Determinants of Source Loyalty in Buyer-Seller Relationships

Determinants of Source Loyalty in Buyer-Seller Relationships A significant change is occurring in the way a growing number of organizations manage their input acquisition strategy. Some purchasing managers are being asked by their organizations to shift from the more traditional "arms-length" relationships with their suppliers to a newer, closer, "relationship-building" approach. While both practitioners and academicians are interested in this new focus on buyer-seller relationships, as evidenced from their writings in the trade and professional journals, much of the early work has been descriptive and conceptual. Empirical evidence appears to be limited concerning some of the characteristics of this new type of relationship - for instance, the factors that contribute to source loyalty or the association between relationship length and loyalty. This article develops hypotheses about these and other issues relating to these close relationships and tests them in two different settings. The results provide useful insights into the changing nature of buyer-seller relationships. INTRODUCTION Anecdotal evidence continues to mount suggesting that U.S. firms are reducing the number of suppliers they use in an attempt to build closer ties with fewer, more trusted suppliers. For instance, in the apparel industry, clothing makers like Haggar and Wrangler are using a system called "linkage" to work closely with textile manufacturers to eliminate redundant quality inspections and warehousing and inventory costs. [1] The main benefit of these collaborative relationships to buyers appears to be that they offer cost savings and more flexible use of assets, without the fear of nonperformance or opportunistic behavior by suppliers. Additionally, the increasing globalization of markets has resulted in a renewed focus on quality, as well as costs, and flexibility to meet the international competition. Increased use of off-shore suppliers and innovations like the just-in-time procurement system are resulting in a reevaluation of the traditional "arms length" relationships between buyers and suppliers. A number of researchers point out, for example, that in order for just-in-time relationships to be mutually beneficial, close coordination of inventory and production management systems between buyer and supplier is necessary. [2] In this rapidly changing landscape, buyer-seller relationships are undergoing some very significant changes. Much of the early work in the area focused on the analysis of "a single discrete purchase"[3] or on "discrete" transactions. [4] Williamson, however, pointed to the inadequacy of this type of approach, in explaining many business relationships which are characterized by repeated and frequent interactions between the buyer and seller, against the possible backdrop of an increasingly collaborative relationship. [5] Although the notion of collaboration is only slowly being incorporated into research in this field, some research investigating this new "relational exchange" has appeared. [6] According to one research team, most of this research, however, is conceptual in nature, and there is very little empirical research that has investigated these close buyer-seller relationships. [7] This study proposes to offer some empirical evidence by studying some of the antecedents to, and outcomes of, collaborative buyer-seller relationships characterized by mutual commitment to the relationship. The next section begins with a review of the existing literature. This discussion forms the basis for the hypotheses to be tested, which are presented in the subsequent section. This is followed by a description of the data collected, the measures used, and the results of the hypotheses tests. Finally, some conclusions and implications are offered. ANTECEDENTS TO COMMITMENT Buyer-seller relationships characterized by mutual commitment are those in which there is close collaboration, a long-term cooperative orientation, and mutual trust. …