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In the present-day business environment, buyer-supplier relationships are an essential source of competitive advantages. Therefore, the management of such relationships should be regarded as a priority. The large transactional enterprises, such as Toyota and General Motors (GM), are characterized by the increased specialization and outsourcing activities that make buyer-supplier relationships “a focal point of organizational competitiveness, performance and long-term success” (Rašković and Brenčič 16). Consideration of different relationship management principles and the quality of buyer-supplier interactions is thus imperative.
Buyer-supplier relationships can be tailored according to the specific organizational needs, goals, and characteristics. Based on these differences, three major types of relationships are distinguished. They are the zero-sum game (transactional relationships), cooperative partnerships, and business networks (Enright 1).
In the case study, the zero-sum game type of interactions can be observed in GM’s manner of conduct. The adversarial (arms-length) manner of interactions between sellers and buyers means that the parties do not attempt to generate mutual benefits and are concerned primarily with own well-being. The focus in adversarial buyer-supplier relationships is made on the fulfillment of short-term goals such as price advantage. Such relationships are mainly developed on the contractual terms and are associated with both parties’ strategic adjustment (instead of flexibility) (Yusoon and Choi 62).
Arms-length relationships do not include continual communication. Buyers and suppliers do not need to share information about costs and forecasts. The given model does not imply collaboration and mutual learning although it might be present to some extent. It is possible to say that the focus on the price advantages without consideration of interests of another party is not always the best solution because while one side gains benefits, the other one loses them.
The example of GM makes it clear that adversarial seller-buyer relationships are characterized by the lack of buyer/customer or supplier values and low trust. As Enright observes, by following the principles of arms-length relationships, GM managed to achieve significant cost efficiency because it frequently switched to the lowest bidders (3). However, a negative consequence of this kind of conduct is that buyers become more likely to choose those companies that value collaboration and partnerships, and share their ideas with those companies.
Cooperation as the form of buyer-supplier relationships qualitatively differs from adversarial interactions. Its main distinctive feature is the awareness of the parties of the interdependence between them. “In this relationship type, annual agreements are formed and the supplier becomes more involved in the quality control process” (Bemelmans et al. 164). It means that collaborative partnerships are based on the mutual commitment and shared goals, as well as the maximization of operational efficiency and effectiveness of each participant’s performance.
The major principles of cooperation are joint efforts and supported interdependency that can lead to the development of competitive advantages. The implementation of these principles can be seen in the case of Microsoft and PC Makers, Toyota, Honk Kong Container Terminals (HKCT), and the Acer Group (AG). All these organizations endeavor to establish long-term relationships with their contractors/partners but, nevertheless, some differences in their behaviors can be observed.
According to the extended typology of buyer-supplier relationships suggested by Kim and Choi, the collaboration between the parties may be 1) “deep” (closely tied and cooperative), 2) “gracious” (arms-length but cooperative), 3) and “sticky” (closely tied but adversarial) (64). It is possible to say that Toyota employs the first type of relationships. The company and its partners aim to achieve a high level of operational synchronicity through continual communication and regular feedbacks. The selection of the given type of relationships by Toyota is consistent with the just-in-time and lean manufacturing models adopted by the organization. However, the establishment of close and trustful relationships is always a challenge because it requires significant efforts and investment of resources (time, technology, etc.), but the development of institutional trust can also bring numerous and significant advantages including lower total costs and improved quality (Voigt 637).
“Gracious” type of cooperation is employed by the AG. By 2001, the company decided to work as a contract manufacturer but, at the same time, become a vendor of own brand (Enright 11). It means that the AG does not work with other companies intensely but still takes into account their interests and strives to maintain goodwill. Arms-length yet cooperative relationships imply that companies participate in short-term, intermittent collaboration. “The supplier in such a relationship is less reliant on the buyer and typically is resourceful and has diversified product offerings and a balanced customer base” (Kim and Choi 64). Acer’s reduction of ownership of Wistron had a purpose of giving a free hand to its contract manufacturers while concentrating on the development and sales of own brand products (Enright 11). In this way, AG attempted to retain autonomy and, at the same time, consider the interests of the contractors.
The relationships between Microsoft and PC makers can be defined as closely tied but adversarial. In its long-term partnerships with PC makers, the company streamlined and systematized exchanges in a way that resulted in increasing effectiveness and efficiency of intercompany interactions to its advantage – such pattern of relationship management is considered the major feature of “sticky” collaborations (Kim and Choi 64). For example, Microsoft used agreements that forced PC-makers to use the Internet Explorer or asked for large royalty payments before allowing licensing the new Microsoft products (Enright 4-5). In this way, PC-makers were put in a hostage position while Microsoft gained significant financial and marketing advantages. Thus, it is possible to say that the organization mainly applied the adversarial principles while being closely tied to the partners.
A similar situation can be observed in the case of HKCT. The review of HKCT relationship patterns reveals that it also applied the principles of adversarial interactions as some parties involved in Terminal Handling Charges (THC) suffered from higher costs than others. The shippers complained that the shipping lines’ high charges were used as a cost-recovery mechanism aimed to increase the profit at the expense of the shippers (Enright 7). The focus on price advantages is the sign of arms-length relationships, but the close ties between the terminal units made it hard for the shippers to terminate the relationships with the shipping lines.
The Prato Wool Textile Industry, the Hollywood Motion Picture Industry (HMPI), and Airbus use networking as the major form of buyer-supplier relationships. Business networks are defined as inter-firm exchange (Kamp 2). The main characteristic of business networks is the localization of operations no matter how large or small in scope they may be. Such alliances are managed through a dynamic and complex web of formal and informal relations, information technology, knowledge sharing, and infrastructures. Networking implies the collaboration between autonomous business units and a high level of interdependence among them. For instance, different assemblies for A380 project were produced by different business units in different parts of Europe and delivered by the contracted suppliers. Another example is the project-based coalitions in the Hollywood industry where the parties involved in the process of filmmaking pursue both personal advantages (e.g., actors’ fees) and a higher-level project goals. Prato firms are also interested in each others’ resources, but contrary to the HMPI where the relationships are mainly hierarchical, they cooperate as equals. They are buyers and suppliers at the same time and, therefore, they aim to achieve some internal goals through collaboration. Overall, it is possible to say that inter-firm networking may be developed to attain both shared and individual goals.
It is assumed that parties involved in a business network are free to maintain or dissolve their relationships although it is observed that most network relationships are stable and recurring (Kamp 2). In this way, inter-firm networking is characterized by high flexibility. However, since several business units are usually involved in the network relationships, the creation of a new link or exclusion of a particular party may drastically change the pattern of communication. To reduce the risks, the participants of inter-firm network relationships always strive to build trustful and open relationships that allow them to gain significant competitive advantages including the continuity of supply and increased operations’ quality.
Summary: Future Directions
It is possible to say that the best approach to buyer-supplier relationships is the “deep” collaboration/alliance associated with tangible and intangible values for both sellers and buyers, as well as the opportunities to achieve simultaneous goals (e.g., cost efficiency and service improvement). The recent research findings make it clear that meaningful long-term relationships can help organizations enhance their competitive positions because institutional trust allows accumulating know-how throughout an enduring period. Additionally, close supplier-buyer ties stimulate technologic advancement because supplier-buyer involvement requires continual communication supported by various IT. Therefore, most of the organizations will prefer more cooperative and trustful relationships in the future because value-added communication models not merely foster financial advantages but help to gain the benefits beyond the expediency.
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Bemelmans, Jeroen, et al. “Assessing Buyer-Supplier Relationship Management: Multiple Case-Study In The Dutch Construction Industry.” Journal of Construction Engineering & Management, vol. 138, no. 1, 2012, pp. 163-176.
Enright, Michael. “Buyer-Supplier Relationships.” Center for Asian Business Cases, The University of Hong Kong, 03/162C, 2003, pp. 1-15.
Kamp, Bart. “Formation and Evolution of Buyer-Supplier Relationships: Conceiving Dynamism in Actor Composition of International Business Networks.” IMP Conference, Interacting, influencing, strategizing – Where are we heading?, 2004, Kobenhavn, Denmark.
Kim, Yusoon, and Thomas Y. Choi. “Deep, Sticky, Transient, And Gracious: An Expanded Buyer-Supplier Relationship Typology.” Journal of Supply Chain Management, vol. 51, no. 3, 2015, pp. 61-86, Web.
Rašković, Matevž, and Maja Makovec Brenčič. “Buyer-Supplier Relationships and The Resource- Advantage Perspective: An Illustrative Example of Relational and Transactional Drivers of Competitiveness.” Journal of Competitiveness, vol. 5, no. 1, 2013, pp. 16-38. Academic Search Complete.
Voigt, Guido, and Karl Inderfurth. “Supply Chain Coordination With Information Sharing in The Presence of Trust and Trustworthiness.” IIE Transactions, vol. 44, no. 8, 2012, pp. 637-654.