Supplier Relationship Paradoxes and Performance Implications

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Supplier Relationship Paradoxes and Performance
Implications
Yusoon Kim (Yoousoon.Kim_at_asu.edu) Supply Chain
Management Department W. P. Carey School of
Business Arizona State University Presented
at 2008 AoM OM Division Doctoral
Consortium August 10, 2008
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Dissertation Research Summary
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Outline

• Research Motivations
• Research Questions
• New Relational Dimension
• New Buyer-Supplier Relationship Framework
• Performance Paradoxes and Propositions
• Methodology
• Contributions

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Research Motivations

• Voice or Exit Dichotomy (Hirschman, 1970
  Helper, 1987, 1991)
• Prevalent framework for classifying
  buyer-supplier relationships
• Centers on the relational state or relational
  posture
• One-dimensional, relationship context-focused
  dimension
• Some of the dimensions used to characterize
  buyer-supplier relationships define the context
  of the interaction rather than being an inherent
  aspect of the interaction process per se
  (Andersen Kumar, 2006)

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Research Motivations (Contd)

• Rising importance of considering more than one
  dimension for network-relationships
• At the level of the ties that form the network,
  we could consider tie modalities such as the
  strength of the connections and the nature of the
  ties, both within the industry and across to
  supplier and customer industries (Gulati,
  Nohria, Zaheer, 2000)
• Supplier Relationship Paradox
• Cooperative relationship isnt necessarily
  strong, and adversarial relationship isnt
  necessarily weak.

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Research Questions

• Can the prevalent relationship framework of
  voice-exit dichotomy sufficiently discern the
  increasing intricacy in buyer-supplier relational
  dynamics?
• Can it capture the varying degrees of relational
  intensity?
• What are the expanding performance implications
  in the buyer-supplier relationship?

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New Relational Dimension

• Relational Intensity
• Captured in the dichotomy of strong-weak ties
• Theoretical Foundation
• Social Embeddedness (Granovetter, 1973 Marsden
  Hurlbert, 1988)
• Social Capital (Coleman, 1988 Burt, 1992
  Hansen, 1999)
• Organization Theory (McEvily Zaheer, 1999 Hite
  Hesterly, 2001)
• Strong tie is associated with frequent contact
  and involves closely coupled operations with
  need-based high reciprocal inter-firm activities.
  
• Weak tie is associated with infrequent contact
  and involves loosely coupled operations with
  episodic or ad hoc inter-firm activities.

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Implications of Two Dichotomies

• Voice vs. Exit (Relational Posture)
• Voice (Cooperative) affectively intimate, trust
  commitment
• Exit (Adversarial) affectively indifferent, lack
  of willingness to support
• Strong vs. Weak Tie (Relational Intensity)
• Strong Tie operationally highly
  (inter)-dependent, org. similarity
• Weak Tie operationally rather independent, org.
  dissimilarity

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New Buyer-Supplier Relationship Matrix
1 Vollman Cordon (1998) Whipple Frankel
(2000) 2 Ellram (1995) Monczka et al. (1998) 3
Mudambi Helper (1998) 4 Bensaou (1999) 5 Dwyer
et al. (1987), Sako (1992) 6 Dwyer et al.
(1987), Monczka et al. (1998) 7 Harrigan (1988),
Heide Miner (1992) 8 Dyer et al., 1998
Zirpoli Caputo, 2002
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Performance Paradoxes
Leverage vs. Synergy
Stability vs. Rigidity
Flexibility vs. Ambiguity
Innovation vs. Control
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Performance Paradox I

• Proposition 1 A strong-voice relationship
  promotes stability for the buyer and supplier,
  but in the extreme it can cause rigidity toward
  outside changes.
• Facilitate reliable material flows, adjustment to
  changes, resolution of conflicts, and
  mobilization of mutual support (Coleman, 1988
  Kraatz, 1998 Klassen Vachon, 2003).
• However, also likely to develop relational
  rigidity.
• Too strong bond may serve as a filter for
  information/perspectives (Grabher, 1993 Jones et
  al., 1997)
• Strongly tied firms tend to become increasingly
  alike with no new knowledge generated (learning
  traps) (Schein, 1970 Afuah, 2000)

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Performance Paradox II

• Proposition 2 A strong-exit relationship offers
  one firm leverage over the other, but it most
  likely entails loss of operational synergy
  between the buyer and supplier.
• Intense contacts enable the dominant, exit-minded
  buyer to effectively exploit suppliers
  resources/capabilities (Bensaou, 1999 Choi et
  al., 2002)
• However, also prevent from achieving synergistic
  effects
• Little combined effort due to lack of informal
  commitment (Mudambi Helper, 1998)
• Erosion of diversity/newness in inter-firm
  resources/knowledge (Uzzi, 1997 Hansen, 1999
  Levin Cross, 2004)

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Performance Paradox III

• Proposition 3 A weak-voice relationship
  facilitates innovation for both the buyer and
  supplier, but it typically prohibits both parties
  from establishing sufficient control over each
  other.
• Allows both firms to more venture out and
  facilitate exchange/ combination of
  information/resources (Hite Hesterly, 2001)
• However, also constrain to gain enough control
  over the partner
• Rather operationally independent parties (Ulrich
  Barney, 1984 Wilkinson Young, 2002)
• Not enough familiarity with the partners
  organizational structure or operational system
  (Ryu et al., 2008)

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Performance Paradox IV

• Proposition 4 A weak-exit relationship allows
  flexibility to both the buyer and supplier, but
  at the same time, it renders both firms high
  relational ambiguity.
• Neither parties are deeply bound to the partner,
  psychologically nor operationally (Flinders
  Smith, 1999 Benz Furst, 2002).
• However, also expose both firms to high
  (relational) uncertainty
• Very little chance of obtaining additional
  resources or help from the partner (Anand Ward,
  2004)
• Low predictability for the partners patterns of
  behavior (Wuyts Geyskens, 2005)

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Research Methodology (Design)

• Unit of Analysis
• Dyadic relationship between Toyota and its direct
  suppliers
• Two-Phase Field Study
• 1st-phase at Toyota
• Collecting data on performance variables
  relationship characteristics
• Semi-structured interviews
• 2nd-phase at Suppliers
• Collecting data on relationship characteristics
• Empirical questionnaire survey
• Sample size 250 300 data points (suppliers)
• Key Informants
• Toyota purchasing managers
• Supplier contact who directly interacts with
  Toyota managers

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Research Methodology (Analysis)

• Multivariate statistical procedures (factor
  analysis, cluster analysis and MANOVA)
• Task 1 Testing of Relationship Matrix
• Factor Analysis to verify the orthogonality of
  two underlying relational dimensions (relational
  posture vs. relational intensity).
• Cluster Analysis to identify and differentiate
  the underlying clusters (Hambrick, 1983)
• Task 2 Testing of Performance Paradoxes
• MANOVA to test performance discrepancies between
  clusters (overall differences differences in
  each performance variable)
• Non-parametric t-tests to compare individual
  performance variables in clusters

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Managerial Implications

• Differentiating strong from cooperative and weak
  from adversarial relationship
• Awareness of tradeoffs in supplier relationships
• Need for re-evaluation of the existing portfolio
  of supplier relationships
• Ability to develop more focused and realistic
  relationship management strategies

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Academic Implications

• A new relationship-driven taxonomic approach to
  buyer-supplier relationship research, employing
  two distinct relation-specific dimensions
• Advance the relational context in research
  framework from dyads to the embedded nature of
  supply networks
• Importance of considering a relationship not as
  an isolated social entity but rather an element
  of the extended network

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Questions Comments
Thank you