Relationships in the Business Supply Chain

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Abstract

Supply management is an important part of modern business, and it is essential to establish adequate relationships between the buyer and the supplier within the supply chain. The concept of supply chain management is described in brief, and more attention is given to the supply chain relationships. This paper explores the main aspects of the interaction between the buyer and the supplier and is aimed at identifying strategies and solutions to manage these relationships. Divided into several parts, the paper focuses on the main factors influencing supply chain relationships, such as trust, commitment, and interdependence, in detail. Some controversial factors are described from different perspectives; the real-life examples of such factors influencing strategies of certain companies are also included. In the conclusion section, the paper determines the preferred supply chain relationship strategy explaining the corresponding reasons.

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Keywords: buyer, supplier, supply chain, relationship strategy.

Relationships in the Supply Chain

Nowadays, it is impossible to imagine successful trade deals without proper supply chain management. In all logistic and production processes, it is highly important to plan and manage the information concerning materials, products, and services. Moreover, a stable and effective supply chain relationship between the buyer and the supplier has an impact on the overall performance of companies in the market. In the following research, different factors influencing the supply chain relationships will be analyzed in brief. The aim of this research is to determine the most appropriate supply chain relationship strategy using examples and reliable sources.

Trust as a Foundation of Successful Relationships

The supply chain is the term that describes “supply-related activities across multiple functions and organizations” (Nakano, 2019, p. 3). To be precise, the concept of the supply chain includes different activities or stages that the buyer and the supplier are involved in during their business deal: procurement, production, sales, and logistics (Nakano, 2019). Proper supply chain relationships define the result of such collaboration, as they are essential in conducting business deals. In order to achieve mutual benefits, the buyer and the supplier need to communicate and work together; therefore, trust is considered a vital factor that influences the relationships of the two parties.

The formation of the relationships within the supply chain starts before the immediate interaction of the participants. The proper market research is vital in the early stages of supply because it allows organizations to eliminate the suppliers that they think are unstable or do not correspond with their needs (Wilson, 2018). Then, after analyzing the suppliers present in the specific market segment, the organizations may concentrate on the trustworthy suppliers that are ready to establish stable long-term relationships.

Long-term stable buyer/supplier relationships usually depend on the quality and the performance of the parties. Researchers claim that effective communication between the parties helps avoid misunderstanding and achieve a high level of performance (Management Association, Information Resources, 2017). Therefore, it is important for both the buyer and the supplier to build confidence in each other’s participation in business processes and gain the reputation of being credible. In this case, the interaction between the parties would be simplified, and more long-term goals could be achieved.

Dependence or Independence?

Supply chain relationships are the ways in which the parties of the chain interact with each other for mutual benefit. Therefore, it is important to understand that it would be fair for both parties to be equal in such relationships. According to Mandt (2019), equality is the basis of healthy and productive interaction within the supply chain; both the supplier and the buyer should be able to make decisions and influence further collaboration. On the contrary, the domination of one party over another can lead to disagreements and misunderstandings.

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One of the examples of such effective relationships is competitive relationships. Such kind of interaction was suggested by Rao (2017), who described it as the independent interaction connected with the power of a chain participant in the market. These relationships usually exist in the conditions of perfect competition, which means that there are a lot of alternatives for one of the parties to choose from. It is the goal of many suppliers; in the case of being successful, they would be able to choose the buyer they would like to collaborate with. Within such relationships, there are no significant expenses, as it is always possible to find a business partner without considerable investments. One party is not interested in another party’s strategy, as it is mainly focused on its benefit (Rao, 2017).

However, sometimes it may happen that one party starts to abuse the powers of another party. Such relationships are considered ineffective; they ruin trust and honesty between the participants, which may lead to expenses. Therefore, as many analytics suggest that interdependence is the best way to benefit from the collaboration mutually.

Commitment

Commitment is another important factor that influences buyer/supplier relationships. This aspect is closely connected to motivation, as the effectiveness of a participant’s performance can influence the power of its business partner. Therefore, it is important for both the buyer and the supplier to improve their performance and quality of work. In this case, the party would attract the partners by its readiness to contribute to building stable supply chain relationships. Feeling important in interaction can be vital for the suppliers as it may influence their motivation and eagerness for further work (Mandt, 2019). Therefore, it is possible to emphasize the importance of proper marketing research again. Understanding the partner’s business philosophy, values, and authority can be crucial when deciding about partners to collaborate with (Wilson, 2018). It would allow eliminating the companies that are not ready to represent commitment and mutually motivate their supply chain partner.

What is the Appropriate Strategy?

All things considered, it is possible to conclude that maintaining effective buyer/supplier relationships can be challenging for both parties. The process demands equal effort from all the participants of the supply chain, and the main factors are considered to be mutual trust, interdependence, and commitment. It is important for both parties to define their possible collaboration goals. They also need to work on their performance in order to create the reputation of credible and trustworthy organizations and attract partners for effective collaboration. It is essential that the buyer and the supplier form confidence in each other to avoid any conflicts and misunderstandings that can emerge (Management Association, Information Resources, 2017). Such trust can be achieved through constant communication, mutual support, and even sharing technologies used in the business process.

It is also important to understand that the commitment and the company’s authority can significantly influence its relationships with a supply chain partner. By describing the factors determining the effective supply chain strategy, Rao (2017) mentions the stability of possible buyer-supplier relationships, competition, connectivity, negotiation power, etc. In order to make the crucial factors more understandable, it is possible to use the example of the Toyota company and its relationships with the suppliers. Toyota is a large company that works on the international level, and therefore, has significant negotiations power (Brondoni, 2018). It successfully operates in the world market and follows the Japanese type of management, aiming at long-term business relationships with its partners and suppliers. All factors considered, Toyota is likely to have effective business relationships with material and tools suppliers, as it has much authority and is aimed at stable relationships with its partners. To conclude, this example illustrates that successful market performance and attention to the relationship factors can make a company profitable and successful on the international level.

Conclusion

The possible supply chain relationships can be different depending on the aims and focuses of the parties involved. For example, some companies prefer to take advantage of others for their own benefit; however, such a strategy is considered ineffective. On the contrary, mutual trust and interdependence are key factors of successful buyer/supplier relationships. Some more economically-related aspects, such as the type of the product, the number of competitors on the market, are also important. The possible duration of business relationships, the negotiation power of the company, the commitment and knowledge, effective communication, and mutual help are also the key characteristics of perfect interaction in the supply chain.

Due to the inefficiency of the dependent relationships approach, the strategies of interdependence are preferred by the majority of market researchers, as they appear to be more beneficial for the parties. When choosing between different supply chain relationships strategies, it is important to take all the factors into account and conduct proper marketing research. It is possible to suggest that, in addition to the clear understanding of the company’s goals, the said factors may influence the supply relationship strategy choice and have an impact on the overall performance of the company.

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References

Brondoni, S. M. (Ed.). (2018). Competitive business management: A global perspective. Turin, Italy: Routledge.

Nakano, M. (2019). Supply chain management: Strategy and organization. Singapore, Republic of Singapore: Springer.

Rao, C. B. (2017). Competitive strategy. Chennai, India: Notion Press.

Wilson, A. (2018). Marketing research: An integrated approach. London, UK: Red Globe Press.

Management Association, Information Resources (2017). Operations and service management: Concepts, methodologies, tools, and applications. Hershey, PA: IGI Global.

Mandt, T. (2019). Dependence in buyer-supplier relationships. Wiesbaden, Germany: Springer.

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BusinessEssay. 2022. "Relationships in the Business Supply Chain." January 17, 2022. https://business-essay.com/relationships-in-the-business-supply-chain/.

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