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Supply Chain Management: An International Journal

Emerald Article: An empirical investigation into supply chain management:


a perspective on partnerships
Robert E. Spekman, John W. Kamauff Jr, Niklas Myhr

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To cite this document: Robert E. Spekman, John W. Kamauff Jr, Niklas Myhr, (1998),"An empirical investigation into supply chain
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http://dx.doi.org/10.1108/13598549810215379
Robert E. Spekman, John W. Kamauff Jr, Niklas Myhr, (1998),"An empirical investigation into supply chain management: a
perspective on partnerships", Supply Chain Management: An International Journal, Vol. 3 Iss: 2 pp. 53 - 67
http://dx.doi.org/10.1108/13598549810215379
Robert E. Spekman, John W. Kamauff Jr, Niklas Myhr, (1998),"An empirical investigation into supply chain management: a
perspective on partnerships", Supply Chain Management: An International Journal, Vol. 3 Iss: 2 pp. 53 - 67
http://dx.doi.org/10.1108/13598549810215379

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Introduction

Research paper
An empirical
investigation into
supply chain
management: a
perspective on
partnerships

We have entered a new era in understanding


the dynamics of competitive advantage and
the role played by procurement. We no longer
talk about suppliers and customers as though
they are managed in isolation, each treated as
an independent entity. More and more, we are
witnessing a transformation in which suppliers and customers are inextricably linked
throughout the entire sequence of events that
bring raw material from its source of supply,
through different value-adding activities to
the ultimate customer. Success is no longer
measured by a single transaction; competition
is, in many instances, evaluated as a network
of co-operating companies competing with
other firms along the entire supply chain
(Spekman et al., 1994). Simply, Ford Motors
is as successful as its ability to co-ordinate the
efforts of its key suppliers (and its suppliers
suppliers) as steel, glass, plastic, and sophisticated electronic systems are transformed into
an automobile that is intended to compete in
world markets against the Japanese, the Germans, and other US manufacturers. World
class companies are now accelerating their
efforts to align processes and information
flows throughout their entire value-added
network to meet the rising expectations of a
demanding marketplace (Quinn, 1993). We
hear from enlightened managers worldwide
that success is now measured by cost, speed,
innovation, and customer satisfaction.
This new view of the world is echoed by
Porter (1985), who advocates that the coordination of complex global networks of
company activities is becoming a prime
source of competitive advantage. The secret is
to achieve breakthrough changes and
improvements so that the expertise of members of the value-added network is shared
throughout the system. Now, we see that
fill-the-order component makers are being
asked to participate in the customer
satisfaction delivery process as design
partners, risk-sharers, and engines of greater

Robert E. Spekman
John W. Kamauff Jr and
Niklas Myhr

The authors
Robert E. Spekman is Tayloe Murphy Professor at the
Darden Graduate School of Business, University of
Virginia, Charlottesville, Virginia, USA.
John W. Kamauff Jr is based at Ernst & Young Consulting,
Baltimore, USA.
Niklas Myhr is a doctoral candidate at the Darden
Graduate School of Business, University of Virginia,
Charlottesville, Virginia, USA.
Abstract
States that we have witnessed, over the last several years,
a profound change in understanding the dynamics of
competitive advantage. Managers now acknowledge that
a firms success is tied, in part, to the strength of its
weakest supply chain partner. This paper develops the
concept of supply chain management and argues that only
through close collaborative linkages through the entire
supply chain, can one fully achieve the benefits of cost
reduction and revenue enhancing behaviors. Data are
presented that look at a range of supply chain management practices and processes. By examining differences in
practices and processes between buyers and sellers, along
with the supply chain, attempts to understand better the
challenges facing managers who espouse supply chain
management. Also proposes a change in mind set for the
traditional procurement manager and present insights
for him/her to adapt to the requirements of the new
competition.

This study was funded in part by a research grant


provided by Ernst & Young LLP Center for Business Knowledge, which was administered by Jeffrey
Pratt and LeAnne Gershkowitz. The authors
appreciate and acknowledge the help and support
of Ernst & Young LLP Global Supply Chain
Network and especially the guidance and
assistance of Christopher Gopal and Gene Tyndall.

Supply Chain Management


Volume 3 Number 2 1998 pp. 5367
MCB University Press ISSN 1359-8546

53

efficiency. These attempts at integrating this


value-added network to achieve both customer value and competitive advantage are
referred to as supply chain management.
The purposes of this paper are to understand better some of the complexities of supply
chain management and to offer insights into
improving the level of practice. Although we
believe a number of advantages accrue to firms
that implement integrated supply chain practices and processes, a
number of hurdles block the path. Our goal is
to highlight the challenges that exist in implementing supply chain management concepts.
We will reveal important obstacles that exist for
managers who sing the virtues of engaging in
collaborative supply chain practices. We will
present preliminary results from a supply chain
study that sheds light on problem areas across
a range of relevant supply chain management
processes and practices. We begin with a brief
discussion of supply chain management. Next,
we discuss the principles on which successful
implementation of supply chain management
are based. Then, we discuss our preliminary
findings taken from supply chain buyers and
sellers. Finally, we suggest the conclusions of
our exploratory study.

for designing, developing, optimizing and


managing the internal and external components of the supply system, including material
supply, transforming materials and distributing finished products or services to customers,
that is consistent with overall objectives and
strategies. Analytically, a supply chain is
simply a network of material processing cells
with the following characteristics: supply,
transformation and demand (Davis, 1993).
Figure 1 shows a typical manufacturers
supply chain. The essence of supply chain
management is as a strategic weapon to develop a sustainable competitive advantage by
reducing investment without sacrificing customer satisfaction (Lee and Billington, 1992).
Since each level of the supply chain focuses on
a compatible set of objectives, redundant
activities and duplicated effort can be
reduced. In addition, supply chain partners
openly share information that facilitates their
ability to jointly meet end-users needs.
While reduced cost is typically a result,
supply chain management should emphasize
leveraging the skills, expertise and capabilities of the firms who comprise this competitive network referred to. Managers have long
acknowledged the importance of getting close
to their key customers. Now that this logic has
extended upstream as well, it is also important
to forge close ties to ones key suppliers
(Helper, 1991). A sustainable supply chain
strategy extends these linkages upstream and
down (Biemans and Brand, 1995; Killen and
Kamauff, 1995; Leenders and Blenkhorn,
1988). Supply chain strategy development
should be part of the business unit planning
process which includes efforts aimed at developing and maintaining global information
systems, addressing strategic aspects of
make-or-buy issues, and accessing and managing innovation with the purpose of protecting and enhancing core technologies (Prahalad and Hamel, 1990). Developing a supply
chain strategy is predicated on understanding
the elements of sourcing strategy, information
flows (internal and external), new product
co-ordination, concurrent procurement,
teaming arrangements, commodity/
component strategies, long-term requirements planning, industry collaboration and
staff development.

Supply chain management


The traditional view of supply chain management is to leverage the supply chain to achieve
the lowest initial purchase prices while assuring supply. Typical characteristics include:
multiple partners; partner evaluations based
on purchase price; cost-based information
bases; arms-length negotiations; formal shortterm contracts; and centralized purchasing.
Operating under these conditions encourages
fierce competition among suppliers, often
requiring playing one supplier against the
others, and uses rewards or punishment based
on performance. The fundamental assumption in this environment is that trading partners are interchangeable and that they will
take advantage if they become too important.
In addition, there is a belief that maximum
competition, under the discipline of a free
market, promotes a healthy and vigorous
supply base which is predicated on the
survival of the fittest.
Under the new paradigm (adapted by such
leading US companies as Boeing, Black &
Decker, Hewlett Packard and 3M), supply
chain management is redefined as a process

The new competition


Supply chain management represents a paradigm shift that extends ones appreciation for
54

Figure 1 An illustration of a manufacturing companys supply chain

information flow

S
U
P
P
L
I
E
R

Planning & Procurement


Forecasting

Manufacturing Distribution
& Logistics

Customer
Service

Performance
Measurement

material flow

C
U
S
T
O
M
E
R

cash flow

the concepts of co-operation and competition.


Co-operation is no longer seen as a process
between one set of trading partners.
Co-operation now exists along the entire
supply chain. GMs Saturn division no longer
co-operates with a few select parts suppliers, it
finds itself partnering with many different
suppliers; its in-bound logistics carrier, its
out-bound carrier, and its retail dealer network, some of whom are in Japan. They all
must be synchronized to deliver product that
permits Saturn to compete favorably against
Toyota and Honda. This paradigm shift has
been caused by the realities of the new competition (Best, 1990).
The basic premise of the new competition
is that firms will no longer compete as they
have previously. The new competition
embodies global networks at the core of which
are nimble firms whose managers proactively
seek alternative interpretations of events, are
eager to think differently about their business,
and respond quickly to marketplace changes.
No longer is the firm conceptualized as a
hierarchy in which independent functional
silos compete for scarce resources.
Co-operation emphasizes the need to
integrate functional silos and views these units
as interdependent parts charged with meeting
the end-user customers needs. Equally
important are the co-operative ties that extend
to external buyers and suppliers who work
together to maximize the overall effectiveness
of the supply chain. What evolves is a network
of interrelated firms whose primary objective
is to gain strategic advantage for the whole
supply chain.
We are beyond the debate of whether such
close ties between buyers and suppliers carry
inherent risks (Newman, 1989). Rather, the
more relevant question is how does one effectively manage and leverage the skills and
talents of ones supply chain partners

(Lewis, 1995). The procurement manager, as


a broker of information rather than a transaction manager, becomes a critical participant
in the process, guiding both the formation
and implementation of longer-term relationships and inter-firm supply networks. Thus,
the purchasing professional in the new competition must add breadth while becoming, to
a certain extent, a manager of external manufacturing whose responsibility is throughout
the supply chain. He/she must gather and
filter relevant procurement-related information about products, processes, competition,
and macro/micro economic issues that can
affect the firms competitive posture. Table I
summarizes the revolutionary transformations that the new competition demands and
the changes faced by the procurement manager. This perspective is shared by Farmer
(1997) in his recent review of the evolution of
strategic procurement thinking.

From co-operation to collaboration


Within the requirements of the new competition, a shift in the level of intensity among
trading partners emerges. Co-operation,
whereby firms exchange bits of essential
information and engage some suppliers/
customers in longer-term contracts, has
become the threshold level of interaction.
That is, co-operation is the starting point for
supply chain management and has become a
necessary but not sufficient condition. The
next level of intensity is co-ordination whereby both specified workflow and information is
exchanged in a manner that permits JIT
systems, EDI, and other mechanisms that
attempt to make seamless many of the traditional linkages between and among trading
parties. Trading parties can co-operate and
co-ordinate certain activities but still not
behave as true partners. Again, this evolution
55

Table I An illustration of purchasings new role

Evolving role

Revolutionary role

Transaction accountant
Administers inter-firm contracts

Information exchange broker


Guides the information and implementation of
partnerships and inter-firm networks
Manager of external manufacturing
Responsibilities throughout the supply chain
Manages and leverages the skills of the supply
chain
Proactively assessing external information
Enhancing information sharing through the value
chain early supplier involvement
Simultaneous two-way communication
Functional integration
Systems thinking
World view

Primary point of contact with suppliers


Interface with first-tier suppliers
Minimizes risks (e.g. supply disruption,
incoming defects) to the buying organization
Reacting to external stimuli (reactionary change)
Safeguarding proprietary/critical information
transaction driven
Unidirectional communication
Cross-functional co-ordination
Cause and effect problem solving
Purchasing mentality
is a necessary, but not sufficient, condition for
total supply chain management.
Supply chain management is built on a
foundation of trust and commitment (Lee
and Billington, 1992). The consensus is that
trust can contribute significantly to the longterm stability of an organization (Heide and
John, 1990). Trust is conveyed through faith,
reliance, belief or confidence in the supply
partner and is viewed as a willingness to
forego opportunistic behavior. Trust is simply
ones belief that ones supply chain partner
will act in a consistent manner and do what
he/she says he/she will do. It is this sense of
performance in accordance with intentions
and expectations that hold in check ones fear
of self-serving behavior on the part of the
other members of the supply chain (Nooteboom et al., 1997). Commitment is the belief
that the trading partners are willing to devote
energy to sustaining this relationship (Dion
et al., 1992). That is, through commitment
partners dedicate resources to sustain and
further the goals of the supply chain. To a
large degree, commitment ups the ante and
makes it more difficult for partners to act in
ways that might adversely affect overall supply
chain performance. Trading partners
throughout the supply chain become integrated into their major customers processes and
more tied to their overarching goals. For
instance, supply chain partners willingly share
information about future plans and designs,
competitive forces, and R&D. Partners recognize that their long-term success is as strong
as their weakest supply chain partner. For
example, Boeing competes for global market

share with its engine manufacturer, its landing gear supplier, and the host of firms who
supply components, expertise and knowledge
that ultimately are incorporated in the 777 or
7X7. Boeing is successful because its supply
chain partners are focused on winning bids
from Airbus and its set of European supply
chain partners.
Figure 2 summarizes the requisite transition from being an important supplier to
becoming a supply chain partner. The transformation is depicted as linear although we
envision it as a step function since the changes
required to move from one level to another
require changes in mind set and strategic
orientation among supply chain partners. In
most instances, firms have already achieved
co-operation and co-ordination with
key segments of their suppliers and
customers. Nonetheless, the movement from
co-ordination to collaboration requires levels
of trust and commitment that are beyond
those typically found in both JIT and EDI
relationships. For instance, firms can coordinate production and logistics activities to
ensure JIT delivery but never reach that next
step of integration whereby future design and
product performance, and long-term strategic
intentions are shared. In one case, Bose and
its JIT II partners are further along this continuum and have dedicated unique and nonfungible resources to ensure that Bose not
only serves its major customers better but is
more successful than its US and foreign competitors in world markets. Simply, one can
co-operate and be co-ordinated in a supply
chain but not collaborate. Collaboration
56

Figure 2 The key transition from open-market negotiations to collaboration

Open Market
Negotiations

Price-based discussions
Adversarial relationships

Cooperation

Fewer supplies
Longer-term contracts

Coordination

Information linkages
WIP linkages
EDI exchange

requires high levels of trust, commitment and


information sharing among supply chain
partners. In addition, partners also share a
common vision of the future.
Collaboration (Anderson and Narus,
1990; Bhote, 1987; Ellram, 1990; Kapoor,
1988; Spekman and Sawhney, 1995) has
become a popular topic as an integral facet of
supply chain management sourcing strategies.
Advocates (Landeros and Monczka, 1989;
Womack et al., 1990) argue that the tasks of
the buying and selling firms are interdependent and become conduits of information
between the manufacturing firm and its preferred suppliers and that collaborative buyer/
seller relationships allow purchasing managers to manage these tasks better than
before. Collaborative behavior engages partners in joint planning and processes beyond
levels reached in less intense trading relationships. A particularly interesting aspect of this
belief in relation to the present research is that
it suggests that the procurement function can
transcend its traditional role of contributing
to cost leadership (which remains important but probably not the key driver in supply
chain management) and can support other
revenue-enhancing strategic initiatives a
manufacturing firm might choose such as new
product development.
Effective supply chain management in the
new competition suggests seeking close, longterm working relationships with one or two
partners (both suppliers and customers) who
depend on one another for much of their
business; developing interactive relationships
with partners who share information freely,
work together when trying to solve common
problems when designing new products, who
jointly plan for the future, and who make their
success interdependent. This notion is supported by Krause and Ellram (1997) who
present a review of supplier development
efforts. Over the long-term, the supply chain
that forges virtual firm relationships in

Collaboration

Supply chain integration


Joint planning
Technology sharing

those situations where uncertainty is highest


and where the cost of success (or failure) is
greatest will prevail.

The study
The fundamental purpose of this study was to
examine supply chain management as it
applied to developing and sustaining a competitive advantage for the firm. We sought to
investigate best practices from the perspective
of the operations/procurement managers and
marketing managers across a set of firms that
comprise a supply chain. A key objective was
to understand better how to develop and
sustain collaborative supply chain relationships. By focusing on buyers and sellers we
felt that we would gain insight into how each
viewed a range of supply chain processes and
practices. Implicit in our analysis is the belief
that collaboration within a supply chain can
be achieved to the extent the trading partners
share a common world view of supply chain
management (Spekman et al., 1997). Admittedly, this goal is rather broad; however, we
believe that much can be gained from this
rather high level approach.
The sample
This study is part of a larger project and
represents the responses of 22 aggregate
supply chains from North America, South
America and Europe across five broad industry groupings (life sciences, oil and gas, consumer products, utilities and manufacturing
high-tech electronics and automotive). It
should be noted that, while the sample represents a wide array of industries, the sample
was not generated randomly. Rather, the
sample was generated from a list of client
firms associated with the studys sponsor. The
majority of the sample was taken from North
America with strong representation from
South American firms. In addition, there was
a small degree of European participation. The
57

South American questionnaire was translated


into Spanish and then back into English to
ensure that the translation matched the original English version of the questionnaire. An
aggregate supply chain reflects the response of
different levels (e.g. upstream and downstream) within the supply chain relative to a
focal company. As Figure 3 suggests, this
study extends traditional empirical studies
that either asked questions of only buyers (or
sellers) and only inferred information about
the other trading partner, or attempted to
make comparisons between trading partners.
The sample is comprised of respondents from
different functions in the firm (operations or
procurement or materials management and
marketing) and from different levels of the
supply chain (suppliers and customers).
Questions were asked of each respondent
relative to their perceptions of their upstream
and downstream counterpart. For example,
marketers responded to questions about their
internal suppliers (i.e. operations) and
their external customers, while operations/
procurement managers[1] responded to
questions about their external suppliers and
their internal customers (i.e. marketing).
From these different perspectives we are able
to reflect a supply chain view of certain key
dimensions of supply chain management
processes and practices, as well as show differences in perspectives across different levels of
the supply chain. Our sample consists of 161
(71 per cent response rate) respondents from
supplier and customer firms and from operations and marketing personnel within the
focal company. A focal firm represents the
point of entry for the researchers and it is the
upstream and downstream trading partners of
the focal firm that comprise the aggregate
supply chain. That is, focal firm A might
have selected three suppliers that make
Figure 3 An illustration of supply chain data acquisition process
Sellers

Buyers

Sellers

Focal
Company

Supplier

Upstream

Buyers

Customer

Downstream

parts/sub-assemblies for a product that is then


sold to three customers. In this analysis, all
supply/customer partners identified would
become part of firm As aggregate supply
chain. Within the focal firm it is very likely
that different operations/procurement and
marketing/salespeople would be responsible
for each different supplier/customer. Thus,
we collected data on an aggregate level, depicting the overall supply chain and important
factors across a number of supply chain management processes and practices. Our analysis
examines mean differences between buyers
and sellers across levels of the supply chain.
The questionnaire
The research instrument focused on a
number of factors related to supply chain
management. These factors reflect the range
of supply chain management issues, running
the gamut from gaining insight into issues
affecting workflow and information flow
among levels of the supply chain, to gaining
an appreciation for measures of supply chain
performance. Sections of the questionnaire
also reflect the continuum of activities from
co-operation to collaboration. These different
factors help us examine in greater detail
aspects of supply chain management that
address the transition from co-operation, to
co-ordination, to collaboration. For each
section of the questionnaire items were generated from past research studies[2] as well as
from conversations with practising managers.
We approached the supply chain management
problem by examining a broad base of literature that encompassed elements of logistics,
distribution, marketing, operations, and
procurement. Throughout the study, our
primary goal was to understand better the
factors, processes, motivations and behaviors
that support and encourage supply chain
management practices. Rather than present
the full set of data for each major section of
the questionnaire, we present only the top ten
and the bottom five responses from the aggregate data based on mean scores. That is, from
each section of the questionnaire, mean scores
for each item were generated allowing a rank
ordering of items by degree of importance on
a scale of 1-7. From this ranking, the top ten
items (and the bottom five) are presented for
each section. In addition, rather than present
tests of mean differences (t-tests) for an
exhaustive set of data, we have selected to
constrain our analysis to the ten most (and the
58

Although measures of customer/supplier


satisfaction scored relatively high, most of the
informational considerations addressed were
purchase order-driven. All but one of the
remaining items relate to information tied to
tracking the flow of product as it moves from
raw material, to work-in-process, to finished
goods. EDI and other more sophisticated
processes for linking supply chain members
were used very little. Interestingly, we begin to
sense a difference between what managers
say and what managers do. That is,
respondents espouse the importance of the
customer and the need to be market-focused
but the results tend to reflect business as usual
with a strong emphasis on measures that
relate to more traditional purchasing or
transactional focus.
It should be noted that sellers, as would be
expected, are more concerned with informational factors that reflect customer considerations. However, in each of the measures that
track product flow, the buyers scores were
lower than the sellers. In particular, information tracking that converged on quality,
process control, and other more sophisticated
tracking mechanisms such as EDI and CAD/
CAM/CAE buyers scores were significantly
lower than sellers. One can infer from the
data that buyers appear to be less sensitive to
information that links levels of the supply

five least important) salient items across each


section. Results were adjusted to reflect mean
difference scores taken from a wide range of
individual items as we computed the t-tests
for buyer and seller responses to each item.

The findings
Supply chain factors
To begin, it is important to understand the
flows of interaction among supply chain
partners. Table II reflects the ranking of information flows along the supply chain and
reflects both traditional workflow metrics
related to inventory, delivery and other forms
of materials tracking. In addition, the section
attempts to capture those information flows
that relate to customer satisfaction and the
degree to which suppliers and customers are
linked. At the bare minimum, we believe that
technology is an enabler that facilitates a
firms ability to partner with its suppliers and
its customers. Table II summarizes the extent
to which firms apply an array of practices in
their supply chains. It can be seen that the
data show somewhat inconsistent results.
Three of the top ten items relate to tracking
linkages between customers and suppliers
(e.g. tight linkages between customers and
suppliers, measures of satisfaction, and individual customers managed as account).
Table II Information supply chain factors

Sample + mean Seller mean Buyer mean


(N = 132)
(N = 73)
(N = 59)

Item description

Top ten
To what extent do you apply the following practices?
Tight linkages between customers and suppliers
Purchase order information tracking
Raw material cost, quality and delivery tracking
Supplier/customer satisfaction measures
Finished goods visibility
Order entry and order-taking technology
Shipment tracking
Individual customers managed as accounts
Process control
Integrated quality information

5.20
5.20
4.99
4.63
4.56
4.51
4.46
4.45
4.44
4.44

5.26
5.46
5.07
4.75
4.76
4.87
4.93
5.01
5.01
4.71

5.12
4.91*
4.95
4.40
4.21
4.02*
3.76
3.71**
3.81**
3.97**

Bottom five
Robotics
CAD/CAM/CAE
Flexible manufacturing cells
Electronic data interchange (EDI) customer links
Automatic storage and retrieval systems (ASRS)

1.92
2.56
2.74
2.79
2.94

2.07
2.86
2.94
3.08
3.23

1.53**
2.02**
3.34*
2.19**
2.49**

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes to a very great extent
59

chain, in general, and appear to be far less


concerned about information that is directly
linked to end-customer considerations, in
particular. This could imply a silo mentality
whereby a concern for customers is someone
elses problem.

cost reduction aspects of supply chain


management, and view securing a reliable
source of supply, reduced lead time, and
lower costs as key drivers of supply chain
management. Conversely, sellers tend to
highlight revenue enhancement and see profits, strategic market position, and customer
satisfaction as prime drivers for supply chain
management. If we were to focus on the
overall means scores alone, we would not
begin to develop an appreciation for what
might be fundamental differences in world
views between buyers and sellers.

Reasons to engage in supply chain


management
Respondents were asked the reasons they
engaged in supply chain management. This
list of questions was generated from conversations with practising managers, trade publications, and academic publications (e.g. Schary
and Skjott-Larsen, 1995). Table III summarizes the results. The findings reflect many of
the common mantras evoked for explaining
the virtues of supply chain management,
ranging from increased end-customer satisfaction, to gaining a strategic market position,
to reduced costs and improved productivity. It
is encouraging to see that the reasons reflect
both the cost reduction and the revenue
enhancement side of supply chain management. Nonetheless, when one examines the
differences between buyers and sellers, one
gains a better appreciation for the tension that
exists within many supply chains. While not
statistically significant in every case, the data
suggest that buyers tend to focus more on the

Criticality
Central to the notion of supply chain management is the degree to which each member
views the other as essential to the success of
the venture and recognizes that each supply
chain partner is dependent on the other.
Criticality is based on the notion of high
recognized interdependence in which one
supply chain member will not act in his own
best interest to the detriment of the supply
chain. The impetus for this thinking stems
from research in transaction cost analysis (e.g.
Williamson, 1985) as well as from social
exchange theory (e.g. Emerson, 1962). Both
streams of literature have been used to explain
interdependence between buyers and sellers.

Table III Reasons to engage in supply chain management

Sample mean + Seller mean Buyer mean


(N = 132)
(N = 73)
(N = 59)

Item description

Top ten
To what extent do the following reflect your reasons
to engage in supply chain management?
Increased end-customer satisfaction
Improved profits
Secure reliable source/market for this item
Satisfy supplier/customer request
Reduce overall operating costs
Gain strategic market position
Reduce lead time
Price paid for item class
Improved productivity
Increase margins

5.78
5.60
5.59
5.56
5.51
5.49
5.40
5.37
5.33
5.30

5.78
5.74
5.56
5.60
5.58
5.71
5.29
5.30
5.34
5.29

5.71
5.29
5.54
5.44
5.32
5.19*
5.49
5.34
5.20
5.29

Bottom five
Political
Regulations and tax implications
Environmental
Reduce product development costs
Local economy

2.91
3.28
3.82
3.82
3.86

2.92
3.14
3.41
3.99
3.92

2.98
3.41
3.40
3.53
3.93

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes reflects a very great deal
60

integrity, and who know our business


characteristics that imply fair dealing.
Certainly, both trust and commitment serve
to offset the risks of opportunistic behavior in
which one acts in ones own best interest to
the detriment of ones supply chain partners
(Anderson and Narus, 1990; Lewis, 1995;
Spekman and Sawhney, 1990). These attributes are quite consistent with and support the
notions of criticality as stated above. Reputation, improvement in market position, and
support of customer service are less important
to buyers than sellers. This finding is consistent with buyers implied focus on the cost
reduction aspects of supply chain management. Buyers desire partners who know their
business but are less concerned that partners
offer both parties economic benefit. Does this
finding suggest that buyers are looking for
economic gain at the expense of their partner?
Or does it suggest that buyers are reluctant to
pay for value-adding activities? While the
answer to these questions is somewhat beyond
the data presented here, it is interesting to
note that buyers do appear to value trust,
commitment, and reliability, and also might
seek economic gain at their partners expense.

From the view of the overall sample, it


appears that respondents view both customers
and suppliers as important supply chain
partners and view each ones participation
and input as important. From Table IV, one
immediately senses a mutual dependence
among supply chain partners. However, the
existence of various scores between buyers
and sellers tell a different story. Buyers are less
likely to view the customer/supplier as irreplaceable and essential to their future business. We believe that this difference sheds
insight into buyers traditional commodity
mentality if supply chain partners are easily
interchangeable and matter little in the future
success of the buyers firm, it becomes readily
apparent why price paid looms as such a key
differentiating factor. This interpretation begs
the question of how to educate buyers to
appreciate the value and tenets of supply
chain management when there is a tendency
to discount a potential partners unique contribution. We wonder whether buyers are
trained to be more skeptical or whether they
are reluctant to acknowledge a mutual
dependence for fear of the consequences one
might pay, literally. Certainly, to focus on
price minimizes the leverage and loyalty
engendered from ones supply base. Such
behavior ignores the contribution ones suppliers can make to a buyers corporate
strategy.

Supply chain management processes


Supply chain management processes explore
what respondents say they do in their supply
chain interactions. These items explore how
the respondents describe their relationships
with suppliers/customers and tend to reflect
the range of behaviors that support close
relationships between buyers and sellers.
Interestingly, two major themes dominate this

Supply chain partner selection


Table V summarizes the findings of what
respondents value when they select a supply
chain partner. The overall sample seeks supply
chain partners who are trustworthy, have
Table IV Overall supply chain relationships

Sample + mean Seller mean Buyer mean


(N = 132)
(N = 73)
(N = 59)

Item description

Full order
To what extent does this describe your relationship?
Items we provide this to firm are important to our company
The items we provide to this customer are critical to our
success
The annual value of our supplies to this customer is large
Compared to items we provide to other customers, the
value of items provided to this customer is major
This customer is better than other customers
This customer is essential to our future success in
this business
This supply chain member can be easily replaced (R)

6.20

6.19

6.15

5.61
5.54

5.62
5.65

5.49
5.33

5.39
5.28

5.45
5.38

5.28
5.10

5.21
4.99

5.48
5.32

4.80**
4.58**

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes to a very great extent
61

Table V Supply chain partner selection

Sample mean + Seller mean Buyer mean


(N = 132)
(N = 73)
(N = 59)

Item description

Top ten
To what extent does this reflect your reasons for
selecting a supply chain partner?
Is trustworthy
Has a high degree of integrity
Knows our business
Is reliable and consistent in dealing with us
Has a strong reputation
Supports the importance we give to customer service
Has potential synergy with us
Is committed to us
Improves our competitive market position
Offers us both economic benefit

6.01
5.85
5.78
5.75
5.71
5.66
5.60
5.43
5.29
5.26

5.96
5.78
5.62
5.66
5.89
5.84
5.74
5.21
5.44
5.48

6.05
5.95
5.95*
5.84
5.53*
5.40*
5.46
5.61
5.07
4.93**

Bottom five
Offers tax incentives
Offers environmental advantages
Provides political advantages
Reduces engineering changes
Helps us achieve workforce cost reductions

1.38
2.72
2.91
3.09
3.40

2.06
2.74
3.01
3.07
3.47

2.01
2.70
2.79
2.91
3.19

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes reflects a very great deal
set of questions. Respondents tend to take a
more long-term view and state that they
expect the relationship to last; that sustaining
the relationship is important; and that they
have plans to continue the relationship into
the future. The respondents also highlight
communications processes as an important
second theme. They report that communications between the partner firms is frequent
and that there is a high level of contact
between trading parties. Partners have faith in
each other and report that they share a sense
of fair play. When we look at key differences
between buyers and sellers, it appears that
buyers are less willing to devote extra effort to
their supply chain relationships. These results
are summarized in Table VI.

information sharing is less than open and that


technical information is shared only when
necessary. In addition, mixed signals surface
about the importance of price in evaluating
ones partner. From Table VII it appears that
price is important and there is some evidence
that price is viewed as the key attribute in
ones evaluative decision calculus. As expected, buyers appear to be more purchase-price
conscious than sellers, tend to be less willing
to share information, and are less likely to see
training as an obligation.
We are intrigued by:
(1) the differences between these two sections; and
(2) the repeated differences that exist
between buyers and sellers.

Supply chain practices


Where the previous section examines what
supply chain members say they do; this section examines what they actually do. The
difference in the two sections is akin to talking the talk and walking the walk. Interesting
differences between the two sections exist in
that, from the previous section, one gets the
strong impression that information is shared
openly and that the boundary between firms
is quite permeable. However, these findings
addressing specific practices suggest that

It appears that respondents do not do what


they say they do and that buyers appear to be
reluctant supply chain partners. Across each
of the sections, buyers tend to embrace the
notions of collaboration less than sellers and
appear to fear the close ties that are required
for integrated supply chain management.
Effects of performance
In order to explore the effects of several of
these variables on measures of performance, a
series of exploratory OLS regression analyses
62

Table VI Supply chain management processes

Sample mean + Seller mean Buyer mean*


(N = 132)
(N = 73)
(N = 59)

Item description

Top ten
To what extent does the following describe your
relationship with this supply chain partner?
We expect this relationship to last a long time
There is continuous contact between our firm and this
customer
Sustaining this relationship is important
Communication between our organization and this
customer is frequent
There is a high level of contact between our firm and this
customer
Frequent communication occurs between the firms
We are willing to devote extra effort to this relationship
We have plans to continue this relationship
We share a similar sense of fair play with this customer
We have faith in this customer
Bottom five
We periodically evaluate the importance of our relationship
with this customer
We believe that this customer acts in his/her own best
interest
Risks are shared equitably between us and this customer
Personnel from this customer are involved in our product
design
Rewards are shared equitably between us and this
customer

6.21

6.27

6.12

6.14
6.08

6.28
6.15

6.00
5.93

6.06

6.10

6.00

6.05
6.04
6.04
5.98
5.84
5.84

6.18
6.11
6.28
6.08
5.81
5.78

5.86
5.97
5.78*
5.80
5.98
5.88

2.77

2.54

3.05*

3.43
4.14

3.13
4.08

3.77**
4.14

4.15

4.10

4.16

4.17

4.18

4.16

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes to a very great extent
were performed. Separate regression models
were developed to explain the extent to which
different measures of performance cost
reduction and revenue enhancement (as
measured by customer satisfaction) are affected by different supply chain processes and
practices. Simply, we examined the extent to
which elements of co-ordination, collaboration, and criticality affect two different
measures of supply chain management performance. Traditional performance measures
would reflect cost reduction while a more
enlightened view should also deem
revenue-enhancing elements as very important. Two different measures of performance
were developed from the questionnaire. One
measure focused on the contribution made to
cost reduction and the other on the contribution made to customer satisfaction. These two
measures, we believe, represent the two
extremes of supply chain management. That
is, more traditional views of the benefits
gained from supply chain management focus

on cost reduction and more enlightened views


see end-use customer satisfaction as the
primary goal of supply chain management
activities. While both approaches place pressures on ones supply base, cost reduction
tends not to embody a win-win relationship
nor does it convey a recognition of the skill
and expertise brought to the relationship by
ones suppliers. Certainly, it is only by focusing on measures of customer satisfaction that
it is possible to assemble a world class supply
chain. Burnes and New (1996) advocate a
new model of supply chain improvement and
our findings are supportive of their third
phase of improvement, whereby one focuses
on partnership quality and the selection
processes chosen reflect the buyers strategic
goals and concerns.
Table VIII summarizes the findings from
the two regression equations. Note that both
the sharing of information (a form of collaboration) and criticality both contribute in a
positive manner to cost reduction while an
63

Table VII Supply chain management practices

Sample mean + Seller mean Buyer mean


(N = 132)
(N = 73)
(N = 59)

Item description

Top ten
To what extent does the following describe your
relationship with this supply chain partner?
We exchange technical information with this customer when necessary
In picking this customer, we focused on initial sales price (R)
In choosing this customer, we used criteria in addition to initial sales
price
When selecting this customer, our primary criterion was sales price (R)
When initially evaluating this customer, we made the selection based
on measures other than sales price
We willingly share technology information with this customer
Customers to this customer (downstream customers) are an
indispensable part of our overall value-added supply chain
We examine this customers competence using multiple criteria
One area unilaterally evaluates this customers capabilities
Training this customer is important
Bottom five
We have a strong relationship with this customers customers
We provide training for this customer
We emphasize training with this customer
Our organization tends to make customer decisions at higher levels
in the firm
We consolidate decisions at high levels in this firm

5.30
5.18

5.37
5.40

5.21
5.05

5.18
5.11

5.18
5.43

4.93
4.91*

5.07
4.96

5.18
5.14

4.93
4.69

4.77
4.53
4.27
4.24

5.23
4.15
4.40
5.39

4.09**
4.91**
4.09
4.93

2.76
3.03
3.36

3.08
3.32
3.41

2.27**
2.60**
3.30

3.59
3.63

3.52
3.39

3.61
3.93

Notes: *P 0.05; **P 0.1; +1 connotes not at all; 7 connotes to a very great extent
element of co-ordination, order entry and
tracking, negatively affects this measure of
performance. These results hold two implications. First, co-ordination, by itself, does not
ensure cost reduction. Second, elements of

collaboration and criticality contribute to cost


reduction and do so with greater impact than
any of the key measures of co-ordination used
in this study. This supports the notion that coordination is a necessary, but not sufficient,

Table VIII Regression results showing factors contributing to types of procurement performance

Performance
cost reduction

Collaboration what is said


Sustaining the relationship
Joint planning
Frequent interaction
Sharing information
Collaboration what is done
Sharing technical information
Training is important
Co-ordination
Customer supplier linkages
Frequent monitoring
Order entry and tracking
Raw material tracking
Criticality
R2

Performance
customer satisfaction
0.532 (p < 0.00)

1.208 (p = 0.02)*

0.072 (p < 0.00)

0.13 (p < 0.00)


0.096 (p < 0.00)
1.209 (p < 0.00)
0.716 (p < 0.00)
0.27

Note: * = 1.208
64

0.331 (p < 0.00)

0.29

condition for buyers and sellers to achieve a


state of supply chain improvement. That
is, a metric that focuses on elements of
co-ordination to achieve cost reduction is very
likely to result in sub-optimal outcomes.
The regression equation in which we
attempt to better understand the factors that
explain performance as measured by customer satisfaction tells a similar story. Shared
order entry contributes to customer satisfaction while a measure of close linkages between
supplier and customer appears to have a
negative impact. Sharing important information, the importance of sustaining the relationship and the perceived value of training all
contribute positively to customer satisfaction.
Again, elements of co-ordination appear
important, but only as a threshold. That is,
workflow-related activities are useful but do
not achieve the full benefits of an integrated
supply chain and must be accompanied by a
richer depth and breadth of shared information to achieve this important outcome. These
findings imply that both trust and commitment contribute to satisfaction as the
elements of collaboration reported here imply
a willingness to share information without the
concern for it being used against either trading partner and a longer-term focus to the
trading relationship. While the results for
sustaining the relationship is counterintuitive, co-ordination cannot substitute for
closer ties between trading partners. The data
suggest that interdependence and information
sharing become key ingredients in an integrated supply chain whose goal is customer satisfaction.

afforded by an integrated supply chain and


are more easily swayed by more traditional
purchasing metrics related to cost or initial
purchase price. Buyers consistently view the
cost-saving aspects of supply chain management as more important than the revenueenhancing benefits. They seem to understand,
on one level, the importance of customerdriven supply chains; the need to focus on
core competencies; and, the importance of
leveraging the skills and capabilities of their
suppliers. On another level, such rhetoric
appears to make buyers uncomfortable, and
they easily revert to their cost-driven behaviors in which suppliers are viewed as substitutable and value is determined by negotiation. Again, we hear the theme that a gap
exists between the goals and concerns of
senior managers and the activities of the
procurement function buyers have not fully
responded to the challenges of managing
suppliers with the intent of gaining the full
complement of skills afforded by an integrated supply chain.
Exacerbating this lack of strategic thinking
on the part of buyers is the finding that buyers
and sellers do not share the same values and
beliefs regarding the advantages of supply
chain management. In fact, the data suggest
that buyers and sellers have very little in
common, and their world views tend not to
converge. While some differences are expected, the divergence in motivations and beliefs
relative to supply chain management is quite
stark. This suggests that it is not surprising
that supply chain management practices are
difficult to implement. For buyers and sellers
to achieve a common goal there must exist a
level of consensus (Spekman et al., 1996). At
the very least, buyer and seller must have a
shared perspective of the merits of such close
ties within the supply chain. Thus, the challenge becomes one of forging a common view
in which both sides can accomplish compatible goals. This begs the question who will
orchestrate the roles and responsibilities of
the supply chain members. It would appear
that buyers are less able to fill this leadership
role as they appear to lack both vision and
commitment to the advantages of supply
chain management. Without such leadership
skills, buyers firms suffer and their potential
competitive advantage is diminished.
We should note that, although we strongly
advocate supply chain management, we readily admit that not all trading relationships

Conclusions
A number of conclusions can be drawn from
this study. It is apparent from these findings
that although we espouse the benefits of
supply chain management and sing the virtues
of closer ties throughout levels of the supply
chain, the results suggest that business has not
yet fully operationalized the concept of supply
chain management. It appears that buyers
tend to be reluctant players and are far more
skeptical about the benefits afforded through
such close integration. One can infer that
buyers consider less favorably the benefits
gained and are more likely to highlight the
risks associated with heightened dependence
on a smaller number of suppliers. We can
infer also that buyers think about the gains
65

that expertise/capability throughout the entire


supply chain. Cognitively, such an effort
requires sharing what once might have been
considered proprietary information (although
it is important to establish limits on what can
be shared); relinquishing control to others in
the supply chain; and, trusting that your
supply chain partners will act in your best
interest. Practically, one must develop new
capabilities ranging from supplier/customer
management to cross-functional integration.
While information systems and technology
enable and facilitate such capabilities, success
hinges on embracing the belief that one
cannot succeed acting in isolation and that
competitive success depends on the entire
supply chain moving in unison, sharing
similar goals and objectives.
In summary, we have implied that business
has yet to crack the code; supply chain
partners still do not share a common vision or
react to the same set of metrics. If this is true,
opportunities have been lost and many challenges remain. For a number of firms, talk is
cheap and supply chain management is still
only part of todays jargon. A number of firms
are sacrificing cost effectiveness, revenue
enhancement, and customer satisfaction
because they are unable to work effectively
across the firms that comprise their supply
chains. Figure 4 summarizes the factors that
tend to differentiate among levels of commitment and intensity. Relationships that are
both strategically important and complex to
manage should be treated collaboratively.
Complexity can be financial (i.e. a significant
dollar commitment) or commercial (e.g.
intertwined and/or interdependent technology, joint production processes, shared development). Both aspects of complexity suggest
interdependence between trading partners.

should be collaborative and that it is perfectly


acceptable (if not absolutely necessary) to
engage in arms length transactions provided
that such behavior is appropriate. The data
imply that criticality, to a large degree, drives
the partnering strategy employed. We say this
with the full recognition that criticality affected performance only as it related to cost
reduction. It had no impact on performance
as it related to customer satisfaction.
Nonetheless our findings do imply that trust
and commitment do affect customers satisfaction. The spirit of our findings does support other work on supply chain management
in which the purpose of such joint effort is to
achieve a competitive advantage across the set
of supply chain partners.
Our findings suggest:
The road from open market negotiations to
co-operation to co-ordination and to collaboration is a long one and should not be
traveled by each and every buyer-seller
relationship.
One must select both partners and supply
chain strategies carefully. Co-ordination
and collaboration are different; require
different levels of trust and commitment;
and, often lead to different outcomes.
We have shown also that information technology is an enabler and is key to the development of an integrated supply chain. However,
this information must be shared by the partners. While the data seem to suggest that
there is a reluctance to share key information
among partners, many of these fears subside if
partners share similar values and a common
vision. Such information sharing heightens
the alignment between partners such that
effective supply chains share learnings among
partners rather than worry about knowledge
expropriation. The role of the supply chain
champion is to orchestrate this alignment and
to ensure that the total supply chain is, in fact,
better than the sum of its parts. Adopting the
concepts and tenets of supply chain management requires a new mindset. Supply chain
management demands that one look at the
complete set of linkages that tie suppliers and
customers throughout the value chain. True
supply chain management demands a business transformation in which managers
attempt to mitigate uncertainty and exploit
opportunities through the creative use of
ones suppliers and customers by evaluating
who best supplies value and then leveraging

Figure 4 Supply chain management strategy


Complexity
High

Low

Collaboration

Coordination

Cooperation

Open-Market
Negotiation

High

Strategic
Importance

Low

66

It is clear from our findings that buyers and


sellers do not share a common voice and have
moved slowly to bridge the gaps that separate
them. We hope that there exist a number of
potential supply chain champions who will
use our findings to find synergies among
supply chain partners, and to build tighter
linkages between customers and suppliers.

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Notes
1 The titles of these managers included both procurement and operations (i.e. manufacturing) managers.
Our contacts were typically general managers who
directed questionnaires to potential respondents who
had working knowledge of both external suppliers
and internal customers. During the discussion of the
results the term buyer represented data taken from
either procurement or operation managers.
2 For example, we examined work by Ellram (1990);
Landeros and Monczka (1989); Heide and John
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