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Buyer-Supplier Relationships and Organizational Health

Buyer-Supplier Relationships and Organizational Health

AUTHORS

Marie McHugh is a professor of organizational behavior and head of the School of Business Organization and Management at the University of Ulster in the United Kingdom.

Paul Humphreys is a reader in operations management within the School of Business Organization and Management at the University of Ulster in the United Kingdom.

Ronan McIvor is a senior lecturer in e-commerce within the School of International Business at the University of Ulster in the United Kingdom.

This article examines the relationship between orga-

nizational health and buyer-supplier relationships.

Contemporary research has emphasized the need for

organizations to move toward closer cooperation.

The decision to engage in partnership arrangements

is one that has major implications for buyers and

suppliers. Using evidence from an exploratory case

SUMMARY

study, the challenges presented in

developing a close, cooperative,

and mutually beneficial trading

The Journal of Supply Chain Management: A Global Review of Purchasing and Supply Copyright © May 2003, by the Institute for Supply Management, Inc.

relationship between a buyer and a supplier, where

one partner, the buyer, is in a powerful position, are

investigated. It is argued that powerful buyers can

seriously damage organizational health. The find-

ings provide evidence that it is essential to promote

communication structures that encourage dialogue,

consultation, and employee participation in deci-

sionmaking. This is particularly important where

decisionmaking could benefit from the in-depth

technical knowledge of middle and junior managers

and shopfloor workers.

EXAM Module 2
EXAM
Module 2

INTRODUCTION

In recent years, the relationship between buyers and suppliers has received considerable attention. Due to the globalization of markets, corporate restructuring, and increased focus on costs, quality, flexibility, and tech- nology, an expanded role for procurement has emerged (Burt, Dobler, and Starling 2003). Traditionally, pur- chasing was considered a clerical function, where the relationship between suppliers and buyers tended to be adversarial. However, many organizations have moved toward a more collaborative approach.

Gadde and Hakansson (1994) identified three key stra- tegic purchasing issues: the make or buy decision, the supply base structure, and the customer-supplier rela- tionship. They and Cox (1996) emphasized the need for organizations to move toward closer cooperation in the buyer-supplier relationship. Market pressures for increased product complexity and variety demonstrate the ever-expanding need for a team-oriented mind-set. Consequently, they need to supplement their core com- petencies by allying with other providers of comple- mentary competencies to satisfy their customers. The real productivity, design, and quality improvements are not obtainable unless the supplying partners innovate to the best of their abilities. Hence, many manufacturers recognize that their ability to become world-class com- petitors is based to a great degree on their ability to establish high levels of trust and cooperation with their suppliers.

Indeed, the advantages of closer cooperation have been cited by Magnet (1994) and Helper and Sako (1995), who noted that closer relationships between customers and suppliers have had beneficial effects on performance in a number of areas. As a collaborative or partnership arrange- ment between buyer and supplier, this requires a major shift in the mind-set or operational paradigm, from what has been termed arm’s-length contractual relationship to obligational contractual relationship (Sako 1992). The need for a reassessment of the nature of, and bene- fits to be derived from, buyer-supplier relationships was further argued by Kerwood (1995), who commented that much of the current literature on effectiveness and success suggests that success can only be achieved at the expense

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Buyer-Supplier Relationships and Organizational Health

of others such as competitors, suppliers, and customers (Jarillo 1988). However, theory and research from an interorganizational relationship perspective have begun to acknowledge the role of cooperation in organizational success (Nielson 1988).

Many companies recognize that their ability to become world-class competitors is based, to a great degree, on their ability to establish high levels of trust and coopera- tion with their suppliers (Buono 1997). With higher standards of performance being demanded in each busi- ness environment, companies are of necessity looking to their suppliers to help them achieve a stronger com- petitive position. Indeed, it has been suggested that in a world of converging consumer tastes, rapidly spreading technology, escalating fixed costs, and growing protec- tionism, more collaborative relationships with suppliers are critical instruments for serving customers in a global environment (Ohmae 1989).

These views are endorsed by others who argue that the basis of modern competition is continuous improvement in products and processes (in other words, the simulta- neous achievement of both efficiency and innovation). The cooperative approach between buyers and suppliers is based on recognition of mutual interest, particularly where components provided by suppliers are a large pro- portion of the cost of the final product. It involves assisting the customer to provide a higher-quality, lower-priced product, for example, through long-term supply relation- ships, general management advice, and possibly through research and development, training, and loan guarantees (Hendry et al. 1995). Common aspects of customer- supplier partnerships include: long-term relationships based on trust and cooperation rather than competition for each order, thereby giving the supplier a stronger interest in the quality of the goods supplied; devolution of design work to the supplier; cooperation to improve performance and quality, sometimes involving advice from the customer’s supplier development teams; and target pricing in which the customer sets price reduc- tions and helps the supplier to achieve them. In many ways, it can be argued that these features of partnership are highly similar to aspects of organizational processes and functions that have been cited as characteristics of the healthy organization. For example, the establish- ment of good relationships, trust and cooperation, and appropriate devolution cited as essential elements of partnering by Boddy et al. (1998) have been frequently linked to the healthy organization (De Vries and Miller 1990; Cox and Haworth 1990; Cooper and Williams 1994; Newell 1995).

ORGANIZATIONAL HEALTH

Organizational health is a poorly defined but widely used concept (see, for example, De Vries and Miller 1990; Cox and Haworth 1990; Cooper and Williams 1994; Newell 1995; McHugh and Brotherton 2000).

16 The Journal of Supply Chain Management | Spring 2003

Despite its clouded definition, it conjures up positive images of the organization, regardless of the indices that one might use to measure “health” in organizational terms. For example, an organization might be “finan- cially healthy,” “strategically healthy,” “structurally healthy,” “culturally healthy,” and/or “behaviorally healthy.” Although the existing literature does not pro- vide or permit a succinct definition of organizational health, within this article the healthy organization is considered to be one whose structure, culture, and man- agement processes contribute to high levels of organiza- tional performance. As part of this, it is believed that individual and organizational health are interdependent entities. Thus, indices of the healthy organization are likely to include measures of employee stress and well- being, employee satisfaction and commitment, the per- ceived quality of management decisionmaking, the appropriateness of structural arrangements, and finan- cial indicators. One aspect of organizational health con- cerns decisions regarding buyers and the development of good buyer-supplier relationships of the partnership variety referred to above.

BUYER-SUPPLIER RELATIONSHIPS AND ORGANIZATIONAL HEALTH

Despite the wisdom of the arguments concerning the formation of partnerships and the contribution that buyer-supplier relationships make to organizational health, it is important to point out that the necessary levels of interfirm trust are not always present in the buyer-supplier relationship to permit collaboration to become a reality. The mistrust, which is often evident, is the result of many years of broken promises, abuse of confidence, and general acrimony within manufac- turing industry (DTI 1989; Burnes and New 1997). As such, partnership can in fact be a double-edged sword where, although there is “security” in the relationship, there is potential for a powerful partner (usually the buyer) to show the strength of its muscles, squeezing the sub- missive partner (usually the supplier), to such an extent that it is potentially harmful to both sides in the relation- ship. The squeezing is likely to manifest itself in, for example, ever-increasing demands for higher quality at lower costs and ever-shortening leadtimes (Porter 1980; Miller and Dess 1996). One example of this is provided by the trading relationship between the major toy retailer Toys“R”Us and the manufacturer Mattel. The dominance of the retailer in this partnership, reflected in, among other things, its decision to drastically reduce inventory stocks, has caused major problems for the supplier (BusinessWeek 1999).

Such behavior is indicative of a lack of understanding of the principles underlying the true meaning of partner- ship as outlined by Partnership Sourcing (1990). Within this, it is argued that customer and supplier work as part- ners, believing that teamwork is better than combat,

and that “both must win” (ibid). In making partnerships work in a healthy way, thus contributing to the creation of healthy organizations, there is a need for the effective formation and implementation of a web of interfunctional relationships within each of the organizations (Kanter 1989). This must be accompanied by goal clarity between buyer and supplier, a clear understanding and acceptance of roles and responsibilities, and a sharing of ideas (Boddy et al. 1998).

While initially it may be to the buyer’s advantage to squeeze its supplying partner, the advantages are likely to be short lived. Not only does excessive squeezing potentially destroy the relationship between the buyer and the supplier, but also it is likely to foster a state of ill health within the supplier organization that is likely to impact the buyer with the emergence of a vicious spiral of negativity. The ill health within the supplier organi- zation is likely to be caused by the excessive demands being made by the buyer, which are passed down to employees who, among other things, are in turn under severe pressure to deliver enhanced quality in a shorter time. More often than not, constantly responding as and when required to a demanding supplier can cause confusion, chaos, and interference with management decisionmaking within the supplier organization. Simultaneously, the supplier organization is trapped in a trading relationship and its energies and resources are so submerged in coping with this highly charged situation that it has no opportunity to escape from the relation- ship, or to rationally consider alternative ways of man- aging its circumstances. While this in itself is unhealthy, it may be argued that as an outcome of the unrelenting pressure exerted by the powerful buyer, a cycle of nega- tivity emerges whereby the excessive demands of the buyer throw the supplier organization into a state of chaos and confusion that negatively affects management processes and functions. Being placed in a position where the sup- plier is not able to cope with buyer demands is likely to result in even more pressure being applied by the buyer, which creates further difficulties for the supplier. Thus, a vicious spiral of negativity emerges, the effects of which become potentially more disastrous with each twist of the spiral. Furthermore, as part of this spiral, the type of trading liaison referred to above prevents the supplier organization from having a direct relationship with the market. This in turn prevents the development of a strategic overview and reinforces dependencies.

Meanwhile, the powerful buyer may initially appear unaffected by the ill health brewing within the supplier organization. However, it is inevitable that the difficulties experienced by the supplier will impact upon the buyer itself in the form of, for example, delayed deliveries and product quality problems, all of which ultimately affect the overall health of the buyer. Thus, such a buyer-supplier relationship is inherently problematic and displays all of the hallmarks of a “partnership” where there is a lack of

Buyer-Supplier Relationships and Organizational Health

knowledge, understanding, and acceptance of the poten- tial benefits for inter- and intra-organizational health and well-being to be gained from collaboration. The abuse of buyer power is a contradiction of the philos- ophy of partnership advocated by Sako (1992) that has been linked to organizational success (Neilson 1988) and that works to erode the health of organizations. Furthermore, it may be argued that the abuse of power beyond a certain point may adversely affect the buying company itself. In many respects, such a relationship is akin to the nature of buyer-supplier relationships described by Cox (1996), whereby each member of an organiza- tional network will seek to do what is best for itself in terms of achieving “the greatest competitive and profit- making advantage.” This is far removed from and stands in stark contrast to the type of mutually advantageous partnership relationship built upon mutual trust, open- ness, and sharing described by Lamming (1993) and by Womack and Jones (1996).

Within the context of a larger study that examined link- ages between different aspects of organizational health (McHugh 1996), this article aims to explore the delete- rious effect that complete dependence upon a powerful buyer may have upon organizational health. It is con- cerned with the case of a financially healthy organiza- tion engaged in a trading partnership with a powerful buyer regarded as being one of the most successful retailers in the United Kingdom. Using a case study approach that involves the collection of primary and secondary quantitative and qualitative data, it seeks to show that where a buyer is all-powerful, it is exceptionally difficult to fully implement and reap the benefits of a true win- win contractual obligational relationship of the variety advocated by so many as being important in the achieve- ment of competitive advantage. Equally, it indicates that a relationship with a powerful buyer founded on superficial trust provides temptation for the abuse of the relationship that is injurious to the health and the longer-term well-being of the buyer and supplier orga- nizations. Thus, although powerful buyers may be tempted to use their position to extract superior outcomes for themselves, this may lead to a situation of ultimate destruction.

The Buyer-Supplier Partnership

Before proceeding to investigate the organizational health of the companies described in the subsequent exploratory case study, it is important to provide a ratio- nalization of the extent to which a partnership relation- ship exists between the buyer and supplier organizations. McIvor et al. (1997) identified a number of key factors that influence buyer-supplier relations where partner- ship sourcing exists. These are outlined in Table I with supporting evidence relating to the relationship with the powerful buyer, referred to as Company X. This table also outlines linkages between buyer-supplier collabora- tion and elements of organizational health.

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Buyer-Supplier Relationships and Organizational Health

Table I

PARTNERSHIP CRITERIA WITH CHARACTERISTICS FROM THE CASE ORGANIZATION AND ORGANIZATIONAL HEALTH

Partnership Criteria

Characteristics from the Supplier Case Organization

Relation to Characteristics of Organizational Health

Rationalization and consolidation of the supplier base (Ellram 1991). Improved and deepened supplier relationships (Gadde and Hakannson, 1994).

Deep relationship with Company X developed over a period of 10+ years. Increased business with Company X. High level of contact with Company X.

Trust and cooperation between individuals and organizations (De Vries and Miller 1984; Cooper and Williams

1994).

Supplier involvement in design and product development (Sako et al. 1994; Bonaccorsi and Lipparini 1994).

Extensive collaboration in product design and development.

Frequent meetings and consultations (Newell 1995; Miller and Dess 1996).

Bi-directional communications between buyer and supplier focusing on key aspects of partnership (Ellram 1991; Spekman 1988; Williamson and Ouchi 1981; Richeson et al. 1995).

Extensive bi-directional communications; telephone calls; faxes; e-mails; meetings.

Extensive inter- and intra-organizational communication across the hierarchy focusing on the development of rela- tionships, functions, and processes to enhance efficiency and effectiveness (Senge 1991; Pettigrew and Whipp 1991; Heriott and Pemberton 1995).

Focus on supplier development (Leenders 1989).

Members of organization worked with buyer in own and in Company X’s organization. Structural change to create alignment of organizational structure with that of Company X.

Joint decisionmaking in relation to employee development and structural change (Miller and Monge 1986; McHugh 2001).

Strategic supplier management (Ellram 1991).

Long-term management compatibility.

Effective leadership and compatible organizational cultures (Huey 1995; Johnson 1995; McHugh et al. 1999).

Taking into consideration the factors that influence buyer-supplier relations as outlined by McIvor et al. (1997), the above discussion aims to illustrate that the relationship that existed between the supplier organiza- tion and Company X was a partnership. Further support for this argument is offered by Boyle (1994), who pro- vided detailed case study evidence outlining the extent of the partnering relationship between Company X and the supplier.

CASE STUDY METHODOLOGY

Management research is characterized as being soft, applied, and divergent and is undertaken in complex organizations that exist in a dynamic environment (Tranfield and Starkey 1997). This makes it very difficult to apply the more traditional positivist approach with its emphasis on replication to test for validity. As a con- sequence, a great deal of research in the management of organizations makes use of the inductive case study approach (Yin 1984; Bourgois and Eisenhardt 1988). The single case study approach as used in the present exploratory study provides great richness and multiple perspectives of the many managers involved with regard to the data collected and is thus largely qualitative in nature. Although a single case in the sense that it exam- ines in detail the relationship of a supplier organization and its buyer, multiple methods were used to collect data from individuals within two semi-autonomous

18 The Journal of Supply Chain Management | Spring 2003

strategic business units (SBUs). Unlike positivist research, however, the analysis of case study data is essentially interpretative and inductive. From the qualitative data, narratives or stories are developed that are examined for patterns. From these patterns, inferences are drawn that yield propositions and can lead to specific hypotheses. Such hypotheses can then be tested in other situations and indeed, if sufficiently specific, can be tested via the more traditional survey methods of social science.

A MEASURE OF ORGANIZATIONAL HEALTH

Within the larger study that examined links between different aspects of organizational health referred to pre- viously, financial indicators were used as the only tangible, objective measure of organizational health. It is acknowl- edged that the use of financial indicators may provide an inadequate picture of organizational health. However, in the absence of any other tangible objective measures, they were used as a basis upon which to judge organiza- tional health and select organizations for participation in the research. The financial ratios used to assess sup- plier performance over a four-year period included: return on capital employed; sales per employee; gross profit margin; sales per pound of assets; return on sales; the acid test ratio; speed of stock turnover; debtors’ collec- tion period; creditors’ payment period; and return on shareholders’ funds. Taken together, they were consid- ered to provide a relatively comprehensive picture of the

Table II

Buyer-Supplier Relationships and Organizational Health

FINANCIAL DATA FOR A FINANCIALLY HEALTHY SUPPLIER ORGANIZATION, YEARS 1-4

 

Year 1

Year 2

Year 3

Year 4

Return on Capital Employed

25%

18.25%

14.13%

12.43%

Return on Sales

6.13%

5.13%

4.38%

3.94%

Sales per Employee

31,881

31,107

32,581

37,036

Gross Profit Margin

21.25%

22.5%

15.25%

17.25%

Sales per Pound* of Assets

3.06

2.21

2.76

2.7

Current Ratio

1.97

1.15

1.98

2.07

Acid Test Ratio

0.81

1.82

0.57

1.02

Speed of Stock Turnover

6.9

6.73

6.98

8.83

Debtors’ Collection Period

42.25

48.87

25.37

35.4

Creditors’ Payment Period

92.87

156.25

70.5

76.75

Return on Shareholders’ Funds

22.5%

19.25%

17.62%

16.5%

*This study, conducted in the United Kingdom, employs the British pound (£).

organization’s financial health (Chakravarthy 1986; Woo and Willard 1983). The financial records of the supplier company revealed that it had enjoyed high levels of suc- cess for a number of years; these are summarized in Table II. To preserve anonymity, the data have been subjected to an inflator. Although subject to a degree of competi- tive pressure, the company had performed better than many industry rivals (ICC 1998).

ORGANIZATIONAL PROFILES

The supplier organization is a large clothing manufac- turer in Northern Ireland that employs in excess of 3,000 people. The company has three divisions, each of which operates as a semi-autonomous strategic business unit (SBU) manufacturing different clothing products for the same customer, Company X. The latter is a highly suc- cessful large, U.K.-based multiple retailer that has a pres- ence in all large cities and towns in the region. Until the mid-1990s, it performed at a consistently high level, returning large profits on an annual basis. The policy of the company has been to establish a partnership relationship with its suppliers, seeking to build deep- ening relationships over a prolonged period of time. This is evident in its trading relationships with suppliers across a wide spectrum of products.

Within the supplier organization, the majority of employees are female operatives engaged in routine production work. Within the organization’s overall divi- sional structure, each of the SBUs had a different man- agement team that worked independently. Furthermore, each was engaged in the manufacture of different prod- ucts and operated a different system of production. Within the study, data were collected from units within two of the SBUs, the characteristics of which are summarized in Table III.

Prior to 1992, the company was structured on a func- tional basis. However, at this time, due to gradual expan- sion and growth experienced by the company, coupled

with a desire to respond more efficiently and effectively to the buyer’s demands, a decision was made to restructure and divide it into three divisions, each of which would be relatively autonomous reporting to company headquar- ters. Company X had a very close relationship with the organization. This relationship was fostered by daily con- tact with Company X involving people at all levels and all divisions of the supplier organization. This contact aimed to ensure that the supplier organization responded in a positive fashion to the demands of Company X. These demands were becoming ever more ambitious and aimed to simultaneously achieve higher standards, lower prices, shortening leadtimes, and reduced product cycles.

DATA COLLECTION TOOLS

As part of the study that was concerned with the health and well-being of individuals and organizations, initially a stratified random sample of 87 individuals spanning the organizational hierarchy was selected and asked to complete the Cultural Audit and the General Well Being Questionnaire (GWBQ) (Fletcher and Jones 1993; Cox

Table III

SUMMARY PROFILES OF THE PARTICIPATING ORGANIZATIONS

 

Unit within SBU I

Unit within SBU II

No. of Employees

221

235

Product

Leisurewear

Outerwear

Customer Group

One Large Multiple*

One Large Multiple*

Structure

Divisionalized (SBU)

Divisionalized (SBU)

Significant Recent

Structural Change

Structural Change

Development

System of Production

Modular (Team

Assembly Line

Based)

Financial Health

Healthy

Healthy

*Referred to in this article as Company X.

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Buyer-Supplier Relationships and Organizational Health

et al. 1987). These are two psychometric instruments

that, among other things, provide measures of individual

stress and psychological well-being through four sub- scales: “depression,” “anxiety,” “worn out,” and “uptight and tense.” High scores on each of these instruments are indicative of high levels of stress and low levels of psychological well-being.

The findings revealed that a large proportion (40 per-

cent) of participants achieved scores on the “depression” and “anxiety” subscales that were indicative of psycho- logical distress. Scores for these individuals on the “worn out” subscale were higher than norms for factory workers.

A detailed exposition of the results relating to this aspect

of the study is not considered to be within the scope of the present article.

Following scoring of the instruments and analysis of the data, a series of semi-structured interviews were held with a sample of 19 individuals from the two SBUs. This sample was drawn from the pool of 87 that had com- pleted the psychometric instruments.

For the interviews, six production workers were selected from each of the SBUs; two of these were considered to have obtained low, medium, and high scores on the measures of stress and psychological well-being. The interview sample also included representatives of other occupational groups within the SBUs, including supervi- sors, “quality rovers,” management, and office staff who had scored highest on the scales within their employee group. Those selected were invited to participate in a semi- structured interview with one of the researchers. They were told that the interviews were being held as a follow- up to the psychometric instruments and that they would aim to obtain individuals’ views and opinions regarding various aspects of work life within the organization. The interview sample is summarized in Table IV.

These interviews were semi-structured and followed the same format on each occasion. They aimed to focus interviewees’ thoughts upon issues considered to be rel- evant to the buyer-supplier relationship and the concepts of organizational health. In particular, they covered five areas aiming to ascertain the views and perceptions of individual employees on the health of the organization, focusing on features of the partnership relationship that

Table IV

 

THE INTERVIEW SAMPLE

 

SBU 1

SBU2

Production

6

6

Supervisors

2

2

Quality Rovers

1

-

Managerial Staff

1

1

Office Staff

-

1

Other

1

-

Total

9

10

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existed between the organization and Company X as outlined previously in Table I. The nature and character- istics of the buyer-supplier relationship were central to the analysis of the data at this stage in the study.

In addition to the 19 interviews held with those who had completed the psychometric instruments, one inter- view was held with a member of the senior management team within each of the two SBUs. These interviews focused upon management’s perceptions regarding com- pany goals and performance, and the approach adopted within the organization in relation to strategic decision- making. Once again, although none of the interview questions focused directly on the trading relationship with Company X, on each occasion reference was made

to the buyer at an early stage in the interview and exerted

a dominating influence thereafter.

RESULTS

The interview data was entirely qualitative and the ini- tial stage of analysis necessitated the identification of themes emerging from the views expressed by partici- pants. These themes form the basis of the subsections outlined below. Analysis and interpretation of the inter- view data suggests that each of the participating units was unhealthy. This state of ill health appeared to be influenced by a number of factors that stemmed from its relationship with its very powerful buyer, Company X. Within each unit, there appeared to be an obsession with meeting the ever-increasing demands and unre- lenting pressure exerted by Company X. This is illus- trated in the analysis of results presented below.

Current Organizational Success

During the course of the interviews, the current suc-

cess of the organization was frequently attributed solely to its link with its core customer. The importance of Company X to the company, and the fact that having X as a key customer is a cornerstone of the company’s suc- cess, was highlighted throughout the interviews. While many interviewees mentioned the close association with

a major customer as being a factor contributing to the

company’s success, two operatives pointed out that the company was “very much tied to this customer.”

Pressures Exerted by a Powerful Buyer

In their opinion, it was of paramount importance that the company managed to satisfy its key customer, but they noted that the demands and targets being placed

upon the company were becoming excessively high and exceptionally difficult to achieve. These demands cre-

ated pressures for everyone, but particularly production workers who are critical to the organization’s existence,

a view which was supported by the scores achieved by

these individuals on the measures of stress and psycho-

logical well-being referred to previously. Many individuals

achieved scores on these measures that were indicative

of psychological distress.

It was often suggested that manufacturing for Company

X is a status symbol within the industry, and that other

industry players perceive the company as a force to be reckoned with. However, during the interviews it became very clear that the company as a whole was subject to the effects of power emanating from its key customer, a power that seemed to infiltrate the company and affected the activities of everyone who worked within it. This is illustrated in the comments of a supervisor:

“…our success hinges on the fact that everything

is

done right and is done to please Company X.

X

is very hard to please; if the company did not

have Company X, it would be lost.”

Such views were further reinforced by a number of interviewees, with one production worker commenting:

“X is a major influence on everything that goes

on in the factory. Everything that happens here

is geared to meet Company X’s standards and is

dependent upon Company X.”

In an effort to cope with the intense competition and the threat posed by the customer being lured by seem- ingly more advantageous trading arrangements with

alternative suppliers, it was evident that the organiza- tion had focused its attentions on achieving efficiency gains where possible. This was highlighted in particular by the comments of senior managers interviewed. As a consequence of the constant drive toward the achieve- ment of enhanced efficiencies, it was the opinion of these managers that employees on the shopfloor were subject to ever more ambitious production targets and ever-increasing workloads. They suggested that these workloads were reaching unreasonable proportions and were a source of enormous pressure for individuals. As such, it would seem fair to argue that such dependence on one buyer that fosters customer domination is likely

to be unhealthy for an organization. This atmosphere

creates a high-dependency relationship and shields the

supplier organization from any direct impact of change

in the environment.

Powerless Managers

The quality of top management and the leadership provided within the organization was heavily criticized, indicating an unhealthy management style which it may be argued was fostered by the relationship with its powerful customer. Furthermore, it may be argued that this unhealthy management style adversely affected the

well-being of employees; this is reflected in the levels of stress exhibited by individuals and the views and opin- ions expressed during interviews. Management at the level of the division was generally held in high esteem. However, the top management team within the com- pany was considered by divisional managers interviewed

to be an impediment to enhanced organizational perfor-

mance; for example, one individual commented:

Buyer-Supplier Relationships and Organizational Health

“There are people at senior levels who, I think, have a detrimental effect upon the company. You get the impression that no one knows where we are going; if they do, they haven’t told us. There are two people at senior levels I respect; the others I am not so sure about, they don’t listen.”

These interviewees frequently cited the confused vision of the chairman and the rather insular views of the senior management team as being problematic. Thus, the vision held by the top management team seemed full of lifeless platitudes and devoid of personality (Miller and Dess 1996); it did not appear to have a solid, well-founded point of view about what would make the business suc- cessful in the future (Hamel and Prahalad 1994). The authors contend that such leadership behavior is sym- bolic of poor organizational health and stifles necessary creativity for organizational success in intensely com- petitive environments (Senge 1990; Huey 1994; Hamel and Prahalad 1994).

The Stifling Influence of a Powerful Buyer

This again may be partly attributed to the relationship with a powerful buyer that stifled the individuality of the company and its leadership. It was shielded from changes impacting its external environment, being cocooned and lulled into a false sense of security. Simultaneously, it was being squeezed to an extent beyond that which fosters maximum performance and health. Thus, although it may be argued that the existing state of ill health within the organization stemmed from its relationship with its very powerful buyer, this in turn may be influ- enced by the apparently weak leadership within the company. It was this leadership that led the organiza- tion into such a relationship in the first place. It may be argued that, once committed to this customer, the role and function of leadership within the organization was overwhelmed by the power and influence exerted by the customer. Such features of a trading partnership are decidedly unhealthy and, it is argued, work to the detri- ment of the buyer and the supplier. This view is further supported by recent financial performance data for Company X and the case organization. Both organiza- tions have reported major falls in turnover and profits over the last two years. Additionally, share prices for Company X have shown a significant decline and both organizations have introduced large-scale layoffs as part of a restructuring program.

The behavior of the organization and its leadership is indicative of low self-esteem, whereby both were seem- ingly trapped in a trading relationship where they were powerless to act and appeared to have little control over their own destiny. The organization was more or less acting as a puppet whose strings were very tightly con- trolled by a possessive buyer.

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Buyer-Supplier Relationships and Organizational Health

Powerless Operatives

During the course of the interviews, it was evident that lack of participation in decisionmaking was a source of frustration for those in operative positions. These indi- viduals often found themselves implementing decisions that they knew were flawed and costly for the organiza- tion. This lack of participation appeared to be fostered by the often chaotic state that existed within the orga- nization as a result of having to respond very rapidly to sudden buyer demands. As a consequence, the sense of urgency that prevailed within the units did not permit the necessary time to involve key individuals in the decisionmaking process. These individuals often suggested that management should have consulted with them due to their in-depth technical knowledge. Operatives felt that they could make valuable, worthwhile contributions and hence, often enhance the quality of decisions. Healthy organizations foster employee involvement in routine decisionmaking, which is believed to contribute indirectly to enhanced organizational performance (Newell 1995; Miller and Monge 1986). Similarly, the lack of employee participation in routine decisionmaking was yet another symptom of organizational ill health fostered by the link with a demanding buyer.

While lack of consultation was evident in the deci- sionmaking practices within the organization, it also extended to significant events affecting the company and its employees. Such events included, for example, the divisionalization of the organizational structure. The influence of Company X extended to the organization’s decision to adopt a divisionalized structure, with one interviewee saying:

“…it was better from Company X’s point of view. X is divisionalized internally in the sense that each department supplied in X acts as a division, so it was easier for them to relate to and work with divisions here.”

The lack of consultation concerning structural change left many individuals unsure of how they would be affected by the events, and somewhat annoyed that their opinions were not sought regarding decisions that would change their roles and responsibilities within the organization. This is reflected in the comments of one individual who said:

“There was a lot of unhappiness in the company about the way things were done. A lot was expected in a very short time; there was little preparation or support.”

The poor quality of communication symbolized by this behavior is another feature of organizational ill health. As noted previously, the decision to divisionalize was made partly so that the company could respond more efficiently and effectively to its customer. Divisional- ization represents a major change for any organization that requires careful management to ensure a successful transition to the new state. However, in this case the

22 The Journal of Supply Chain Management | Spring 2003

structural change was effected within a very short time- frame with apparently little or no consultation with key individuals or groups.

Strategic Decisionmaking

Poor communication also seemed to characterize the strategic decisionmaking practices within the organiza- tion, which weakened the strategy and its implementa- tion. The units participating in the study indicated their lack of awareness of the company’s strategy and plan for the future; this was particularly evident in the comments made by the senior manager within one of the units who stated that:

“…in terms of how we operate, you try and get bits of information and piece it together like a jigsaw and form a strategy for the factory from this.”

As a consequence, these individuals were placed in a position whereby they formulated a workable plan for their own operating unit. Lack of communication regarding something so fundamental to the organiza- tion as its strategy is evidence of management and orga- nizational behavior likely to contribute to a state of ill health for the organization and the individual.

DISCUSSION AND CONCLUSIONS

This exploratory case study reveals the effects that a powerful buyer can have upon the behavior of a sub- missive supplier organization. The characteristics of the relationship that existed between the organizations in this article may be considered strong barriers against building effective relationships between buyers and sup- pliers. In particular, the findings reveal a distinct lack of internal collaborative or cultural alignment between levels of the organizational hierarchy within the supplier organization. Such alignment is cited as a necessary ingredient in successful buyer-supplier collaboration (Kanter 1989; Burnes and New 1997; Boddy et al. 1998). Given the lack of internal collaborative or cultural align- ment within the supplier organization, it will be even more difficult, if not impossible, to create the necessary cultural alignment between buyer and supplier. On the basis of the evidence presented within this article, the nature of the relationship that existed between the orga- nizations may have negatively reinforced the formation of cultural alignment.

The behaviors exhibited by this supplier organization are indicative of a state of ill health and an organization that is being severely squeezed by its powerful customer. The supplier was originally selected to participate in the study because of its previous financial performance. However, it is posited that on some occasions an organi- zation may accumulate wealth as a result of engaging in “unhealthy” practices that are short-sighted and likely to adversely affect longer-term well-being. Some support for this view is provided by the financial data for the supplier organization (see Table II). Based upon litera- ture on buyer-supplier partnerships and organizational health, this would seem to be a logical conclusion. It is

acknowledged, however, that this case study is essentially exploratory and that further support for the argument is likely to be provided by a longitudinal study that includes operational issues such as quality levels, throughput rates, yield rates, and work-in-progress.

The organization that formed the focus of this article appears to be caught in a trap presented by its sole cus- tomer where the power exerted by the latter would seem to be a major contributor to organizational ill health. This is reflected in the declining financial performance of the buyer and supplier organizations, the restructuring program, and reports of conflict in senior management within Company X.

Although involved in a trading partnership, the cus-

tomer is powerful and in a position to withdraw from the relationship should a more favorable supplier pre- sent itself. This is counter to the cooperation and trust of the partnership relationships referred to by Sako (1992). While locked into serving this customer, the organiza- tion’s total efforts are directed toward meeting the ever more stringent demands of the customer. As a conse- quence, the customer, in effect, prevents the organiza- tion from scanning its external environment. This again

is decidedly unhealthy and would suggest that the com-

pany is unable to make decisions crucial to their own best interests. Without the constraints imposed by such

a dominant customer, the company would have had the

freedom to choose its own direction and the means by which it would pursue its own goals. This aside, how- ever, given the comments regarding the quality of lead-

ership and the characteristics of the senior management team within the organization, one must question if the organization would have been well placed to identify appropriate goals and implement optimal methods of goal achievement.

The influence of Company X was omnipresent and all developments, decisions, events, and activities that took place within the organization were a response to the endless stream of demands made by the buyer. The inter- views revealed that these demands were reaching unrea- sonable proportions and so it would seem that the level of influence, power, and control exerted by the buyer was in itself unhealthy, and was fostering a state of ill health within its trading partner. Thus, the supplier was trapped in the middle of the vicious spiral of negativity referred to previously. While this has potentially disas- trous consequences for the supplier organization, it is equally likely to have a negative effect upon the buyer.

If the supplier organization is itself in a stressed situation,

its resultant behavior manifests itself in ill-conceived, time-urgent decisionmaking, poor management practices, and frustrated employees who are constantly under pressure to meet overly ambitious targets. It follows that such behavior is likely to have negative repercussions for the buyer.

In the interests of fostering a state of organizational health, the arguments put forward and findings presented

Buyer-Supplier Relationships and Organizational Health

highlight a need for buyer and supplier organizations to carefully examine the nature and characteristics of the partnership that exists between them. Given the well- established principle that excessive pressure leads to dwindling performance (Yerkes and Dodson 1908), it is important that buyers and suppliers heed this advice. Thus, there must be knowledge and understanding by both buyer and supplier of the pressure performance relationship, and the identification of the point of optimal buyer pressure so as to achieve maximum performance.

As noted in the introductory section of this article, although a powerful partner may be tempted to flex its muscles by exerting excessive pressure on its suppliers, it should be aware that such behavior may be costly to itself in the longer term and may lead to unwanted con- sequences. Not only is it likely to destroy a happy mar- riage, but it could sow the seeds of its own self-destruction. Building upon the pressure performance relationship outlined by Yerkes and Dodson (1908) referred to above, the link between excessive buyer pressure and buyer- supplier performance is demonstrated in Figures 1 and 2.

The evidence presented within this article indicates that the nature of the relationship that existed between the buyer and supplier organizations is such that the powerful buyer has in fact squeezed the submissive sup- plier to such an extent that the effects are harmful to both sides of the relationship. In terms of the diagrams presented, the pressure exerted by the buyer on the sup- plier has gone beyond the optimum point, leading to a decline in performance.

The findings presented highlight a number of issues that have implications for management practice in fos- tering improved organizational health within buyer and supplier organizations. More specifically, it would seem that in order to reap the benefits of partnership, buyer and supplier organizations must interact in a way that is mutually respectful, and where the relationship exhibits characteristics of true win-win partnerships; this supports the underlying principles of partnership outlined by Lamming (1993). To facilitate effective strategy imple- mentation, it is imperative that the “right” relationship is established between buyers and suppliers. This high- lights a need for strategic and cultural alignment between buyer and supplier and a rejection of behavior and prac- tices that aim to selfishly satisfy individual components of an organizational network as described by Cox (1996).

It would seem essential that communication structures that promote dialogue, consultation, and employee par- ticipation in decisionmaking be promoted. This is par- ticularly important where decisionmaking could benefit from the in-depth technical knowledge of middle and junior managers and shopfloor workers. The findings show that senior management within the company have made a strategic decision to supply solely to Company X. Strategic decisionmaking within the com- pany appeared to be “inward-looking and closed,” influ- enced only by the views and opinions of a small team

The Journal of Supply Chain Management | Spring 2003

23

Buyer-Supplier Relationships and Organizational Health

Figure 1

THE PRESSURE/PERFORMANCE RELATIONSHIP

Optimum pressure point High Performance Low Low High
Optimum pressure point
High
Performance
Low
Low
High

Levels of Pressure

Figure 2

THE BUYER SQUEEZING/SUPPLIER RESPONSE RELATIONSHIP

Optimum pressure point — “ideal“ buyer-supplier relationship High Supplier Case organization and Company X lie
Optimum pressure point —
“ideal“ buyer-supplier relationship
High
Supplier
Case organization
and Company X
lie to this side
Ability to
Satisfy
Buyer
Demands
Low
Low
High

Levels of Buyer Squeezing

at the apex of the organization that had poor under- standing of the market. The latter was perhaps itself indicative of fundamental organizational weaknesses concerning issues of leadership that led to the com- pany’s dependence upon one customer. The views expressed by those at the middle management level would suggest that while they might question the wisdom of senior management decisions, they were placed in a position whereby they had to implement strategy without having full information.

24 The Journal of Supply Chain Management | Spring 2003

The findings presented suggest that in creating and fostering a state of health, supplier organizations must aim to move away from a position of domination by a single customer, where they are under the spell of a powerful buyer. If the latter is unavoidable, then it is essential that the consequences of being caught in a trap set by a powerful buyer are acknowledged, with the organization’s leadership and management seeking to develop contingency plans and strategies, and/or fos- tering the creation of a more equitable and symbiotic partnership. Consequently, the supplier organization will become a more active player that takes increased control over its own destiny, rather than being a passive recipient that seems powerless to change circumstances that appear to shape its behavior, and ultimately its performance.

This article has presented some findings from what is essentially the first stage in a long-term research program focusing on the nature and characteristics of buyer-supplier relationships and their relationship to organizational health. In developing the work further, the propositions presented are likely to be strengthened by future planned work that will adopt a more quantitative approach, employing a survey methodology to test the relationship between buyer-supplier relationships and organizational performance measures. While this provides an indication of the direction of future research work, it is argued that the present article presents a new and hitherto unex- plored way of conceptualizing the buyer-supplier rela- tionship and implications for organizational well-being.

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International Federation of Purchasing and Materials Management

9th IFPMM Summer School on Advanced Purchasing Research

August 6-11, 2003, Salzburg, Austria

Purchasing Research August 6-11, 2003, Salzburg, Austria The first IFPMM Summer School was organized nine years

The first IFPMM Summer School was organized nine years ago. Seeing the success of the first event, the Federation decided to arrange annually this opportu- nity for an intensive working together of talented young scholars from all around the world, with some of the leading professors of the field. At the seven schools we have had 88 students from 21 coun- tries in Europe, North America, Asia, and Africa. Three vol- umes of the papers presented by students participating in

the first six schools have been published by IFPMM under the titles:

– Emerging Issues in Purchasing and Supply Chain Management (1997)

– Research Perspectives in Purchasing and Supply Chain Management (1999)

– Purchasing and Supply Topics at the Turn of the Millennium (2001)

All the seven schools were organised in Salzburg, which has proven to be an ideal location for the event.

OBJECTIVE

The Summer School is intended to serve the following objectives:

• to help participants define relevant research topics and pow- erful research methods;

• to provide a forum for talented young scholars from various regions of the world to exchange ideas and establish a research network;

• to promote the profession of purchasing and materials manage- ment by contributing to the creation of high standards for dis- sertations by the participants.

PARTICIPATION

Participants may come from any country provided that they meet the following requirements. They must be:

• enrolled Ph.D., postgraduate (or advanced graduate) students of an accredited institute of higher education;

• in the process of writing a dissertation based on original research on purchasing or a closely related area (materials management, logistics, supply chain management, etc.);

• fluent in English and willing to take an active part in discus- sions in that language;

• able to present a letter of recommendation from one regular faculty member of the institution they are enrolled in.

A strong preference will be given to those students who can pre- sent a paper for discussion at the summer school. The paper must

be mailed to the School Secretariat not later than

Applications should be sent to the IFPMM Summer School Secretariat and the national member associations of IFPMM in the country where the applicant is enrolled in school. Applications from those countries where such association does not exist can be sent to the School Secretariat only.

Applications will be processed in the order of arrival to the School Secretariat, and the first 20 applications meeting the above require- ments and considering the said preference will be accepted.

June 15, 2003.

PROFESSIONAL PROGRAM

The professional program starting on August 7, 2003, will consist of four elements:

1. Presentation and discussion of research subjects delivered by invited speakers. These sessions will be directed by internationally acknowledged scholars, who will present a topic on his/her own research field and discuss with the students possible approaches and methods to handle the subject. Invitations are in progress and a full list of speakers will be released in May.

2. Presentation and discussion of research papers prepared by the school participants. Papers submitted will be distributed among participants and the discussions will be led by invited professors.

3. Practitioners’ presentations of hot issues in purchasing and related management areas. These presentations shall be of orienting type and will be given by invited speakers.

4. There will be some methodological discussions and group exer- cises, in order to help the participants’ research and teaching skills.

PARTICIPATION FEE

IFPMM is the main sponsor of the project, but contribution is expected from other organizations as well. This assistance makes it possible that the participants only have to pay a nominal fee: CHF 1000. This fee should be sent to the bank account of ISIR/HALPIM, account number: 501-00219-2100-4029 Hungarian Foreign Trade Bank Ltd., H-1821, Budapest, Váci u. 38., Hungary. The participa- tion fee includes accommodation (in single rooms with shower), three meals a day (starting with a dinner on Wednesday, August 6, ending with lunch on Monday, August 11), refreshments and all materials. Travel, extra nights and extra costs for a double room must be arranged and paid for individually. Please note: the profes- sional program starts in the morning of August 7.

In exceptional cases, applicants can apply for a reduced participa- tion fee. This application should be sent both to the national member association and the School Secretariat.

Contact for information: Professor Attila Chikan • Past President of IFPMM • c/o HALPIM Secretariat • Veres Pátné u. 36., Budapest, Hungary, H-1053 • Phone and Fax: (36-1) 317-2959; 266-4673 • E-mail: chikana@axelero.hu, halpim@mercur.bke.hu