The Effects of the Economic Downturn on Interdependent Buyer–Supplier Relationships

Published date01 September 2014
Date01 September 2014
The Effects of the Economic Downturn on Interdependent
BuyerSupplier Relationships
Daniel Krause
and Lisa M. Ellram
Colorado State University
Miami University
The management of strategic buyersupplier relationships is a critical concern for sourcing managers. The selection of key suppliers and
how relationships with these suppliers are managed and incentivized can dramatically affect the buying companys performance. While the
extant literature focusing on industrial buyersupplier relationships is signicant, the severe economic downturn beginning in 2008 tested
buyersupplier relationships in unprecedented ways, yielding new insights. The research presented in this paper uses dyadic cases to investigate
transformations within industrial relationships during the economic downturn. Propositions are formulated that focus on why and how rms
responded to the downturn. Three primary types of relationships are identied. The results indicate variation in the ways buying companies
managed their key supplier relationships during the downturn: some rms behaved more cooperatively and found ways to jointly confront the
effects of the downturn, while others responded by behaving competitively to maximize their individual outcomes. The results further suggest
that researchers need to revisit existing models of relationship development and dissolution to understand how these relationships evolve or
devolve. The research also raises questions about the value of physical and human asset specicity, and social investments in curtailing opportu-
nistic behavior in times of severe economic stress.
Keywords: buyersupplier relationship; strategic sourcing; adaptation; interdependence; economic downturn
The economic downturn that began during the fall of 2008 sig-
nicantly affected many companiesrevenues, with some rms
reporting decreases in sales of 30% and more (Tracy 2011).
Many companies dramatically reduced purchases, cut inventories,
and laid off employees, while others temporarily closed or went
out of business. These dramatic effects of the downturn pre-
sented signicant challenges for companiessupply chains and
provide the impetus for the present research: to investigate the
effects of the downturn on companiesrelationships with their
most important suppliers, and to understand the contributions
these relationships make to buying rm performance.
During the past 20 years, researchers have increasingly
focused on cooperative buyersupplier relationships as a source
of competitive advantage. Many companies moved away from
short-term contracting for important purchased inputs to rely on
key suppliers to achieve competitive advantage (Sako 1992; Choi
et al. 2002). Previous research has shown that decisions made by
sourcing managers in the selection and retention of suppliers,
manifest the purchasing functions competitive priorities, and
reect the competitive priorities of the rm itself (Krause et al.
2001). Thus, managing key buyersupplier relationships and pro-
viding incentives to achieve specic goals is a critical aspect of
strategic sourcing, and an important way for sourcing depart-
ments to contribute to achieve a competitive advantage (Melnyk
et al. 2010).
Previous research indicates that rms can gain signicant advan-
tage when they combine their resources with other rms in unique
ways (Dyer and Singh 1998; Gulati and Sytch 2007). However,
previous research also shows that customersupplier relationships
can be fragile; affected by changing technologies, changing market
preferences, macroeconomic events and cycles, uncertainty and
risk, these relationships may dissolve. Although the extant litera-
ture has covered buyersupplier relationships in signicant detail,
one aspect that is predominantly missing is how these industrial
relationships fare under conditions of severe stress. For example,
Dwyer et al. (1987) provide a comprehensive model of the rela-
tionship development process and Wilson (1995) builds further
upon the previous effort, but these models are primarily focused on
relationship building, and not relationship dissolution or regres-
sion. The economic downturn of 200809 presented an opportu-
nity to study buyersupplier relationships in times of severe stress,
when they might be subject to dissolution or regression.
The results of this study indicate signicant changes in these
industrial relationships. Some relationships in this study emerged
stronger after the economic downturn. Others survived, but
emerged more adversarial. Buying rms that had cost as a com-
petitive priority prior to the downturn appear to have been better
prepared to handle the downturn than rms that changed compet-
itive priorities in response to the downturn, for example, from
innovation to cost. We seek to examine and explain the differing
effects of the downturn on these key relationships. The primary
questions driving the present research include: What were the
effects of the economic downturn on self-reported interdepen-
dent, collaborative industrial buyersupplier relationships? As a
result of the downturn, did the two partiesinterests become
more convergent or more conicted? Did relational investments
such as physical and human asset specicity, and social invest-
ments prevent opportunistic behavior? What factors inuence
interdependence in strategic sourcing relationships?
Corresponding author:
Daniel Krause, Professor, Operations and Supply Chain Manage-
ment, Department of Management, College of Business, Colorado
State University, 217 Rockwell Hall, Fort Collins, CO 80523, USA;
Journal of Business Logistics, 2014, 35(3): 191212
© Council of Supply Chain Management Professionals
In the following sections, we examine the buyersupplier liter-
ature, managersperceptions of these relationships during the
downturn, and provide contributions to theory and practice.
Interdependence is a key foundational assumption throughout the
literature on strategic sourcing relationships (e.g., Gundlach and
Cadotte 1994; Monczka et al. 1998). Pfeffer and Salancik (1978)
identify interdependence as the reason why nothing comes out
quite the way one wants it to(p. 40) and note that interdepen-
dence exists whenever one actor does not entirely control the
conditions necessary for the achievementof a particular
outcome (p. 40). Mahapatra et al. (2010, 539) refer to interde-
pendence as the condition that outcomes and strategies of a rm
are affected by the joint behaviors of both parties.
Although much of the literature on key buyersupplier relation-
ships refers to interdependence, few studies have identied the
dimensions of interdependence. For the present study, the authors
adopted the dimensions of interdependence proposed by Rusbult
and Van Lange (2003). Table 1 lists these dimensions and deni-
tions. Although Rusbult and Van Lange (2003) focused primarily
on interpersonal relationships, they asserted that interdependence
theory is applicable to intergroup behavior (Bantham et al. 2003).
The degree or level of dependence is characterized by how much
one partys outcomes are dened by the other partys actions. The
level of dependence is greater in industrial relationships if custom-
ers and suppliers are relatively few in number. Mutuality of depen-
dence means that each party has power over the other party, and in
turn is dependent on that party. Changes in the mutuality of depen-
dence may create new situations that allow the parties to behave
cooperatively or competitively (Dyer and Singh 1998). Outcome
correspondence, also referred to as the co-variation of interests,
describes whether the actions that benet or harm one party also
benet the other. That is, the degree to which an outcome similarly
benets or harms both parties (Rusbult and Van Lange 2003).
Basis of dependence examines how each partner affects the other
partners outcomes (Rusbult and Van Lange 2003). The availabil-
ity of information applies not only to knowledge of a partners
actions, but also knowledge of the external environment. Knowl-
edge that accumulates as part of an ongoing relationship allows
partners to communicate efciently and effectively (Dyer and
Singh 1998). In the present study, interdependency was a key qual-
ifying construct in asking buying company respondents to choose
a strategic supplier relationship on which to report.
Researchers have employed various theoretical lenses to investi-
gate buyersupplier relationships. However, our purpose here is not
to exhaustively cover the literature, but to identify literature that
emerged during the present research as useful frames of reference.
For example, transaction cost economics (TCE) seeks to explain
rm boundaries and exchange governance through transaction cost
Table 1: Dimensions of interdependence
Denitions, prompts provided to interviewees, and sample responses
Denition: How much one partys outcomes are dened by the other partys actions.
Interview prompt: How replaceable is this customer/supplier?
-Moving business to another supplier, or gaining it from another customer, would be difcult,
especially in the short-term.
- Customer says no!regarding dropping the supplier.
Level of
Denition: The degree to which the partners depend on the others actions for their own outcomes.
Interview prompt: Describe how party A thinks the party B views party As dependence.
-We are equally dependent. Both would suffer if relationship failed.
-This relationship would be difcult to duplicate with another party.
-When we need something, we ask for it, and they try to get it to us.
Mutuality of
Denition: How each partner affects the other partners outcomes.
Interview prompt: Provide evidence of the uniqueness of customer/supplier.
- Supplier: customers purchase volumes are signicant.
- Customer: supplier has ability to outperform its competitors, e.g., through innovation.
-We use only one or two suppliers for this purchased input.
-This customer has a signicant percentage of our business... very signicant dollar volumes.
-We have a 3-year contract with them.
Basis of
Denition: Whether the actions that benet or harm one party also benet the other. Ranges from
perfect correspondence to perfectly conicting.
Interview prompt: Degree to which the partiesoutcomes are equally valued by the respective
-We must cooperate to survive right now.
- Goals for relationship are ...pretty equal.
Source:Denitions adapted from Rusbult and Van Lange (2003).
192 D. Krause and L. M. Ellram

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