Cooperative Exchange: Rewards and Risks

While cooperative buyer-supplier relationship are becoming increasingly popular, barriers to their successful implementation exist. This research examines the dual nature of cooperative exchange as an important obstacle that may hinder buyers and suppliers in achieving all the potential benefits of cooperative exchange. This article presents and discusses the results of research that examined the attitudes of mid-level purchasing personnel in the aerospace and electronics industries toward such cooperative arrangements. COOPERATIVE EXCHANGE: REWARDS AND RISKS The increasing popularity of cooperative manufacturer-supplier relationships is receiving significant attention in the current purchasing literature. [1] A dominant theme emerges from an examination of the literature. Long-term cooperation appears to produce more net benefits for the exchange partners than are available from traditional competition-based arrangements. These benefits often enhance the competitive position of both the manufacturer and the supplier, resulting in a win-win situation. From the perspective of the buying firm, cooperative relationships have been linked to quality improvements, cost reductions, enhanced product differentiation, maintenance of a stream of technologically current products, and strengthened service capabilities. [2] While attention has been focused on the potential benefits of cooperative buyer-supplier relationships, there is also an undercurrent in the literature that recognizes possible drawbacks to these types of arrangements. While most authors hint at potential drawbacks, others emphasize the drawbacks' possible importance. [3] The following two quotes illustrates this theme. In discussing Japanese subcontracting, one author makes the following strong statement: The current rash of Western business fads for win-win negotiating, profit partnership.and sundry other expressions of the cooperative approach may appear to be a trifle foolhardy. [4] In the context of a just-in-time exchange environment, another group of researchers suggests that: These specialized investments and the high level of functional interdenpendence between the firms lead to a relatively "high risk" exchange from both the OEM's and supplier's point of view, especially if the OEM uses sole-sourcing for the part/material. [5] The purpose of this article is to be explore this theme and to discuss of research project that examined attitudes held by mid-level purchasing personnel toward cooperative buyer-supplier relationships. The discussion is divided into three parts. First, dual nature of cooperative relationships is examined. Second, the data collection procedures are described and the results are presented based on data gathered from a sample of mid-level purchasing personnel in selected aerospace, electronics, and defense contracting firms. Third, managerial and research implications are highlighted. THE DUAL NATURE OF COOPERATIVE BUYER-SUPPLIER RELATIONSHIPS While there is general agreement that the movement toward longer term cooperation between buyers and suppliers is gaining momentum,[6] these types of relationships are not without risk. There is no guarantee that exchange partners can successfully manage these types of relationships to produce mutual competitive advantage. The primary reason for this threat is that the dimensions that characterize close working relationship also provide both increased opportunity and increased incentive for opportunistic behavior. [7] In this context, the most relevant dimension is the irreplaceability of one's exchange partner. This can be attributable to the transformation process, which occurs as a buyer and a seller enter into arrangements that would be difficult to duplicate readily with other exchange partners. [8] Of particular importance are investments that are made specifically to support a particular exchange relationship, and that have value only in the current usage situation. …