Managing Collaborative Buyer Supplier Relationship Performance Commerce Essay

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In this chapter, the research background and the research problem have been introduced, and the justifications of the study have been presented. Next, the research process aiming at answering the research questions will be unfolded through the following chapters.

Background of the Study

In today's competitive environment, it is critical that businesses have flexibility to respond to environmental uncertainties. As seen in the paper of Petrovic-Lazarevic & Sohal (1999), it is widely argued that in order to be competitive businesses needs to respond in such uncertainties as rapidly as possible.

Specifically, economic issues such as exchange rates volatility present ongoing challenges for the business firm. Furthermore, ongoing reduction of trade barriers is reversing the previous tendency to integrate business vertically, shifting international business schemes towards outsourcing all except what the company considers its core competence. As such more and more business firms have considered enhancing buyer-supplier relationships as a crucial part of the firm's supply chain management (Ellram et al. 2002; Moberg & Speh 2003; and Chen, Paulraj & Lado 2004) constituting to competitive advantage (Noordewier, John & Nevin 1990).

While supply chain management is a strategic concept that considers both the behavioral and political dimensions of conflict and dependence at the purchaser-supplier interface, there is substantive ambiguity regarding its actual practice (Duclos, Vokurka, & Lummus, 2003). In other words, the purchasing side of international trade remains largely ignored in empirical research. Given the role importance that international buyers will play, understanding the complexity surrounding the commercial relationship between the buyer and supplier are essential. Therefore this study will focus on investigating the key factors associated with uncertainty at the cross-national buyer-supplier interface.

Research Objectives

The main objective of this research is to investigate of buyer-supplier cooperation in the supply chain performance from both the retailer-suppler perspectives. It is important to understand the dimensions of the supply chain performance and buyer-supplier relationship covered in this study. As the buyer-supplier relationship is a multi-dimensional construct, it is essential to understand how different dimensions of the relationship influence buyer-supplier cooperation. Analyze of the links between the various dimensions of relationship including co-operations and buyer-supplier's decision making is crucial. Consequently, the various key dimensions of the relationship involved such as trust, commitment, dependence, coercive power and non-coercive power will be examined.

Though some studies (e.g. trust commitment, dependence) have addressed the significance of the association on performance, the performance outcomes of long-term cooperative relationships were either too barely or too roughly operationalised. Basically, Chen, Paulraj & Lado (2004) and O'Toole & Donaldson (2002) in their study propose that focus on a particular aspect of performance that measures either financial or operational performance is often found in many buyer-supplier relationship models, and others emphasizes the performance of either buyer or supplier firm. Such studies do not provide the exchange parties with a clear picture of the performance of a firm or a supply chain, nor what actions should be taken to improve business operational processes or how to manage their relationships by the development of cooperative activities.

The work of Gao et al. (2005) and Johnson & Pharr (1997) have shown that some relationship factors such as trust, dependence, and communication can reduce the buyer's decision-making uncertainty. A critical question of 'whether better relationships can lead to improved supply chain performance through mitigating the exchange partner's decision-making uncertainty' is unanswered. This suggests that a more holistic model is required for better understanding about the relationships among buyer and supplier, decision-making uncertainty, and supply chain performance.

To address the gaps of this study, the major objectives of this research are:

To develop a framework that identifies the factors having the greatest effect on buyer supply chain performance and to examine their effects on supply chain performance.

To identify the key dimensions of the buyer-supplier relationship, and to investigate the effect of these dimensions on buyer-supplier cooperation and also their effects on the retailer/supplier's decision-making uncertainty.

To discuss the similarities and differences between the perspectives of buyer and supplier separately.

Research Questions

Purchasing executives have been reported to be both "very cautious" in their expectations of supply chain management (Lambert & Pohlen, 2001) and real "gatekeepers" in industrial buying (Lau, Razzaque, & Ong, 2003). There is a trend towards international outsourcing with price remaining as a strong tactical issue competing with priorities such as quality reliability and supplier's country risk within an international uncertain environment (Fraering & Prasad, 1999 and Van der Vorst & Beulens, 2002).

In some circumstances ISO 9000 certification has been regarded as a marketing tool aiming at reducing the uncertainty surrounding quality in the international purchaser-supplier interface (Vertinsky & Zhou, 2000). It is known that ISO 9000 certification from foreign suppliers is frequently one of the initial requirements made by international purchasers (Braglia & Petroni, 2000). However, suppliers' reasons to obtain the standard are driven by different levels of the understanding of quality management in different countries (Lau, Razzaque, & Ong, 2003).

Globalisation and the desire to exploit the benefits of economies of scales outside national boundaries have led companies to extensive cost competition. This situation gives rise to the country of origin effect, a multidimensional construct related to the risk associated to purchasing from foreign countries (Quester, Dzever, & Chetty, 2000).

Hence, the relative weight of foreign ISO 9000 certification and the certificate of origin effect at the international buyer-supplier interface has not been studied in a multivariable environment. The previous discussion revealed that the relative influence of ISO 9000 certification and the country of origin effect was embedded in a multidisciplinary purchaser-supplier interface. It was found that purchasing professionals considered quality reliability and cultural issues as immersed in the uncertainty surrounding the purchaser-supplier interface (Overby & Min, 2001).

Consequently, the scope of the research problem will be broadened and redefined as how buyers deal with environmental uncertainty variables surrounding the international buyer-supplier interface. The underlying general research questions are:

"What are the key factors associated with the cross-national buyer-supplier interface of the International Supply Chain? Particular emphasis is placed on how buyers deal with the environmental uncertainty surrounding the interface".

"How do different dimensions of the buyer-supplier relationship influence buyer-supplier co-operation?"

The methodology addressing the research questions included developing a conceptual model and testing it with the participation of buyers mostly importing manufacturing products. Despite the interdependency surrounding commercial interactions in the international supply chain, the understanding of how decisions are made at the multivariable and multidisciplinary buyer-supplier interface has not been extensively studied (Overby & Min, 2001 and Svensson, 2002). Cross-national studies of purchasing patterns are necessary to better understand trade between countries and regions throughout the supply chain. Although international marketing can be used for buying and selling, the purchasing side of international trade remains largely ignored in empirical research (Svensson, 2002).

The understanding of buyers' decision-making processes is increasingly salient because of growing strategic importance of the purchasing function. Unlike consumers, industrial buyers play the role of professional purchasers. Management commitment, supplier management, quality information and cross-functional coordination have been found significantly correlated with the purchasing operational performance (Tan, Kannan, Handfield, and Soumen, 1999).

As globalization challenges traditional sourcing strategies a greater need to collect information on international purchasing becomes evident. This research contributes to the understanding of how buyers ace the uncertainty of such a multivariable and interdisciplinary environment. The research objectives address transnational procurement issues which are increasingly important for all companies willing to achieve international supply chain integration. The findings orientate either buyers or suppliers in improving current courses of action strategies and/or to design new ones.

Although particular emphasis is placed on purchasers' decisions, the findings are also valuable for foreign suppliers, as each participant in the international supply chain is a supplier as well as a customer. A practical implication is that more targeted export strategies can be formulated for any foreign supplier seeking to export to Singapore. Furthermore, the research outcome assists in reducing the uncertainty surrounding the international buyer-supplier interface by providing insights beyond the manufacturing industry.

Conceptual Framework

Contemporary commercial environments are influenced by five main phenomena namely a) the societal resources on which the firms draw, b) the societal institutions that form the rules of the game, c) the actions of competitors and suppliers, d) the behavior of consumers, and e) public policy decisions (Morgan & Hunt, 2002). Customers, suppliers, and competitors are environmental factors usually assumed to be crucial as well as active external actors relevant to organizations (Gronhaug & Venkatesh, 1991).

Competitive firms have to manage business environments with a projection of stable elements from the past (the linear component) linked with "discontinuous" or paradigm-changing elements (the non linear component). This approach involves creativity, intuition and relationships, along with the traditional rational approach of management. In contemporary complex business environments, only organizations focused on a combination of linear and non-linear influences can achieve their full potential (Siguaw, Simpson, & Baker, 1998).

The non-linear component in ever-changing global commercial environments becomes apparent in the form of uncertainty. Van der Vorst & Beulens (2002, p. 413), define supply chain uncertainty as:

"…decision making situations in the supply chain in which the decision maker does not know definitely what to decide as he is indistinct about the objectives; lacks information about (or understanding of) the supply chain or its environment; lacks information processing capacities; is unable to accurately predict the impact of possible control actions on supply chain behavior; or lacks effective control actions (non-controllability)."

Based on network theory approaches, Overby & Min (2001) proposed a conceptual framework to manage international supply chains. As can be seen from Figure 2, internationalization via a network orientation is influenced by a couple of factors.

This first component involves the type of Internet commerce approach adopted by an organization and its international suppliers. Second, a number of environmental variables in the global market come into play.


Purchasing, marketing and sales executives operate within organizational boundaries and within the ambiguity of uncertain environments. The international context imposes additional uncertainty regarding cultural distance and language (Akkermans et al., 1999; Overby & Min, 2001), international volatility in terms of demand and technological changes (Overby & Min, 2001), time and quality based competition (Braglia & Petroni, 2000; McAdam & McCormack, 2001; Motwani, Youssef, Kathawala, & Futch, 1999; Tan et al., 1999), supplier's country risk (Fraering & Prasad, 1999; Overby & Min, 2001), and inventory management and logistics (Babar & Prasad, 1998).

As environmental uncertainty increases, buyers and suppliers become more dependent on the coping ability of the organization-environment interface. These conditions demand greater participation in decision making with external communication networks. International companies which cope best with uncertainty are most likely to delivery competitive bottom-line performances (Van der Vorst & Beulens, 2002). Scenario planning enables the simultaneous effect of uncertainties associated with multiple variables to be evaluated where each variable and its uncertainty may change under different circumstances (Morgan & Hunt, 2002).

In circumstances where international supply chains compete against other international supply chains, relationships become powerful enablers to reduce uncertainty and develop successful quality-driven interactions (Campbell, 1988; Moore & Cunningham, 1999; Naidu et al., 1999; Wong, 2002).