EVALUATING THE RELATIONSHIP BETWEEN QUESTIONABLE BUSINESS PRACTICES AND THE STRENGTH OF SUPPLY CHAIN RELATIONSHIPS

Journal of Business Logistics, 2003 by Moberg, Christopher R, Speh, Thomas W

Strong trading partner relationships have been consistently cited as critical to successful supply chain collaboration (Cooper et al. 1997; Derocher and Kilpatrick 2000; Mentzer et al. 2001). Strong relationships increase the likelihood that firms will exchange critical information and work together to plan and implement new supply chain strategies, sharing the risks and rewards along the way (Derocher and Kilpatrick 2000; Mentzer, Foggin, and Golicic 2000). Hewett, Money, and Sharma (2002) found that relationship quality between buyers and sellers, as measured by levels of trust and commitment, was significantly related to repurchase intention.

In spite of the compelling arguments about the importance of strong relationships, interviews and informal conversations with logistics executives at manufacturing firms suggest that their customers continue to engage in questionable business practices that threaten to erode the levels of trust and commitment in their relationships. These questionable practices range from sending back out-ofdate merchandise and refusing to pay for it to charging penalty deductions for late deliveries, even when the customer causes the delay. If the occurrence of these questionable practices were common, it would provide a major barrier for firms trying to implement collaborative supply chain strategies.

Trading partners in most supply chains are involved in a plethora of interactions, which include information transmission, dealing with damaged merchandise, unloading trailers, and negotiating and agreeing on price changes. The opportunity to act in a less-than-ethical manner always exists in these interactions and, unfortunately, not every interaction has a positive spin to it. In this research, such actions on the part of one trading partner is referred to as "questionable" if it could be argued that the interaction involved some act by one of the parties that could be questioned on moral and ethical dimensions.

For example, a manufacturer might, in an effort to reduce paperwork and eliminate monitoring activities, allow customers a credit of up to 2% of the invoice for damaged product without documentation. A "questionable practice" in this regard would be the customer who asked for the 2% fallowance on every shipment, regardless if there was any damage or not. These types of practices, if they persist, have the potential to undermine the relationships between the trading partners.

It would appear that many "questionable practices" are rather short-term in their orientation, allowing a trading partner to glean some slight cost advantage with a particular transaction. What these behaviors ignore is the long-run damage to the overall strength of the relationship by lowering levels of trust and commitment. Because successful management of supply chains requires cooperation, collaboration, and information exchange among firms, weakened relationships make implementation of supply chain management initiatives less likely. Firms must consider the impact of their strategies and behaviors on the entire supply chain. By acting without regard to the impact behaviors have on trading partners, customers may be improving their quarterly numbers but they are decreasing the likelihood that sustained, long-term improvements in the efficiency and effectiveness of the supply chain can be attained.

Little empirical evidence exists that measures the occurrence of questionable behaviors or that demonstrates a relationship between these behaviors and an erosion of trust and commitment in relationships. Therefore, this exploratory research has two main goals. The first goal is to determine the frequency of questionable behaviors in supply chain relationships and the second is to assess the relationship between the occurrence of these questionable behaviors and levels of trust and commitment in supply chain relationships. After a brief review of the relevant literature, several research questions are identified and the research design is detailed. Finally, the results are discussed, along with their implications for logistics managers and supply chain theory.

LITERATURE REVIEW

It should be noted that relationships among trading partners can range from arm's length transactions to strategic alliances and formal partnerships (Fontenot and Wilson 1997; Lambert, Emmelhainz, and Gardner 1996). However, for the purposes of this research, identifying the type of relationship was not considered as important as identifying the behaviors that occur in the relationship and assessing the levels of trust and commitment between the trading partners. Therefore, a representative review of the relationship literature in supply chain management is covered, followed by a brief review of the trust and commitment components of strong relationships.

Supply Chain Relationships

From the review of the relationship development process (Dwyer, Schurr, and Oh 1987) to the identification of the determinants of interorganizational and buyer-seller relationships (Morgan and Hunt 1994; Oliver 1990), the nature of relationships and their development have been a fertile area in business to business and sales management research. Relationship research is also an essential component of Supply Chain Management (SCM) theory development because SCM requires that multiple trading partners work together to improve the efficiency and effectiveness of logistics operations for each member of the supply chain (Bechtel and Jayaram 1997; Cooper, Lambert, and Pagh 1997). Based on this need to develop better relationships, logistics and supply chain researchers have developed a stream of research that focuses on several key aspects of supply chain relationships, including the characteristics and benefits of strong relationships, selection criteria, and the implementation and management of relationships (Lambert, Emmelhainz, and Gardner 1999).