global purchasing strategies and procurement contracts.

Jean-Charles RICO is Associate Professor in Marketing at the University School of Management of La Rochelle, France. His current areas of research are in Business Marketing and he has special interest in supplier relationship management and sustainability-related topics.