Faced with increasing costs, increasing
customer demands and increasing competition, most companies – whether
manufacturers or service providers – look to their suppliers to help them
overcome these challenges. Traditionally, adversarial tactics to quickly
achieve lower purchasing costs and translate the savings into bottom-line gains
have been a common approach. Indeed, the ease with which price reduction
pressure can be applied to suppliers and the certainty of its results makes
this an attractive option.
However, many firms – albeit a minority – are forsaking the adversarial
approach. They believe that more benefits result from co-operative, rather than
adversarial, supplier relations, and have been developing trusting supplier
relations in an effort to achieve a "best-in-class" competitive
position. These firms are reluctant to initiate price reduction pressures on
their supply base, however slight, because they are concerned that increased
pressure will adversely impact their overall supplier relations. Considering
the time and effort it takes to achieve trusting co-operative supplier
relations, such concern is understandable. At the same time, some of these
firms have expressed concern that they might not be getting price reductions
equivalent to what these same suppliers are giving competitors that follow an
adversarial approach.
Both sets of firms believe they are faced with a dilemma. Firms with
trusting supplier relations believe they will lose the benefits of co-operative
supplier relations if they arbitrarily demand price reductions from suppliers.
While firms taking an adversarial approach believe they will not get the lowest
possible prices from their suppliers if they take steps to develop co-operative
supplier working relations. The issue for businesses today is how to deal with
these apparently contradictory perspectives. In other words, can a firm have
co-operative supplier working relations while pressuring the same suppliers for
lower prices?
To answer this question, Professors
John Henke,
The implications of these findings have profound impact for managerial
actions. They found that with the appropriate degree of attention paid to the
actions associated with “Buyer communication and information sharing with
suppliers” and “buyer commitment to suppliers” management can neutralize the
negative impact of price reduction pressure on the firm's working relations
with its pressured suppliers.