Buyer-Supplier Relationships and Organizational Health

15The Journal of Supply Chain Management | Spring 2003

Buyer-Supplier Relationships and Organizational Health

This article examines the relationship between orga-

nizational health and buyer-supplier relationships.

Contemporary research has emphasized the need for

organizations to move toward closer cooperation.

The decision to engage in partnership arrangements

is one that has major implications for buyers and

suppliers. Using evidence from an exploratory case

study, the challenges presented in

developing a close, cooperative,

and mutually beneficial trading

relationship between a buyer and a supplier, where

one partner, the buyer, is in a powerful position, are

investigated. It is argued that powerful buyers can

seriously damage organizational health. The find-

ings provide evidence that it is essential to promote

communication structures that encourage dialogue,

consultation, and employee participation in deci-

sionmaking. This is particularly important where

decisionmaking could benefit from the in-depth

technical knowledge of middle and junior managers

and shopfloor workers.

INTRODUCTIONIn recent years, the relationship between buyers and

suppliers has received considerable attention. Due to theglobalization of markets, corporate restructuring, andincreased focus on costs, quality, flexibility, and tech-nology, an expanded role for procurement has emerged(Burt, Dobler, and Starling 2003). Traditionally, pur-chasing was considered a clerical function, where therelationship between suppliers and buyers tended to beadversarial. However, many organizations have movedtoward a more collaborative approach.

Gadde and Hakansson (1994) identified three key stra-tegic purchasing issues: the make or buy decision, thesupply base structure, and the customer-supplier rela-tionship. They and Cox (1996) emphasized the need for organizations to move toward closer cooperation in the buyer-supplier relationship. Market pressures forincreased product complexity and variety demonstratethe ever-expanding need for a team-oriented mind-set.Consequently, they need to supplement their core com-petencies by allying with other providers of comple-mentary competencies to satisfy their customers. Thereal productivity, design, and quality improvements arenot obtainable unless the supplying partners innovateto the best of their abilities. Hence, many manufacturersrecognize that their ability to become world-class com-petitors is based to a great degree on their ability toestablish high levels of trust and cooperation with their suppliers.

Indeed, the advantages of closer cooperation have beencited by Magnet (1994) and Helper and Sako (1995), whonoted that closer relationships between customers andsuppliers have had beneficial effects on performance in anumber of areas. As a collaborative or partnership arrange-ment between buyer and supplier, this requires a majorshift in the mind-set or operational paradigm, from whathas been termed arm’s-length contractual relationshipto obligational contractual relationship (Sako 1992). The need for a reassessment of the nature of, and bene-fits to be derived from, buyer-supplier relationships wasfurther argued by Kerwood (1995), who commented thatmuch of the current literature on effectiveness and successsuggests that success can only be achieved at the expense


Marie McHugh

is a professor of organizational behavior and head of the School of

Business Organization and Management at the University of Ulster

in the United Kingdom.

Paul Humphreys

is a reader in operations management within the School of Business

Organization and Management at the University of Ulster in the

United Kingdom.

Ronan McIvor

is a senior lecturer in e-commerce within the School of International

Business at the University of Ulster in the United Kingdom.

AUTHORS

SUMMARY

The Journal of Supply ChainManagement: A GlobalReview of Purchasing andSupply Copyright © May 2003,by the Institute for SupplyManagement, Inc.™

Module 2

EXAM

16 The Journal of Supply Chain Management | Spring 2003


of others such as competitors, suppliers, and customers(Jarillo 1988). However, theory and research from aninterorganizational relationship perspective have begunto acknowledge the role of cooperation in organizationalsuccess (Nielson 1988).

Many companies recognize that their ability to becomeworld-class competitors is based, to a great degree, ontheir ability to establish high levels of trust and coopera-tion with their suppliers (Buono 1997). With higherstandards of performance being demanded in each busi-ness environment, companies are of necessity lookingto their suppliers to help them achieve a stronger com-petitive position. Indeed, it has been suggested that in aworld of converging consumer tastes, rapidly spreadingtechnology, escalating fixed costs, and growing protec-tionism, more collaborative relationships with suppliersare critical instruments for serving customers in a globalenvironment (Ohmae 1989).

These views are endorsed by others who argue that thebasis of modern competition is continuous improvementin products and processes (in other words, the simulta-neous achievement of both efficiency and innovation).The cooperative approach between buyers and suppliersis based on recognition of mutual interest, particularlywhere components provided by suppliers are a large pro-portion of the cost of the final product. It involves assistingthe customer to provide a higher-quality, lower-pricedproduct, for example, through long-term supply relation-ships, general management advice, and possibly throughresearch and development, training, and loan guarantees(Hendry et al. 1995). Common aspects of customer-supplier partnerships include: long-term relationshipsbased on trust and cooperation rather than competitionfor each order, thereby giving the supplier a strongerinterest in the quality of the goods supplied; devolutionof design work to the supplier; cooperation to improveperformance and quality, sometimes involving advicefrom the customer’s supplier development teams; andtarget pricing in which the customer sets price reduc-tions and helps the supplier to achieve them. In manyways, it can be argued that these features of partnershipare highly similar to aspects of organizational processesand functions that have been cited as characteristics ofthe healthy organization. For example, the establish-ment of good relationships, trust and cooperation, andappropriate devolution cited as essential elements ofpartnering by Boddy et al. (1998) have been frequentlylinked to the healthy organization (De Vries and Miller1990; Cox and Haworth 1990; Cooper and Williams1994; Newell 1995).

ORGANIZATIONAL HEALTH Organizational health is a poorly defined but widely

used concept (see, for example, De Vries and Miller1990; Cox and Haworth 1990; Cooper and Williams1994; Newell 1995; McHugh and Brotherton 2000).

Despite its clouded definition, it conjures up positiveimages of the organization, regardless of the indices that one might use to measure “health” in organizationalterms. For example, an organization might be “finan-cially healthy,” “strategically healthy,” “structurallyhealthy,” “culturally healthy,” and/or “behaviorallyhealthy.” Although the existing literature does not pro-vide or permit a succinct definition of organizationalhealth, within this article the healthy organization isconsidered to be one whose structure, culture, and man-agement processes contribute to high levels of organiza-tional performance. As part of this, it is believed thatindividual and organizational health are interdependententities. Thus, indices of the healthy organization arelikely to include measures of employee stress and well-being, employee satisfaction and commitment, the per-ceived quality of management decisionmaking, theappropriateness of structural arrangements, and finan-cial indicators. One aspect of organizational health con-cerns decisions regarding buyers and the developmentof good buyer-supplier relationships of the partnershipvariety referred to above.

BUYER-SUPPLIER RELATIONSHIPS AND ORGANIZATIONAL HEALTH

Despite the wisdom of the arguments concerning theformation of partnerships and the contribution thatbuyer-supplier relationships make to organizationalhealth, it is important to point out that the necessarylevels of interfirm trust are not always present in thebuyer-supplier relationship to permit collaboration tobecome a reality. The mistrust, which is often evident, is the result of many years of broken promises, abuse of confidence, and general acrimony within manufac-turing industry (DTI 1989; Burnes and New 1997). Assuch, partnership can in fact be a double-edged swordwhere, although there is “security” in the relationship,there is potential for a powerful partner (usually the buyer)to show the strength of its muscles, squeezing the sub-missive partner (usually the supplier), to such an extentthat it is potentially harmful to both sides in the relation-ship. The squeezing is likely to manifest itself in, forexample, ever-increasing demands for higher quality atlower costs and ever-shortening leadtimes (Porter 1980;Miller and Dess 1996). One example of this is providedby the trading relationship between the major toy retailerToys“R”Us and the manufacturer Mattel. The dominanceof the retailer in this partnership, reflected in, amongother things, its decision to drastically reduce inventorystocks, has caused major problems for the supplier(BusinessWeek 1999).

Such behavior is indicative of a lack of understandingof the principles underlying the true meaning of partner-ship as outlined by Partnership Sourcing (1990). Withinthis, it is argued that customer and supplier work as part-ners, believing that teamwork is better than combat,



and that “both must win” (ibid). In making partnershipswork in a healthy way, thus contributing to the creationof healthy organizations, there is a need for the effectiveformation and implementation of a web of interfunctionalrelationships within each of the organizations (Kanter1989). This must be accompanied by goal clarity betweenbuyer and supplier, a clear understanding and acceptanceof roles and responsibilities, and a sharing of ideas (Boddyet al. 1998).

While initially it may be to the buyer’s advantage tosqueeze its supplying partner, the advantages are likelyto be short lived. Not only does excessive squeezingpotentially destroy the relationship between the buyerand the supplier, but also it is likely to foster a state ofill health within the supplier organization that is likely to impact the buyer with the emergence of a vicious spiralof negativity. The ill health within the supplier organi-zation is likely to be caused by the excessive demandsbeing made by the buyer, which are passed down toemployees who, among other things, are in turn undersevere pressure to deliver enhanced quality in a shortertime. More often than not, constantly responding asand when required to a demanding supplier can causeconfusion, chaos, and interference with managementdecisionmaking within the supplier organization.Simultaneously, the supplier organization is trapped in atrading relationship and its energies and resources are sosubmerged in coping with this highly charged situationthat it has no opportunity to escape from the relation-ship, or to rationally consider alternative ways of man-aging its circumstances. While this in itself is unhealthy, it may be argued that as an outcome of the unrelentingpressure exerted by the powerful buyer, a cycle of nega-tivity emerges whereby the excessive demands of the buyerthrow the supplier organization into a state of chaos andconfusion that negatively affects management processesand functions. Being placed in a position where the sup-plier is not able to cope with buyer demands is likely toresult in even more pressure being applied by the buyer,which creates further difficulties for the supplier. Thus, avicious spiral of negativity emerges, the effects of whichbecome potentially more disastrous with each twist ofthe spiral. Furthermore, as part of this spiral, the type oftrading liaison referred to above prevents the supplierorganization from having a direct relationship with themarket. This in turn prevents the development of astrategic overview and reinforces dependencies.

Meanwhile, the powerful buyer may initially appearunaffected by the ill health brewing within the supplierorganization. However, it is inevitable that the difficultiesexperienced by the supplier will impact upon the buyeritself in the form of, for example, delayed deliveries andproduct quality problems, all of which ultimately affect theoverall health of the buyer. Thus, such a buyer-supplierrelationship is inherently problematic and displays all ofthe hallmarks of a “partnership” where there is a lack of

knowledge, understanding, and acceptance of the poten-tial benefits for inter- and intra-organizational healthand well-being to be gained from collaboration. Theabuse of buyer power is a contradiction of the philos-ophy of partnership advocated by Sako (1992) that hasbeen linked to organizational success (Neilson 1988)and that works to erode the health of organizations.Furthermore, it may be argued that the abuse of powerbeyond a certain point may adversely affect the buyingcompany itself. In many respects, such a relationship isakin to the nature of buyer-supplier relationships describedby Cox (1996), whereby each member of an organiza-tional network will seek to do what is best for itself interms of achieving “the greatest competitive and profit-making advantage.” This is far removed from and standsin stark contrast to the type of mutually advantageouspartnership relationship built upon mutual trust, open-ness, and sharing described by Lamming (1993) and byWomack and Jones (1996).

Within the context of a larger study that examined link-ages between different aspects of organizational health(McHugh 1996), this article aims to explore the delete-rious effect that complete dependence upon a powerfulbuyer may have upon organizational health. It is con-cerned with the case of a financially healthy organiza-tion engaged in a trading partnership with a powerfulbuyer regarded as being one of the most successful retailersin the United Kingdom. Using a case study approachthat involves the collection of primary and secondaryquantitative and qualitative data, it seeks to show thatwhere a buyer is all-powerful, it is exceptionally difficultto fully implement and reap the benefits of a true win-win contractual obligational relationship of the varietyadvocated by so many as being important in the achieve-ment of competitive advantage. Equally, it indicates that a relationship with a powerful buyer founded onsuperficial trust provides temptation for the abuse of the relationship that is injurious to the health and thelonger-term well-being of the buyer and supplier orga-nizations. Thus, although powerful buyers may be temptedto use their position to extract superior outcomes forthemselves, this may lead to a situation of ultimatedestruction.

The Buyer-Supplier PartnershipBefore proceeding to investigate the organizational

health of the companies described in the subsequentexploratory case study, it is important to provide a ratio-nalization of the extent to which a partnership relation-ship exists between the buyer and supplier organizations.McIvor et al. (1997) identified a number of key factorsthat influence buyer-supplier relations where partner-ship sourcing exists. These are outlined in Table I withsupporting evidence relating to the relationship withthe powerful buyer, referred to as Company X. This tablealso outlines linkages between buyer-supplier collabora-tion and elements of organizational health.



Taking into consideration the factors that influencebuyer-supplier relations as outlined by McIvor et al.(1997), the above discussion aims to illustrate that therelationship that existed between the supplier organiza-tion and Company X was a partnership. Further supportfor this argument is offered by Boyle (1994), who pro-vided detailed case study evidence outlining the extentof the partnering relationship between Company X andthe supplier.

CASE STUDY METHODOLOGYManagement research is characterized as being soft,

applied, and divergent and is undertaken in complexorganizations that exist in a dynamic environment(Tranfield and Starkey 1997). This makes it very difficultto apply the more traditional positivist approach withits emphasis on replication to test for validity. As a con-sequence, a great deal of research in the management of organizations makes use of the inductive case studyapproach (Yin 1984; Bourgois and Eisenhardt 1988).The single case study approach as used in the presentexploratory study provides great richness and multipleperspectives of the many managers involved with regardto the data collected and is thus largely qualitative innature. Although a single case in the sense that it exam-ines in detail the relationship of a supplier organizationand its buyer, multiple methods were used to collectdata from individuals within two semi-autonomous

strategic business units (SBUs). Unlike positivist research,however, the analysis of case study data is essentiallyinterpretative and inductive. From the qualitative data,narratives or stories are developed that are examined forpatterns. From these patterns, inferences are drawn thatyield propositions and can lead to specific hypotheses.Such hypotheses can then be tested in other situationsand indeed, if sufficiently specific, can be tested via themore traditional survey methods of social science.

A MEASURE OF ORGANIZATIONAL HEALTHWithin the larger study that examined links between

different aspects of organizational health referred to pre-viously, financial indicators were used as the only tangible,objective measure of organizational health. It is acknowl-edged that the use of financial indicators may providean inadequate picture of organizational health. However,in the absence of any other tangible objective measures,they were used as a basis upon which to judge organiza-tional health and select organizations for participationin the research. The financial ratios used to assess sup-plier performance over a four-year period included: returnon capital employed; sales per employee; gross profitmargin; sales per pound of assets; return on sales; theacid test ratio; speed of stock turnover; debtors’ collec-tion period; creditors’ payment period; and return onshareholders’ funds. Taken together, they were consid-ered to provide a relatively comprehensive picture of the

PARTNERSHIP CRITERIA WITH CHARACTERISTICS FROM THE CASE ORGANIZATION AND ORGANIZATIONAL HEALTH

Table I

Partnership Criteria Characteristics from the Supplier Relation to Characteristics of Case Organization Organizational Health

Rationalization and consolidation of the Deep relationship with Company X Trust and cooperation betweensupplier base (Ellram 1991). Improved developed over a period of 10+ years. individuals and organizations (De Vriesand deepened supplier relationships Increased business with Company X. and Miller 1984; Cooper and Williams(Gadde and Hakannson, 1994). High level of contact with Company X. 1994).

Supplier involvement in design and Extensive collaboration in product Frequent meetings and consultationsproduct development (Sako et al. 1994; design and development. (Newell 1995; Miller and Dess 1996).Bonaccorsi and Lipparini 1994).

Bi-directional communications between Extensive bi-directional communications; Extensive inter- and intra-organizationalbuyer and supplier focusing on key telephone calls; faxes; e-mails; meetings. communication across the hierarchyaspects of partnership (Ellram 1991; focusing on the development of rela-Spekman 1988; Williamson and Ouchi tionships, functions, and processes to1981; Richeson et al. 1995). enhance efficiency and effectiveness

(Senge 1991; Pettigrew and Whipp 1991; Heriott and Pemberton 1995).

Focus on supplier development Members of organization worked with Joint decisionmaking in relation to(Leenders 1989). buyer in own and in Company X’s employee development and structural

organization. Structural change to change (Miller and Monge 1986;create alignment of organizational McHugh 2001).structure with that of Company X.

Strategic supplier management Long-term management compatibility. Effective leadership and compatible(Ellram 1991). organizational cultures (Huey 1995;

Johnson 1995; McHugh et al. 1999).



organization’s financial health (Chakravarthy 1986; Wooand Willard 1983). The financial records of the suppliercompany revealed that it had enjoyed high levels of suc-cess for a number of years; these are summarized in TableII. To preserve anonymity, the data have been subjectedto an inflator. Although subject to a degree of competi-tive pressure, the company had performed better thanmany industry rivals (ICC 1998).

ORGANIZATIONAL PROFILESThe supplier organization is a large clothing manufac-

turer in Northern Ireland that employs in excess of 3,000people. The company has three divisions, each of whichoperates as a semi-autonomous strategic business unit(SBU) manufacturing different clothing products for thesame customer, Company X. The latter is a highly suc-cessful large, U.K.-based multiple retailer that has a pres-ence in all large cities and towns in the region. Until themid-1990s, it performed at a consistently high level,returning large profits on an annual basis. The policy of the company has been to establish a partnership relationship with its suppliers, seeking to build deep-ening relationships over a prolonged period of time.This is evident in its trading relationships with suppliersacross a wide spectrum of products.

Within the supplier organization, the majority ofemployees are female operatives engaged in routine production work. Within the organization’s overall divi-sional structure, each of the SBUs had a different man-agement team that worked independently. Furthermore,each was engaged in the manufacture of different prod-ucts and operated a different system of production. Withinthe study, data were collected from units within two ofthe SBUs, the characteristics of which are summarizedin Table III.

Prior to 1992, the company was structured on a func-tional basis. However, at this time, due to gradual expan-sion and growth experienced by the company, coupled

with a desire to respond more efficiently and effectively tothe buyer’s demands, a decision was made to restructureand divide it into three divisions, each of which would berelatively autonomous reporting to company headquar-ters. Company X had a very close relationship with theorganization. This relationship was fostered by daily con-tact with Company X involving people at all levels and alldivisions of the supplier organization. This contact aimedto ensure that the supplier organization responded in apositive fashion to the demands of Company X. Thesedemands were becoming ever more ambitious and aimedto simultaneously achieve higher standards, lower prices,shortening leadtimes, and reduced product cycles.

DATA COLLECTION TOOLSAs part of the study that was concerned with the health

and well-being of individuals and organizations, initiallya stratified random sample of 87 individuals spanningthe organizational hierarchy was selected and asked tocomplete the Cultural Audit and the General Well BeingQuestionnaire (GWBQ) (Fletcher and Jones 1993; Cox

FINANCIAL DATA FOR A FINANCIALLY HEALTHY SUPPLIER ORGANIZATION, YEARS 1-4Table II

Year 1 Year 2 Year 3 Year 4

Return on Capital Employed 25% 18.25% 14.13% 12.43%

Return on Sales 6.13% 5.13% 4.38% 3.94%

Sales per Employee 31,881 31,107 32,581 37,036

Gross Profit Margin 21.25% 22.5% 15.25% 17.25%

Sales per Pound* of Assets 3.06 2.21 2.76 2.7

Current Ratio 1.97 1.15 1.98 2.07

Acid Test Ratio 0.81 1.82 0.57 1.02

Speed of Stock Turnover 6.9 6.73 6.98 8.83

Debtors’ Collection Period 42.25 48.87 25.37 35.4

Creditors’ Payment Period 92.87 156.25 70.5 76.75

Return on Shareholders’ Funds 22.5% 19.25% 17.62% 16.5%

Unit within SBU I Unit within SBU II

No. of Employees 221 235

Product Leisurewear Outerwear

Customer Group One Large Multiple* One Large Multiple*

Structure Divisionalized (SBU) Divisionalized (SBU)

Significant Recent Structural Change Structural ChangeDevelopment

System of Production Modular (Team Assembly LineBased)

Financial Health Healthy Healthy*Referred to in this article as Company X.

SUMMARY PROFILES OF THE PARTICIPATING ORGANIZATIONS

Table III

*This study, conducted in the United Kingdom, employs the British pound (£).



et al. 1987). These are two psychometric instrumentsthat, among other things, provide measures of individualstress and psychological well-being through four sub-scales: “depression,” “anxiety,” “worn out,” and“uptight and tense.” High scores on each of theseinstruments are indicative of high levels of stress andlow levels of psychological well-being.

The findings revealed that a large proportion (40 per-cent) of participants achieved scores on the “depression”and “anxiety” subscales that were indicative of psycho-logical distress. Scores for these individuals on the “wornout” subscale were higher than norms for factory workers.A detailed exposition of the results relating to this aspectof the study is not considered to be within the scope ofthe present article.

Following scoring of the instruments and analysis ofthe data, a series of semi-structured interviews were heldwith a sample of 19 individuals from the two SBUs. Thissample was drawn from the pool of 87 that had com-pleted the psychometric instruments.

For the interviews, six production workers were selectedfrom each of the SBUs; two of these were considered tohave obtained low, medium, and high scores on themeasures of stress and psychological well-being. Theinterview sample also included representatives of otheroccupational groups within the SBUs, including supervi-sors, “quality rovers,” management, and office staff whohad scored highest on the scales within their employeegroup. Those selected were invited to participate in a semi-structured interview with one of the researchers. Theywere told that the interviews were being held as a follow-up to the psychometric instruments and that they wouldaim to obtain individuals’ views and opinions regardingvarious aspects of work life within the organization. Theinterview sample is summarized in Table IV.

These interviews were semi-structured and followedthe same format on each occasion. They aimed to focusinterviewees’ thoughts upon issues considered to be rel-evant to the buyer-supplier relationship and the conceptsof organizational health. In particular, they covered fiveareas aiming to ascertain the views and perceptions ofindividual employees on the health of the organization,focusing on features of the partnership relationship that

existed between the organization and Company X asoutlined previously in Table I. The nature and character-istics of the buyer-supplier relationship were central tothe analysis of the data at this stage in the study.

In addition to the 19 interviews held with those whohad completed the psychometric instruments, one inter-view was held with a member of the senior managementteam within each of the two SBUs. These interviewsfocused upon management’s perceptions regarding com-pany goals and performance, and the approach adoptedwithin the organization in relation to strategic decision-making. Once again, although none of the interviewquestions focused directly on the trading relationshipwith Company X, on each occasion reference was madeto the buyer at an early stage in the interview and exerteda dominating influence thereafter.

RESULTS The interview data was entirely qualitative and the ini-

tial stage of analysis necessitated the identification ofthemes emerging from the views expressed by partici-pants. These themes form the basis of the subsectionsoutlined below. Analysis and interpretation of the inter-view data suggests that each of the participating unitswas unhealthy. This state of ill health appeared to beinfluenced by a number of factors that stemmed fromits relationship with its very powerful buyer, CompanyX. Within each unit, there appeared to be an obsessionwith meeting the ever-increasing demands and unre-lenting pressure exerted by Company X. This is illus-trated in the analysis of results presented below.

Current Organizational SuccessDuring the course of the interviews, the current suc-

cess of the organization was frequently attributed solelyto its link with its core customer. The importance ofCompany X to the company, and the fact that having Xas a key customer is a cornerstone of the company’s suc-cess, was highlighted throughout the interviews. Whilemany interviewees mentioned the close association witha major customer as being a factor contributing to thecompany’s success, two operatives pointed out that thecompany was “very much tied to this customer.”

Pressures Exerted by a Powerful BuyerIn their opinion, it was of paramount importance that

the company managed to satisfy its key customer, butthey noted that the demands and targets being placedupon the company were becoming excessively high andexceptionally difficult to achieve. These demands cre-ated pressures for everyone, but particularly productionworkers who are critical to the organization’s existence,a view which was supported by the scores achieved bythese individuals on the measures of stress and psycho-logical well-being referred to previously. Many individualsachieved scores on these measures that were indicativeof psychological distress.

SBU 1 SBU2

Production 6 6

Supervisors 2 2

Quality Rovers 1 -

Managerial Staff 1 1

Office Staff - 1

Other 1 -

Total 9 10

THE INTERVIEW SAMPLE

Table IV



It was often suggested that manufacturing for CompanyX is a status symbol within the industry, and that otherindustry players perceive the company as a force to bereckoned with. However, during the interviews it becamevery clear that the company as a whole was subject tothe effects of power emanating from its key customer, apower that seemed to infiltrate the company and affectedthe activities of everyone who worked within it. This isillustrated in the comments of a supervisor:

“…our success hinges on the fact that everything is done right and is done to please Company X. X is very hard to please; if the company did nothave Company X, it would be lost.”

Such views were further reinforced by a number ofinterviewees, with one production worker commenting:

“X is a major influence on everything that goes on in the factory. Everything that happens here is geared to meet Company X’s standards and isdependent upon Company X.”

In an effort to cope with the intense competition andthe threat posed by the customer being lured by seem-ingly more advantageous trading arrangements withalternative suppliers, it was evident that the organiza-tion had focused its attentions on achieving efficiencygains where possible. This was highlighted in particularby the comments of senior managers interviewed. As aconsequence of the constant drive toward the achieve-ment of enhanced efficiencies, it was the opinion ofthese managers that employees on the shopfloor weresubject to ever more ambitious production targets andever-increasing workloads. They suggested that theseworkloads were reaching unreasonable proportions andwere a source of enormous pressure for individuals. Assuch, it would seem fair to argue that such dependenceon one buyer that fosters customer domination is likelyto be unhealthy for an organization. This atmospherecreates a high-dependency relationship and shields thesupplier organization from any direct impact of changein the environment.

Powerless Managers The quality of top management and the leadership

provided within the organization was heavily criticized,indicating an unhealthy management style which itmay be argued was fostered by the relationship with itspowerful customer. Furthermore, it may be argued thatthis unhealthy management style adversely affected thewell-being of employees; this is reflected in the levels ofstress exhibited by individuals and the views and opin-ions expressed during interviews. Management at thelevel of the division was generally held in high esteem.However, the top management team within the com-pany was considered by divisional managers interviewedto be an impediment to enhanced organizational perfor-mance; for example, one individual commented:

“There are people at senior levels who, I think,have a detrimental effect upon the company. Youget the impression that no one knows where we are going; if they do, they haven’t told us. Thereare two people at senior levels I respect; the others I am not so sure about, they don’t listen.”

These interviewees frequently cited the confused visionof the chairman and the rather insular views of the seniormanagement team as being problematic. Thus, the visionheld by the top management team seemed full of lifelessplatitudes and devoid of personality (Miller and Dess1996); it did not appear to have a solid, well-foundedpoint of view about what would make the business suc-cessful in the future (Hamel and Prahalad 1994). Theauthors contend that such leadership behavior is sym-bolic of poor organizational health and stifles necessarycreativity for organizational success in intensely com-petitive environments (Senge 1990; Huey 1994; Hameland Prahalad 1994).

The Stifling Influence of a Powerful BuyerThis again may be partly attributed to the relationship

with a powerful buyer that stifled the individuality of thecompany and its leadership. It was shielded from changesimpacting its external environment, being cocoonedand lulled into a false sense of security. Simultaneously,it was being squeezed to an extent beyond that whichfosters maximum performance and health. Thus, althoughit may be argued that the existing state of ill healthwithin the organization stemmed from its relationshipwith its very powerful buyer, this in turn may be influ-enced by the apparently weak leadership within thecompany. It was this leadership that led the organiza-tion into such a relationship in the first place. It may beargued that, once committed to this customer, the roleand function of leadership within the organization wasoverwhelmed by the power and influence exerted bythe customer. Such features of a trading partnership aredecidedly unhealthy and, it is argued, work to the detri-ment of the buyer and the supplier. This view is furthersupported by recent financial performance data forCompany X and the case organization. Both organiza-tions have reported major falls in turnover and profitsover the last two years. Additionally, share prices forCompany X have shown a significant decline and bothorganizations have introduced large-scale layoffs as partof a restructuring program.

The behavior of the organization and its leadership isindicative of low self-esteem, whereby both were seem-ingly trapped in a trading relationship where they werepowerless to act and appeared to have little control overtheir own destiny. The organization was more or lessacting as a puppet whose strings were very tightly con-trolled by a possessive buyer.



Powerless OperativesDuring the course of the interviews, it was evident that

lack of participation in decisionmaking was a source offrustration for those in operative positions. These indi-viduals often found themselves implementing decisionsthat they knew were flawed and costly for the organiza-tion. This lack of participation appeared to be fosteredby the often chaotic state that existed within the orga-nization as a result of having to respond very rapidly tosudden buyer demands. As a consequence, the sense ofurgency that prevailed within the units did not permitthe necessary time to involve key individuals in thedecisionmaking process. These individuals often suggestedthat management should have consulted with them dueto their in-depth technical knowledge. Operatives feltthat they could make valuable, worthwhile contributionsand hence, often enhance the quality of decisions. Healthyorganizations foster employee involvement in routinedecisionmaking, which is believed to contribute indirectlyto enhanced organizational performance (Newell 1995;Miller and Monge 1986). Similarly, the lack of employeeparticipation in routine decisionmaking was yet anothersymptom of organizational ill health fostered by the linkwith a demanding buyer.

While lack of consultation was evident in the deci-sionmaking practices within the organization, it alsoextended to significant events affecting the companyand its employees. Such events included, for example,the divisionalization of the organizational structure. Theinfluence of Company X extended to the organization’sdecision to adopt a divisionalized structure, with oneinterviewee saying:

“…it was better from Company X’s point of view. X is divisionalized internally in the sense that eachdepartment supplied in X acts as a division, so itwas easier for them to relate to and work with divisions here.”

The lack of consultation concerning structural changeleft many individuals unsure of how they would beaffected by the events, and somewhat annoyed thattheir opinions were not sought regarding decisions thatwould change their roles and responsibilities within theorganization. This is reflected in the comments of oneindividual who said:

“There was a lot of unhappiness in the companyabout the way things were done. A lot wasexpected in a very short time; there was littlepreparation or support.”

The poor quality of communication symbolized by thisbehavior is another feature of organizational ill health.As noted previously, the decision to divisionalize wasmade partly so that the company could respond moreefficiently and effectively to its customer. Divisional-ization represents a major change for any organizationthat requires careful management to ensure a successfultransition to the new state. However, in this case the

structural change was effected within a very short time-frame with apparently little or no consultation with keyindividuals or groups.

Strategic DecisionmakingPoor communication also seemed to characterize the

strategic decisionmaking practices within the organiza-tion, which weakened the strategy and its implementa-tion. The units participating in the study indicated theirlack of awareness of the company’s strategy and plan forthe future; this was particularly evident in the commentsmade by the senior manager within one of the unitswho stated that:

“…in terms of how we operate, you try and get bitsof information and piece it together like a jigsawand form a strategy for the factory from this.”

As a consequence, these individuals were placed in aposition whereby they formulated a workable plan fortheir own operating unit. Lack of communicationregarding something so fundamental to the organiza-tion as its strategy is evidence of management and orga-nizational behavior likely to contribute to a state of illhealth for the organization and the individual.

DISCUSSION AND CONCLUSIONSThis exploratory case study reveals the effects that a

powerful buyer can have upon the behavior of a sub-missive supplier organization. The characteristics of therelationship that existed between the organizations inthis article may be considered strong barriers againstbuilding effective relationships between buyers and sup-pliers. In particular, the findings reveal a distinct lack ofinternal collaborative or cultural alignment betweenlevels of the organizational hierarchy within the supplierorganization. Such alignment is cited as a necessaryingredient in successful buyer-supplier collaboration(Kanter 1989; Burnes and New 1997; Boddy et al. 1998).Given the lack of internal collaborative or cultural align-ment within the supplier organization, it will be evenmore difficult, if not impossible, to create the necessarycultural alignment between buyer and supplier. On thebasis of the evidence presented within this article, thenature of the relationship that existed between the orga-nizations may have negatively reinforced the formationof cultural alignment.

The behaviors exhibited by this supplier organizationare indicative of a state of ill health and an organizationthat is being severely squeezed by its powerful customer.The supplier was originally selected to participate in thestudy because of its previous financial performance.However, it is posited that on some occasions an organi-zation may accumulate wealth as a result of engaging in“unhealthy” practices that are short-sighted and likelyto adversely affect longer-term well-being. Some supportfor this view is provided by the financial data for thesupplier organization (see Table II). Based upon litera-ture on buyer-supplier partnerships and organizationalhealth, this would seem to be a logical conclusion. It is



acknowledged, however, that this case study is essentiallyexploratory and that further support for the argument islikely to be provided by a longitudinal study that includesoperational issues such as quality levels, throughput rates,yield rates, and work-in-progress.

The organization that formed the focus of this articleappears to be caught in a trap presented by its sole cus-tomer where the power exerted by the latter would seemto be a major contributor to organizational ill health.This is reflected in the declining financial performance ofthe buyer and supplier organizations, the restructuringprogram, and reports of conflict in senior managementwithin Company X.

Although involved in a trading partnership, the cus-tomer is powerful and in a position to withdraw fromthe relationship should a more favorable supplier pre-sent itself. This is counter to the cooperation and trustof the partnership relationships referred to by Sako (1992).While locked into serving this customer, the organiza-tion’s total efforts are directed toward meeting the evermore stringent demands of the customer. As a conse-quence, the customer, in effect, prevents the organiza-tion from scanning its external environment. This againis decidedly unhealthy and would suggest that the com-pany is unable to make decisions crucial to their ownbest interests. Without the constraints imposed by sucha dominant customer, the company would have had thefreedom to choose its own direction and the means bywhich it would pursue its own goals. This aside, how-ever, given the comments regarding the quality of lead-ership and the characteristics of the senior managementteam within the organization, one must question if theorganization would have been well placed to identifyappropriate goals and implement optimal methods ofgoal achievement.

The influence of Company X was omnipresent and alldevelopments, decisions, events, and activities that tookplace within the organization were a response to theendless stream of demands made by the buyer. The inter-views revealed that these demands were reaching unrea-sonable proportions and so it would seem that the levelof influence, power, and control exerted by the buyerwas in itself unhealthy, and was fostering a state of illhealth within its trading partner. Thus, the supplier wastrapped in the middle of the vicious spiral of negativityreferred to previously. While this has potentially disas-trous consequences for the supplier organization, it isequally likely to have a negative effect upon the buyer.If the supplier organization is itself in a stressed situation,its resultant behavior manifests itself in ill-conceived,time-urgent decisionmaking, poor management practices,and frustrated employees who are constantly underpressure to meet overly ambitious targets. It follows thatsuch behavior is likely to have negative repercussionsfor the buyer.

In the interests of fostering a state of organizationalhealth, the arguments put forward and findings presented

highlight a need for buyer and supplier organizations tocarefully examine the nature and characteristics of thepartnership that exists between them. Given the well-established principle that excessive pressure leads todwindling performance (Yerkes and Dodson 1908), it isimportant that buyers and suppliers heed this advice.Thus, there must be knowledge and understanding byboth buyer and supplier of the pressure performancerelationship, and the identification of the point of optimalbuyer pressure so as to achieve maximum performance.

As noted in the introductory section of this article,although a powerful partner may be tempted to flex itsmuscles by exerting excessive pressure on its suppliers, it should be aware that such behavior may be costly toitself in the longer term and may lead to unwanted con-sequences. Not only is it likely to destroy a happy mar-riage, but it could sow the seeds of its own self-destruction.Building upon the pressure performance relationshipoutlined by Yerkes and Dodson (1908) referred to above,the link between excessive buyer pressure and buyer-supplier performance is demonstrated in Figures 1 and 2.

The evidence presented within this article indicatesthat the nature of the relationship that existed betweenthe buyer and supplier organizations is such that thepowerful buyer has in fact squeezed the submissive sup-plier to such an extent that the effects are harmful toboth sides of the relationship. In terms of the diagramspresented, the pressure exerted by the buyer on the sup-plier has gone beyond the optimum point, leading to adecline in performance.

The findings presented highlight a number of issuesthat have implications for management practice in fos-tering improved organizational health within buyer andsupplier organizations. More specifically, it would seemthat in order to reap the benefits of partnership, buyerand supplier organizations must interact in a way that ismutually respectful, and where the relationship exhibitscharacteristics of true win-win partnerships; this supportsthe underlying principles of partnership outlined byLamming (1993). To facilitate effective strategy imple-mentation, it is imperative that the “right” relationship is established between buyers and suppliers. This high-lights a need for strategic and cultural alignment betweenbuyer and supplier and a rejection of behavior and prac-tices that aim to selfishly satisfy individual componentsof an organizational network as described by Cox (1996).

It would seem essential that communication structuresthat promote dialogue, consultation, and employee par-ticipation in decisionmaking be promoted. This is par-ticularly important where decisionmaking could benefitfrom the in-depth technical knowledge of middle andjunior managers and shopfloor workers. The findingsshow that senior management within the companyhave made a strategic decision to supply solely toCompany X. Strategic decisionmaking within the com-pany appeared to be “inward-looking and closed,” influ-enced only by the views and opinions of a small team



at the apex of the organization that had poor under-standing of the market. The latter was perhaps itselfindicative of fundamental organizational weaknessesconcerning issues of leadership that led to the com-pany’s dependence upon one customer. The viewsexpressed by those at the middle management levelwould suggest that while they might question thewisdom of senior management decisions, they wereplaced in a position whereby they had to implementstrategy without having full information.

The findings presented suggest that in creating andfostering a state of health, supplier organizations mustaim to move away from a position of domination by a single customer, where they are under the spell of apowerful buyer. If the latter is unavoidable, then it isessential that the consequences of being caught in atrap set by a powerful buyer are acknowledged, with theorganization’s leadership and management seeking todevelop contingency plans and strategies, and/or fos-tering the creation of a more equitable and symbioticpartnership. Consequently, the supplier organizationwill become a more active player that takes increasedcontrol over its own destiny, rather than being a passiverecipient that seems powerless to change circumstancesthat appear to shape its behavior, and ultimately its performance.

This article has presented some findings from what isessentially the first stage in a long-term research programfocusing on the nature and characteristics of buyer-supplierrelationships and their relationship to organizationalhealth. In developing the work further, the propositionspresented are likely to be strengthened by future plannedwork that will adopt a more quantitative approach,employing a survey methodology to test the relationshipbetween buyer-supplier relationships and organizationalperformance measures. While this provides an indicationof the direction of future research work, it is argued thatthe present article presents a new and hitherto unex-plored way of conceptualizing the buyer-supplier rela-tionship and implications for organizational well-being.

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Levels of Pressure

THE PRESSURE/PERFORMANCE RELATIONSHIP

High

High

Low

Low

Optimum pressure point

Performance

Figure 1

Supplier

Ability toSatisfy Buyer

Demands

Levels of Buyer Squeezing

THE BUYER SQUEEZING/SUPPLIER RESPONSE RELATIONSHIP

Optimum pressure point —“ideal“ buyer-supplier relationship

Case organizationand Company Xlie to this side

High

High

Low

Low

Figure 2



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OBJECTIVEThe Summer School is intended to serve the following objectives:

• to help participants define relevant research topics and pow-erful research methods;

• to provide a forum for talented young scholars from variousregions of the world to exchange ideas and establish a researchnetwork;

• to promote the profession of purchasing and materials manage-ment by contributing to the creation of high standards for dis-sertations by the participants.

PARTICIPATIONParticipants may come from any country provided that they meet

the following requirements. They must be:

• enrolled Ph.D., postgraduate (or advanced graduate) students ofan accredited institute of higher education;

• in the process of writing a dissertation based on original researchon purchasing or a closely related area (materials management,logistics, supply chain management, etc.);

• fluent in English and willing to take an active part in discus-sions in that language;

• able to present a letter of recommendation from one regularfaculty member of the institution they are enrolled in.

A strong preference will be given to those students who can pre-sent a paper for discussion at the summer school. The paper mustbe mailed to the School Secretariat not later than June 15, 2003.

Applications should be sent to the IFPMM Summer SchoolSecretariat and the national member associations of IFPMM in thecountry where the applicant is enrolled in school. Applications fromthose countries where such association does not exist can be sent tothe School Secretariat only.

Applications will be processed in the order of arrival to the SchoolSecretariat, and the first 20 applications meeting the above require-ments and considering the said preference will be accepted.

PROFESSIONAL PROGRAMThe professional program starting on August 7, 2003, will consist

of four elements:

1. Presentation and discussion of research subjects delivered byinvited speakers. These sessions will be directed by internationallyacknowledged scholars, who will present a topic on his/her ownresearch field and discuss with the students possible approachesand methods to handle the subject. Invitations are in progressand a full list of speakers will be released in May.

2. Presentation and discussion of research papers prepared by theschool participants. Papers submitted will be distributed amongparticipants and the discussions will be led by invited professors.

3. Practitioners’ presentations of hot issues in purchasing and relatedmanagement areas. These presentations shall be of orienting typeand will be given by invited speakers.

4. There will be some methodological discussions and group exer-cises, in order to help the participants’ research and teachingskills.

PARTICIPATION FEEIFPMM is the main sponsor of the project, but contribution is

expected from other organizations as well. This assistance makes itpossible that the participants only have to pay a nominal fee: CHF1000. This fee should be sent to the bank account of ISIR/HALPIM,account number: 501-00219-2100-4029 Hungarian Foreign TradeBank Ltd., H-1821, Budapest, Váci u. 38., Hungary. The participa-tion fee includes accommodation (in single rooms with shower),three meals a day (starting with a dinner on Wednesday, August 6,ending with lunch on Monday, August 11), refreshments and allmaterials. Travel, extra nights and extra costs for a double roommust be arranged and paid for individually. Please note: the profes-sional program starts in the morning of August 7.

In exceptional cases, applicants can apply for a reduced participa-tion fee. This application should be sent both to the national memberassociation and the School Secretariat.

The first IFPMM Summer School was organized nine years ago. Seeing the success of the first event, the Federationdecided to arrange annually this opportu-nity for an intensive working together of talented young scholars from all around theworld, with some of the leading professors of the field.At the seven schools we have had 88 students from 21 coun-tries in Europe, North America, Asia, and Africa. Three vol-umes of the papers presented by students participating in

the first six schools have been publishedby IFPMM under the titles:

– Emerging Issues in Purchasing andSupply Chain Management (1997)

– Research Perspectives in Purchasing andSupply Chain Management (1999)

– Purchasing and Supply Topics at theTurn of the Millennium (2001)

All the seven schools were organised in Salzburg, whichhas proven to be an ideal location for the event.

International Federation of Purchasing and Materials Management

9th IFPMM Summer School on Advanced Purchasing ResearchAugust 6-11, 2003, Salzburg, Austria

Contact for information: Professor Attila Chikan • Past President of IFPMM • c/o HALPIM Secretariat • Veres Pátné u. 36.,Budapest, Hungary, H-1053 • Phone and Fax: (36-1) 317-2959; 266-4673 • E-mail: [email protected], [email protected]

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Buyer-Supplier Relationships and Organizational Health