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

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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-
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