The role of trust and relationship structure in improving supply chain ...

R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382 369customer optimization is that supply chain participants havea solid mutual understanding of the underlying businessprocesses and capabilities of their selected partners [48].While supply base optimization represented an opportunityfor those supplier remaining in the pool ‘‘after thecuts,’’ it also resulted in a new breed of customer thatdemanded increased responsiveness and flexibility to adynamic set of requirements. In these new supply chains,buying firms are purchasing not only their suppliers’products or services, but also their suppliers’ systems andcapabilities, which in turn require high levels of coordination[67]. Second, buying firms in such relationshipsprovide more than just financial compensation to theirsuppliers. Buyers share information with their suppliersand they also provide suppliers with guarantees of futurevolumes and prices, resources, and creativity, which maybe tied to suppliers’ cost reduction and quality improvementefforts [27]. Mutual interdependence, close organizationalcooperation, increased levels of trust, and a strongtendency towards information sharing thus characterizesuch relationships [49].Despite the strong drivers for closer supply chainrelationships, the managerial processes and success ofthese relationships is fraught with pitfalls. An excellentillustration of the difficulty of maintaining integratedsupplier–customer relationships is the breakdown betweenOffice Max and Ryder Integrated Logistics [51]. In thiscase, Office Max sued Ryder Integrated Logistics for 21.4million dollars, for breach of contract after 21 months of a7-year contract (initially dubbed as a ‘‘strategic alliance’’).Ryder Integrated Logistics countersued Office Max for 75million dollars. Moreover, it is becoming clear that adelicate balance between formal (economic and legal)and informal (social–psychological) factors is necessaryto sustain long-term interorganizational relationships[31,63,67,71]. Managers require a blueprint for action thatTable 1Rationale for inclusion of key study variablesVariable of interestHuman-specificasset investmentsSite-specificasset investmentsRepresentativetheoretical studies Range of possible managerial actions Impact on supply chain responsivenessSupplier membership on NPD teamsInformation sharing Communication and visits by buying team[16–19,32,53,72,73,76] Supplier colocation [16–19,32,53,72,73,76] Investments in specific equipment, capacity,or personnel to support customer relationship Investment in specific informationsystems or trainingBetter supplier understanding ofcustomer requirementsReduced use of forecasts Alignment of buyer/supplierprocess requirements Reduction of unique items withlong cycle times Better alignment of multiple supply tiersReduced equipment setup time Fewer capacity bottlenecks Inventory positioning within the supplychain to reduce delays Better alignment of supplier processcapabilities with buyer’s product requirementsContracts [42,47,57,60,63] Specific performance metrics withevergreen clauses Detailed legal documents Informal ‘‘hand-shake agreements’’Clear communication of expectations Conflict resolution techniquesLess reliance on litigation as a meansof resolving issues Evergreen clauses create incentives for cycletime improvements Dedicated supplier relationship managerTrust [12,25,63,67,71] Detailed precontractual supplier assessment Buyer understanding of supplier performanceand capacity limitations Ombudsman and other problemresolution mechanisms Improved forecastsBuyer-dependence(on supplier)[12,22,24,26,28,58] Reduce/increase dependence throughsingle/multiple sourcingSupply base optimizationInsourcing/outsourcing Using industry standard products Improved communication and information-sharing On-going problem-resolution and communicationof information Paves the way for B2B e-commerce applications Increased competition for business can createincentives for cycle time improvements Fewer suppliers results in simplified supply chainnetworks and reduces transaction complexityAutomated purchasing systems Potentially creates greater supplier loyalty

370R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382considers this balance and results in improved supplychain responsiveness.In developing and testing such a model for action, welimited the study to a smaller set of variables based on (1)theoretical salience in the literature on buyer–seller relationships,(2) managerial relevance, (3) variables having thegreatest impact on supply chain responsiveness. While othervariables of interest pertaining to supply chain relationshipsexist (information sharing, commitment, information technologies,etc.), we sought to include the primary variablesthat explain the greatest proportion of variance in supplychain responsiveness, based on the most obvious tangibleactions that managers can employ in achieving these results.The justification for including these variables is summarizedin Table 1. In the following section, we develop a set ofhypotheses that explicate the key points in Table 1, anddescribe the posited relationships between these actions inthe form of a process model for managers to follow.3. HypothesesThe model shown in Fig. 1 is based on a number oftheoretical and managerial studies, which suggest thatsupplier investments in buyer-specific assets, the levelof power asymmetry in the relationship determined bymarket conditions, and the extent to which formal contractsare employed by the buying firm contribute to thelevel of trust the buyer places in the supplier. The modelalso posits that the level of trust, degree of dependenceon the supplier, and human asset specificity are ultimatelylinked to the supplier’s evoked response in the form ofimproved or deteriorating responsiveness. The model istested using a set of questions measuring the buying companyrepresentative’s perceptions of a primary supplier’sactions along these lines. We make no attempt to identifythe perceptions of the corresponding supplier representative.Fig. 1. Model of long-term interorganizational relationship development.Although dyadic data would certainly make for a fullermodel, this was not done for several reasons. First, themarketing literature provides multiple studies of interorganizationalrelationships assessing these elements from thesupplier’s perspective [14,32,55], but relatively few modelsassess the buying company’s perspective [19,42]. Second,problems involved in collecting dyadic data using thissampling frame proved to be insurmountable in this case.Most of the buyers surveyed were reluctant to provide theidentity of the suppliers they were identifying, and we wereunable to obtain contacts for a dyadic survey instrument.However, we believe this represents an important avenuefor further research, and describe the implications for such astudy later in the conclusions.The desired outcome studied in this model is supplychain responsiveness. Recent research has demonstrated thatsome companies are more effective than others in achievinghigh levels of supplier performance [20]. The performanceof companies’ suppliers varies and authors in the academicand trade literature have noted that the performance andcapabilities of suppliers must improve if their customers’products are to be competitive in their respective markets[27]. As such, we focused this study on buyer’s managementof suppliers, the structure of the resulting relationship,and the relative impact on supplier’s responsiveness to thebuyer’s needs.3.1. Asset specificityThe influence of asset specificity on insourcing/outsourcingdecisions was originally described by transactioncost theorists [72,73], and the concept was later extendedto help explain the formation of ‘‘clans’’ [57]. Severalstudies have found that increased levels of asset specificityserve to ‘‘lock-in’’ the interests of the contractingparties, and therefore promote joint action or continuitybetween partners in interorganizational relationships[32,53,72,73]. In addition, buying firms are more likelyto consider long-term partnerships with suppliers whodemonstrate a willingness to commit a variety of differentassets to a set of future transactions [48]. In his study ofthe evolution of Japanese keiretsu, Nishiguchi [53] identifiedfour types of supplier asset specificity (based onRef. [73]) that influence buyers to commit to long-termsupplier relationships:Physical asset specificity refers to the mobile andphysical features of assets such as specific dies, molds,and tooling for the manufacture of a contracted product.Dedicated asset specificity represents discrete and/oradditional investment in generalized (as opposed tospecific) production capacity in the expectation of makinga significant sale of a product to a particular customer.Human asset specificity arises in a learning-by-doing fashionthrough long-standing customer-specific operations.Site asset specificity refers to the successive stages thatare immobile and are located in close proximity to one

R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382 371another so as to economize on inventory and transportationexpenses.Of these forms of asset specificity, we are most interestedin site assets and human assets. Moreover, physical assetsare typically a function of the nature of the product (i.e.,whether it requires tooling, etc.) and may not distinguish arelational form. Dedicated asset specificity is a form ofinvestment that is limited in use in North America. Someautomotive and electronics companies have begun to requiresupplies to build facilities or expand near their facilities, butfor the most part this has not become a standard requirementfor doing business [27].Supplier investments in human- and site-specificassets, however, are increasingly becoming requirementsfor suppliers who wish to conduct business in globalsupply chains [27,30]. Dedicated customer investmentsrepresent a requirement that buying company managersmay choose to apply as a means to structure a supplierrelationship. Further, dedicated and human supplierinvestments are increasingly studied in both the managementand marketing literature [9,12,16,17,19,67]. Thesesupplier investments may include people with specialskills or highly specialized machines that are specific toa particular customer. Such investments are nontransferable,and the benefits of the investment are unrecoverablefor the supplying firm if the relationship is prematurelydissolved [9]. When applied properly, supplier-basedinvestments permit tighter integration, improved communicationand alignment between supply chain partners[27,28].In contrasting successful and unsuccessful partnershipagreements, Nishiguchi [53] found that successful partnershipshad greater levels of site asset specificity and threetimes as much human asset specificity as their less successfulcounterparts. Dyer [15] also found that successfulpartnerships invested substantially more in site, dedicated,and human asset specificity. Dyer also suggested that siteand dedicated asset specificity leads to investments incustomer-specific human assets. Specifically, the most successfulautomotive firms during the years 1982–1991 hadsuppliers who invested in site-specific assets that providedproximity to their plants. This proximity helped facilitatehuman-specific assets in the form of greater information andpersonnel exchange, leading eventually to superior firmperformance and responsive suppliers. Other recent workin the area of ‘‘customer relationship management’’ andpersonal marketing approaches supports the logic that oncefirms make the financial commitment to supporting acustomer, they follow with dedicated account representativesand engineers who work closely (and are sometimescolocated) at the customer’s location [48,64,67]. We thereforepropose that:Hypothesis 1: Suppliers investing in greater perceivedsite-specific assets are more likely to invest in greaterlevels of perceived human-specific assets.3.2. ContractsContracts are legal instruments that explicitly define theterms of interorganizational agreements. Ring and Van deVen [63] have concluded that even when ‘‘a high level oftrust is present in a relationship, a reliance on trust at theinterpersonal level may be conditioned by legal systems ororganizational role responsibilities, mitigating the ability ofthe parties to rely on trust as a matter of first preference.’’They have likened this situation to two people in a boat, whonevertheless wear life jackets despite the implicit knowledgethat the other party would jump in and attempt to save theother if he were to fall overboard. This suggests an interestingparadox: Although long-term interorganizational relationshipsmay be based on trust, the existence of preventativeformal contracts may help to ensure the buyer that trust in thesupplier is well-founded (and vice versa). Ring and Van deVen [63] took this argument a step further by developing anevolutionary model suggesting that formal contracts lead togreater levels of trust, which over time, lead to informalpsychological contracts between buyers and suppliers.When trust is limited between the parties, contractualagreements are commonly established to enhance their legalobligations. These can range from limited single functionagreements, to very specific and broad-based contractualagreements that cover complete business operational activities,such as franchise contracts [70]. We argue that suchcontractual safeguards are important in determining thelevel of trust the buyer has in the supplier, in that they helpdefine the nature of the relationship between the partnersfrom the outset.Hypothesis 2: The presence of detailed signed contractswill increase the buyer’s perceived level of trust inthe supplier.3.3. Perceived buyer-dependence on supplierThe perception of dependence is an important dimensionof buyer–seller relationships. Dependence exists when oneparty does not entirely control all of the conditions necessaryfor achievement of an action or a desired outcomeperformed by the other party. Resource-dependence theory[22,58] specifies conditions under which one social unit isable to obtain compliance with its demands when dependencebetween the parties is present. Three critical factorsthat affect the degree of perceived dependence include theimportance of the resource, the extent to which the interestgroup has discretion over it, and the extent to which thereare limited alternatives [58]. In this context, we refer toincreased buyer-dependence as a situation when there arefew suppliers of an important commodity within a localmarket, or the supplier is the only party capable of providingthe product or service.In such situations, the supplier can potentially exploittheir market power, and buyers will have fewer opportun-

R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382 377Since trust is often a function of sustained reliable performance[25,67], the supplier may not have had time tofoster a trusting relationship. Perhaps the buyer’s perceptionof supplier performance is determined by otherfactors, such as technological capabilities or ability toreduce cost (factors that were not included in the operationalizationof our responsiveness variable). A finalpossibility is that the buyer distrusts the supplier’s representativefor reasons related to differences in culturalalignment. For instance, the two managers may come fromvery different organizational cultures, and hence find itimpossible to create a foundation on which trust can bebuilt. While these explanations do not provide a fullpicture of the dynamics involved, they do suggest theexistence of a multidimensional relationship between partiesin supply chain relationships.6.3. Limitations to the studyThere are several limitations to the study. The fact thatonly the buyer’s perceptions were measured limits thegeneralizability of the results. A research design thatincludes measures of power asymmetries (i.e., buyer andsupplier market power) as well as the supplier’s perceivedtrust in the buyer is necessary to fully develop theproposed framework. Some of the measures used to assessthe different constructs also need to be expanded. Forinstance, measures of physical and dedicated asset investmentscould provide additional insights [53]. As we notedearlier, we make no attempt to differentiate between thesedifferent elements of trust, but recognize that futurestudies should attempt to do so to improve the predictabilityof the model. Alternative measures of trust couldbe expanded to include both affect- and cognitive-baseddimensions from the perspective of both parties [44]. Thefindings linking citizenship behavior to trust could havebeen very different had cognitive trust been measured; infact, this could have impacted many areas of the model. Anumber of other dimensions of supply chain performance(technology development, quality, and price) are needed tofully assess the impact of trust and relationship structureon these variables.6.4. Directions for future researchAdditional research is needed to better understand therole of contracts in managing buyer–seller relationships. Aswe noted earlier, Ring and Van de Ven [63] argue thatcontractual understandings can facilitate the development oftrust at an early stage of a cooperative relationship, but theevolution of trust may be based not so much on theexistence of formal contracts, as on the tangible commitmentof assets or a record of satisfactory performance thatemerges over time. A temporal study of how a set of buyer–seller relationships unfolds over time would provide somepotentially very interesting results, particularly with respectto the use of contracts and the relative levels of trust thatoccur. The use of ‘‘critical incident’’ techniques could alsobe used to identify how buyers and sellers respond todifferent supply chain events. This type of study could alsobe implemented using a supply chain simulation with agroup of managers or students.As we noted earlier, the type of product, supply anddemand attributes, and industry type may influence powerand responsiveness, and that future studies should explorethe influence of market characteristics on dependence andrelative levels of responsiveness. A good example of thiswould be the case of Wal-Mart and its relative powerdownstream in the supply chain vs. an upstream source ofpower such as DuPont that supplies many smaller customers.By studying the relative positions of power and dependencein a supply network and the relative level ofresponsiveness that occurs, researchers could provide additionalinsights into the buyer and seller behavior with thesupply chain.7. ConclusionResults of our empirical analysis suggest that thededication of site-specific assets by a supplier is animportant precursor to greater human asset investmentsand can lead to a greater level of trust between the parties.Managers who are serious about improving supply chainresponsiveness should work towards building greater levelsof trust with key-input suppliers, and explore opportunitiesfor colocation and information sharing on a regular basis.The results also suggest that buyer–seller relationshipsmay develop at two levels. At the industry level, interveningforces such as market power and legal contracts areclosely related, yet appear to have little bearing on buyer–seller relationships at the interpersonal and cognitive level.Such a perspective is suggested by the result that the levelof perceived buyer-dependence on a supplier was notassociated with the level of trust in that supplier. Inaddition, when suppliers were willing to make site-specificasset commitments in the form of capacity and equipment,higher levels of trust were developed. The implication isimportant; even in cases when buyers do not have a largedegree of control over a supplier, working with them toimprove levels of trust may be helpful in improving supplychain responsiveness.As organizations seek to identify means of managingthese new forms of relationships, researchers must developnew models and methods to identify which suppliers toapproach in relationship development, the methods forimplementing and sustaining such relationships, and theappropriate processes for dealing with conflicts within suchrelationships when they arise. Future studies should alsoconsider the new elements developed in this study: sitespecificasset investments, human asset investment, contractformalization, dependence, and trust.

378R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382Appendix A.A.1. Survey itemsIdentify a ‘‘key’’ or critical material that you are responsiblefor sourcing for your manufacturing plant. A ‘‘key’’ orcritical material may reflect any of the following features:(a) the largest cost component of the main product,(b) the differentiating feature of the product,(c) the main technical factor in the functioning of theproduct,(d) the purchased item on which you spend most of yourtime,(e) the most difficult item to obtain, volatile price, thelongest lead time, etc.Of the available suppliers for this key-input material,identify one who is the primary supplier of this key input.This survey focuses on identifying some of the relevantfactors that characterize the relationship between you andyour key-input supplier. Please respond to all statements andquestions in reference to your key-input supplier.A.1.1. Site-specific assets (a=.78)How would you characterize the relationship betweenyou and your key-input supplier (strongly agree/stronglydisagree):This supplier has dedicated equipment and reservedequipment and reserved capacity specifically to maintainour purchasing relationship (five categories)This supplier has dedicated personnel specifically tomaintain our purchasing relationship (five categories)This supplier has purchased specialized equipment tomeet our needs for this key-input material (fivecategories)A.1.2. Human-specific assets (a=.76)How would you characterize the relationship betweenyou and your key-input supplier (strongly agree/stronglydisagree):We share our weekly, daily, or hourly productionschedules with this supplier (five categories)Nonsales personnel from this supplier have visited ourplant to see how their product is used in our process (fivecategories)The supplier works closely with our engineering anddesign area for new product development (fivecategories)We share a great deal of sensitive information with thissupplier (five categories)Our manufacturing personnel regularly visit this supplier’sfacility (five categories)A.1.3. Contracts (a=.68)How would you characterize the relationship betweenyou and your key-input supplier (strongly agree/stronglydisagree):We sign an agreement specifying price, delivery, leadtime,quality specifications, and estimated annual usage(five categories)In addition to an agreement we sign a detailed legalcontract with this supplier (five categories)We undertake no contractual agreements with this supplierbeyond each order as it is placed (five categories) —reverse-scoredA.1.4. Perceived buyer-dependence on supplier (a=.67)The following factors affected the buyer’s decision touse this key-input supplier (strongly agree/stronglydisagree):The supplier is the only source of input (five categories)The key-input material is not produced or not available inthe United States (five categories)How would you characterize the relationship betweenyou and your key-input supplier (strongly agree/stronglydisagree):There are many suppliers from which we can purchasethis key input (five categories) — reverse-scoredA.1.5. Trust (a=.92)Indicate how accurately one term or other describes yourrelationship with the key-input supplier:Antagonistic vs. cooperative (five categories) — reversescoredDistrust vs. trust (five categories) — reverse-scoredHarmony vs. discord (five categories)A.1.6. Responsiveness (a=.83)The following factors affected the buyer’s decision to usethis supplier (strongly agree/strongly disagree):Short lead-times (five categories)Outstanding on time delivery record (five categories)Ability to modify their product to meet our requirements(five categories)How would you characterize the relationship betweenyou and your key-input supplier (strongly agree/stronglydisagree):

R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382 379There is a short lead time between the time that theorder is placed with this supplier and when it is received(five categories)A.2. Measurement developmentThe two antecedent variables in the model are dedicatedasset specificity and supplier power. The fourdependent variables of interest are (1) human assetspecificity, (2) the use of contracts, (3) the degree oftrust present in buyer/supplier relationships, and (4)supplier responsiveness. Many of the measures for thesevariables were developed using prior studies of interorganizationalrelationships [32,66]. All measures wereevaluated using a five-point Likert scale, grounded by1 as strongly disagree and 5 as strongly agree. Asexpected, responses to the multiple items assessing thevariables were highly intercorrelated, so item measuresfor each variable were standardized and then added toform single indices.In determining the measurement properties of the constructsused in the analysis, the reliability and constructvalidity of the variables in the model were assessed, and thereliability of each construct was examined using Cronbach’sa. All of the multi-item measures (except contracts andsupplier power) had a reliability of at least .70, an acceptedindication of sufficiently reliability. Nunnally [56] suggestsallowing a somewhat lower threshold (.60) for exploratorywork involving the use of newly developed scales. Becausecontracts and supplier power are relatively new scales andthe a values were very close to the .70 cutoff (.68 and .67,respectively), they were considered sufficiently reliable foruse in the analysis. The next several sections describe thedevelopment of variable measures and provide the reliabilitiesfor each variable operationalization.A.2.1. Site-specific assetsAs mentioned earlier, this construct taps into bothphysical and dedicated asset specificity, which refers tothe mobile and physical features of assets as well asadditional investments in generalized production capacity[53]. This construct was therefore assessed using threemeasures of the type of ‘‘hard’’ capacity devoted by thesupplier to the buying organization.A.2.2. Human-specific assetsThe theoretical and practitioner literature suggests thathuman asset specificity can be assessed on the basis ofwhether certain activities are present in relationships,including interactions between supplier and buyer personnelat buyers’ facilities, integration of suppliers into new productdevelopment projects, sharing of sensitive informationbetween parties, visits by manufacturing personnel to thesuppliers facility, and greater interaction on a daily basis[32,38,47,53]. Respondents were asked to evaluate theirrelationships with suppliers along these dimensions, usingscales proposed by Smith and Aldrich [66]. These measuresproduced an a of .76.A.2.3. ContractsWhen levels of demand or rates of technological changeare uncertain, buyers will suffer considerable expense toaudit performance through detailed evaluation schemes.This provides a mechanism for judging the fulfillment ofcontractual obligations, which can be especially importantin monitoring the success of long-term relationships. Whilealmost all transactions are covered by the Uniform CommercialCode, buyers often employ contracts, especially incases involving nondomestic suppliers. Therefore, onemeasure of the formality of contract use is whether thebuyer signs an agreement specifying price, delivery leadtime, quality specifications, and estimated annual usage. Asecond indication of contract formality is whether contractscontain the types of ‘‘evergreen’’ and ‘‘escape’’ clausesdescribed earlier. Finally, buyers were asked whether theyundertake any contractual agreements with the supplierbeyond each order as it is placed. Measures of these itemswere standardized and averaged to obtain an overall indexof contract use (a=.68).A.2.4. Perceived buyer-dependenceThe perceived buyer-dependence on the key-input supplierwas assessed using three measures of market conditionsfor purchasing the key input. Higher values of thismeasure reflect dependence on a smaller number of suppliers,and therefore, greater supplier power. This operationalizationis similar to a measure used by Provan and Skinner[62] in their study of dealer-dependence.A.2.5. TrustThe literature concerning trust generally refers to either abusiness risk view based on confidence in the predictabilityof expectations [43,77], or a view based on another’sgoodwill [13,63]. Alternatively, trust can be conceptualizedas either cognition- or affect-based [44]. Our measure tapsinto the goodwill/affect-based dimensions, by applyingthree anchored scales that measure the buyer’s assessmentof the relationship with the key-input supplier: antagonistic/cooperative, distrust/trust, and harmony/discord. We do notdifferentiate between affect- or cognition-based trust.Higher scores for all three measures are associated withgreater trust.A.2.6. ResponsivenessWhile an emphasis on cost has also been documented asanother source of performance in purchasing management,responsiveness tends to have a higher priority in situationswhere the item is a critical component of the product [48].Thus, responsiveness is operationalized as the ability ofsuppliers to react to schedule changes, process orders ina timely fashion, deliver quickly, and meet scheduleddue dates.

380R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382A.3. Analysis and construct validityAll the variables in the model were successfully measured,and the mean, standard deviations, and correlationcoefficients are presented in Table 2, with the covariancematrix shown in Table 3. The univariate distributions of thevariables were also examined for excessive skewness and/orkurtosis using D’Agostino’s test statistic. These testsshowed that the skewness and kurtosis of the variables werenot statistically different from normal distributions, a prerequisitefor using path analysis methods. All of the variableswere examined for outliers and other departures fromnonnormality. Detection of multidimensional outliers wascarried out using a general screening device and no outlierswere detected in the sample.The extent of convergent validity for the constructs wasdetermined through confirmatory factor analysis. The variablesused to measure each construct are summarized inAppendix A.2. The measurement model for each constructwas independently tested using structural equation modeling,prior to the testing of the structural model. To test theextent of internal and external consistency among thesevariables, the factor scores for each of the multi-itemconstructs were examined. All of the standardized factorloadings were greater than .50. The c 2 statistic and goodnessof fit (GFI) measures for each measurement modelwere deemed acceptable, using standard ‘‘cut-off’’ criteria[6,37]. In addition, the standard regression coefficients forthe effects of the latent variables on the observed variableshad significant critical ratios (we have not included theresults here for the sake of brevity).Following this procedure, the scores for each indicatorvariable were standardized, and the mean used in thesubsequent predictive model. (Note that the combinedmeasurement and structural model were not tested simultaneously,as the implied number of free parameters could notbe estimated given the limited sample size.)The model in Fig. 1 predicts a set of positive or negativepath coefficient for the arrows, signifying the effect of oneconstruct on another as specified by corresponding hypotheses.The path coefficients in the model were determinedusing maximum likelihood estimation [6,37]. P values of.10 are usually indicative of a reasonable fit of the model tothe data [6,37].A second method of determining model fit in structuralequation models is to use incremental fit indices. Suchindices are determined by comparing a restricted baselinemodel to a hypothesized (maintained) model. The baselinemodel is typically one that suggests that no factors underliethe observed variables, and the incremental index determineswhat proportion of improvement is obtained throughthe maintained model. One such index is the Bentler andBonnett [4] normed fit index 1, used to test the proportionatereduction in the fitting function when moving from thebaseline to the maintained model. Bollen [6] has proposedan alternate measure 2, which takes into account the meansof the sampling distributions. Although there is no unambiguousanswer to how large 1 and 2 must be to indicate an‘‘adequate’’ fit, a typical lower bound for such measures is 1and 2 > .90. In this analysis, the maintained model iscompared to a baseline model in which no relationshipbetween the proposed factors is specified. The GFI andadjusted goodness of fit (AGFI) indices proposed by Joreskogand Sorbon [37] are also shown for the model. Thesignificance of each path coefficient is tested using thecritical ratio, which is the ratio of regression weight tostandard error. Under assumptions of independent observationsand multivariate normal distributions, this ratioapproximates the standard normal distribution and is usedas a test of significance [6].References[1] Achrol R. Changes in the theory of interorganizational relations inmarketing: toward a network paradigm. J Acad Mark Sci 1997;25:56–71.[2] Anderson J, Narus J. A model of distributor firm and manufacturerfirm working partnerships. J Mark 1990;54:42– 58.[3] Armstrong JS, Overton TS. Estimating nonresponse bias in mail surveys.J Mark Res 1977;14:396– 402.[4] Bentler P, Bonnett D. Significance tests and goodness-of-fit in theanalysis of covariance structures. Psychol Bull 1980;88:588–606.[5] Bhote K. Supply management: how to make U.S. suppliers competitive.New York: American Management Association, 1987.[6] Bollen K. Structural equations with latent variables. New York:Wiley, 1989.[7] Borys B, Jemison D. Hybrid arrangements as strategic alliances: theoreticalissues in organizational combinations. Acad Manage Rev1989;14:442–56.[8] Cyert RM, March JG. A behavioral theory of the firm. EnglewoodCliffs (NJ): Prentice-Hall, 1963.[9] Das TK, Teng BS. Instabilities of strategic alliances: an internal tensionsperspective. Organ Sci 2000;11:77–101.[10] Das A, Handfield R, Calantone R, Ghosh S. A contingent view ofquality management — the impact of international competition onquality. Decis Sci J 2000;31:649–90.[11] Dobler D, Burt D, Lee L. Purchasing and materials management. NewYork: McGraw-Hill, 1990.[12] Doney PM, Cannon JP. An examination of the nature of trust inbuyer–seller relationships. J Mark 1997;61:35 – 51.[13] Dore R. Goodwill and the spirit of market capitalism. Br J Sociol1983;34:15 – 34.[14] Dwyer F, Schurr P, Oh S. Developing buyer–seller relationships. JMark 1987;51:11 –27.[15] Dyer J. Dedicated assets: Japan’s manufacturing edge. Harv Bus Rev1994;72:154–70.[16] Dyer J. Specialized supplier networks as a source of competitiveadvantage: evidence from the auto industry. Strategic Manage J1996;17:271– 92.[17] Dyer J. Does governance matter? Keiretsu alliance and asset specificityas sources of Japanese competitive advantage. Organ Sci 1996;7:649–66.[18] Dyer J. Effect of interfirm collaboration: how firms minimize transactioncosts and maximize transaction value. Strategic Manage J1997;18:553–6.[19] Dyer J, Singh H. The relational view: cooperative strategy and sourcesof interorganizational competitive advantage. Acad Manage Rev1998;23:660–79.

R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382 381[20] Dyer J, Nobeoka K. Creating and managing a high-performanceknowledge-sharing network: the Toyota case. Strategic Manage J2000;21:345– 67.[21] El-Ansary A, Stern LW. Power measurement in the distribution channel.J Mark Res 1972;9:47–52.[22] Emerson R. Lower-dependence relations. Am Sociol Rev 1962;27:31–41.[23] Fearon H. Historical evolution of purchasing function. Int J PurchasingMater Manage 1989;9:3–12.[24] Gassenheimer JB, Houston FS, Davis JC. The role of economic value,social value, and perceptions of fairness in interorganizational relationshipretention decisions. J Acad Mark Sci 1998;26:322–37.[25] Gulati R. Does familiarity breed trust? The implications of repeated tiesfor contractual choice in alliances. Acad Manage J 1995;38:85 – 112.[26] Handfield R. A resource dependence perspective of just-in-time purchasing.J Oper Manage 1993;11:289–311.[27] Handfield R, Krause D. Think globally, source locally. Supply ChainManage Rev 1999;3:36– 49 (Winter).[28] Handfield R, Krause D, Scannell T. Avoid the pitfalls in supplierdevelopment. Sloan Manage Rev 2000;41:37 –49.[29] Handfield R, Krause D, Scannell T, Monczka R. An empirical investigationof supplier development: reactive and strategic processes. JOper Manage 1998;17:39–58.[30] Handfield R, Nichols E. Supply Chain Redesign. Upper Saddle River(NJ): Prentice-Hall, 2002.[31] Handy C. Trust and the virtual organization. Harv Bus Rev 1995;73:40–50.[32] Heide JB, John G. Alliances in industrial purchasing: the determinantsof joint action in buyer–supplier relationships. J Mark Res 1990;27:24–36.[33] Hult G, Tomas M, Nichols EL. The organizational buyer behaviorlearning organization. Ind Mark Manage 1996;25:197–207.[34] Hult G, Tomas M, Hurley RF, Giunipero LC, Nichols EL. Organizationallearning in global purchasing: a model and test of internal usersand corporate buyers. Decis Sci 2000;31:293–325.[35] Hult G, Tomas M, Nichols EL, Giunipero LC, Hurley RF. Examiningglobal organizational learning in the multiple supply chains of users,buyers, and suppliers: a low versus high learning study. J Int Mark2000;8:64– 83.[36] Johnson JL. Strategic integration in industrial distribution channels:managing the interfirm relationship as a strategic asset. J Acad MarkSci 1999;27:4–18.[37] Joreskog K, Sorbom D. Systems under indirect observation: Part I andPart II. Amsterdam: North-Holland, 1982.[38] Kamath R, Liker J. A second look at Japanese product development.Harv Bus Rev 1994;72:154–70.[39] Krause D, Handfield R. Developing a world class supply base. Tempe:Center for Advanced Purchasing Studies, 1999.[40] Lambert DM, Harrington TC. Measuring nonresponse bias in mailsurveys. J Bus Logistics 1990;11:5–25.[41] Lewis J, Weigert A. Trust as a social reality. Soc Forces 1985;63:967–85.[42] Liker J, Wu Y-C. Japanese automakers, U.S. suppliers and supplychainsuperiority. Sloan Manage Rev 2000;42:81 –93.[43] Luhmann N. Trust and power. Chichester: Wiley, 1979.[44] McAllister D. Affect- and cognition-based trust as foundations forinterpersonal cooperation in organizations. Acad Manage J 1995;38:24–59.[45] MacDuffie J, Helper S. Creating lean suppliers: diffusing lean productionthrough the supply chain. Calif Manage Rev 1997;39:118–51.[46] Meredith R. Driving to the Internet. Fortune 2000;165:128–35.[47] Mohr J, Spekman R. Characteristics of partnership success: partnershipattributes, communication behavior, and conflict resolution techniques.Strategic Manage J 1994;15:135– 52.[48] Monczka R, Trent R, Handfield R. Purchasing and supply chain management.2nd ed. Cincinnati: Southwestern Publishing, 2002.[49] Monczka R, Peterson K, Handfield R, Ragatz G. Determinants ofsuccessful vs. non-strategic supplier alliances. Decis Sci 1998;29:553–77.[50] Monczka R, Handfield R, Frayer D, Ragatz G, Scannell T. Newproduct development: supplier integration strategies for success. Milwaukee:ASQ Press, 2000.[51] Mottley R. Messy divorce. Am Shipper 1998;45:22– 6.[52] Muller E. Job analysis reveals commonality in tasks. NAPM Insights1990;56:25– 6.[53] Nishiguchi T. Strategic industrial sourcing: the Japanese advantage.New York: Oxford Univ. Press, 1994.[54] Noordewier T. A comparison of blanket and systems contracts. JPurchasing Mater Manage 1989;25:34 –42.[55] Noordewier T, John G, Nevin J. Performance outcomes of purchasingarrangements in industrial buyer –vendor relationships. J Mark1990;54:80– 93.[56] Nunnally J. Psychometric theory. New York: McGraw-Hill, 1978.[57] Ouchi W. Markets, bureaucracies, and clans. Adm Sci Q 1980;25:129–41.[58] Pfeffer J, Salancik G. The external control of organizations. NewYork: Harper & Row, 1978.[59] Pilling B, Zhang L. Cooperative exchange: rewards and risks. Int JPurchasing Mater Manage 1992;12:2– 9.[60] Powell W. Hybrid organizational arrangements: new form or transitionaldevelopment? Calif Manage Rev 1987;29:67–87.[61] Prescutti W. The single source issue: U.S. and Japanese sourcing strategies,international. Int J Purchasing Mater Manage 1992;12:10– 2.[62] Provan K, Skinner S. Interorganizational dependence and control aspredictors of opportunism in dealer–supplier relations. Acad ManageJ 1989;32:202– 12.[63] Ring P, Van de Ven A. Developmental processes of cooperative interorganizationalrelationships. Acad Manage Rev 1994;19:90 – 118.[64] Ross WT, Anderson E, Weitz B. Performance in principal-agent dyads:the causes and consequences of perceived asymmetry of commitmentto the relationship. Manage Sci 1997;43:680–704.[65] Scheer LK, Stern LW. The effect of influence type and performanceoutcomes on attitude toward the influence. J Mark Res 1992;29:128–42.[66] Smith A, Aldrich H. The role of trust in the transaction cost economicsframework: transaction contexts and governance structures in U.S.manufacturer – supplier relations. Proceedings of the 1991 Academyof Management Meeting, Miami, FL.[67] Smith JB, Barclay DW. The effects of organizational differences andtrust on the effectiveness of selling partner relationships. J Mark1997;61:3– 21.[68] Smith K, Carroll S, Ashford S. Intra- and interorganizational cooperation:toward a research agenda. Acad Manage J 1995;38:7–23.[69] Spekman R. Strategic supplier selection: understanding long-termbuyer relationships. Bus Horiz 1988;13:10 – 6.[70] Stern LW, El-Ansary AI, Coughlin A. Marketing channels. EnglewoodCliffs (NJ): Prentice-Hall, 1998.[71] Stump RL, Heide JB. Controlling supplier opportunism in industrialrelationships. J Mark Res 1996;33:431–41.[72] Williamson OE. Markets and hierarchies: analysis and antitrust implications.New York: Free Press, 1975.[73] Williamson OE. The economic institutions of capitalism: firms, markets,relational contracting. New York: Free Press, 1985.[74] Williamson OE. Comparative economic organization: the analysis ofdiscrete structural alternatives. Adm Sci Q 1991;36:2– 26.[75] Yoshino MY, Rangan US. Strategic alliances: an entrepreneurial approachto globalization. Boston: Harvard Business School Press, 1995.[76] Zajac E, Olsen C. From transaction cost to transactional value analysis:implications for the study of interorganizational strategies. In:Research in Organizational Behavior. Greenwich (CT): JAI Press,1993;vol. 8.[77] Zucker L. The production of trust: institutional sources of economicstructure. In: Shaw B, Cummings L, editors. Research in organizationalbehavior. Greenwich (CT): JAI Press, 1986.

382R.B. Handfield, C. Bechtel / Industrial Marketing Management 31 (2002) 367–382Robert B. Handfield, PhD, is the Bank of America UniversityDistinguished Professor of Supply Chain Management and the Directorof the Supply Chain Resource Consortium in the College of Managementat North Carolina State University.Christian Bechtel, PhD, graduated from Michigan State Universitywith a PhD in Supply Chain Management, and is an AssistantProfessor at the Richard DeVos Graduate School of Management atNorthwood University.