Buyer-Supplier Relationships

Conceptual Overview

Across a wide range of industrial sectors, there has been a trend over the past 20 years away from traditionally arms length or adversarial relationships with suppliers, toward various forms of obligational or relational contracting. These more-cooperative forms of contracting commonly involve the establishment of long-term strategic partnerships or alliances, and have often occurred in tandem with the outsourcing of business functions and rationalization of supply bases. Often modeled on Japanese-style manufacturing methods that require close buyer-supplier integration—notably, just-in-time systems of production—these changes in practice have made the management of business transactions and supply chains integral to performance across huge swathes of manufacturing and service industry.

Underpinning such developments in practice have been broader theoretical debates about changing patterns of industrial organization. From an economics perspective, relational contracting is a hybrid mixture of the market and hierarchical mechanisms that Oliver Williamson originally proposed as alternative modes of governance for transactions in his influential transaction-cost economics approach. Institutional economic theorists have consequently set out to elaborate further upon the factors influencing the make-or-buy decision, examining the effects of performance ambiguity on opportunism by suppliers; and the moderating influence of trust and other relational norms on the management of market relationships.

From an organizational theory perspective, relational contracting is symptomatic of a shift away from traditional, bureaucratic forms of organization based on Fordist systems of production to newer, more flexible, network-based modes of organizing (including clusters of firms in industrial districts, franchising, strategic alliances, and joint ventures). Whether or not the network represents a distinct mode of governance in its own right (as has been argued is the case in sectors such as biotechnology and the media), it has become increasingly important within organizational theory to examine buyer-supplier relationships in the context of the wider network of relationships in which they are embedded; as well as to explore the labor process and human resource management implications of these newer modes of organizing.

Understanding the nature and effects of cooperative buyer-supplier relations, as well as key contributing factors, is also an important thread running through other business and management disciplines. Within strategic management, a long-standing interest in economic and other factors associated with vertical integration has developed into a concern with exploring the value of cooperative buyer-supplier relations as a source of competitive advantage through the relational assets and social capital that are generated. [Page 136]In marketing, an interest in the quality of relationships in distribution channels has now developed into a considerable volume of work focusing upon relationship marketing in business-to-business transactions. Similarly, theory and research within the operations management and purchasing fields has crystallized around the concept of supply-chain management and the exploration of the systems and techniques available for organizing and managing transactions—including those based on information technology and e-commerce.

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